Final Corporate Law and Other Economic Laws Merged

CA FINAL Corporate and Economic Laws Prof.
Harsh Kachalia
Exploring
Corporate and Economic Laws
CA Final Group 1 Paper 4
For Nov 10th Official

2021 Edition
Revised as per New ICAI Syllabus and Amended as per

Latest provisions of Companies (Amendment) Act, 2020.
CA FINAL Corporate and Economic Laws Prof. Harsh Kachalia
----Dedication ----
This Edition of my book belongs to my Late Grand Mother,
“Mrs. Savita Ramji Kachalia” –Even though she did not have formal education, shenever
stopped sharing her wisdom, support and encouragement to study
And
To my beloved friend Late “Wasim S. Khatri” who I still can’t believe is not a part of my life.
It is their inspiration and energy that has kept me on my toes all the time and given me the
NEVER QUIT Attitude in life.
“If Tears could build a stairway and, Memorize a lane, I’d walk right upto heaven and bring
you both home again.” ---Anonymous
Acknowledgement
I take this special opportunity to thank a number of people who provided unconditional
support and encouragement to write this book.
I am thankful to my mother Mrs. Panna Kachalia, my Father Late Mr. Mukesh Kachalia, sister
Mrs. Dhara R. Shah and my betterhalf Mrs. Jalpa H. Kachalia for their unconditional love,
encouragement and having trust in me that I can write this book and contribute to the success
of my students.
I would also like to mention my special thanks to my guru CA Dr. Mahesh Gour Sir, Prof
Jignesh Chedda Sir, Prof. Israr Shaikh Sir, my colleagues Prof. Khushboo Sanghavi Prof.
Bhavesh Waghela, Prof. Amit Rajpurohit, Prof. Kajol Punjabi, Prof. Narayan Purohit, CA
Vivek Panwar, my friends Mr. Aakash Shah, Mrs. Kinjal Dhanani, Mrs. Mansi Patodi and many
others for their blessings and support without whom this attempt to serve my students and
my fraternity wouldn’t have been possible.
Thanks to the great Almighty for giving this ability and strength to me.
Note from Author
The main aim of this book is to make CA Final Law a cake-walk for my students. It requires a
lot of determination and dedication to pursue this course and hence it gives me immense
pleasure to bring this material to you as a ONE STOP SHOP for CA Final Law.
Irrespective of the fact that you may go to any class or not but it is vital to get over with the
syllabus atleast once nearly 4months before exams.
A sheer dedicated effort is must to get over with this exam and to have to 2 alphabetical
prefix (CA) before your name.
All the very best and may the good luck prevail!
- Prof. Harsh Kachalia

CA Final - Corporate and Economic Laws

Sr.No. Index Syllabus Pg. No.
1 Appointment and Qualification of Directors New 1
2 Meetings of Board and its Powers New 20
3 Appointment and Remuneration of Managerial New 40
Personnel
4 Prevention of Oppression and Mismanagement New 51
5 Compromises, Arrangements and Amalgamation New 56
6 Winding up New 66
7 NCLT and NCLAT New 86
8 Companies Incorporated Outside India New 92
9 Inspection Inquiry and Investigation New 100
10 Adjudication and Special Courts New 118
11 Registered Valuer & Nidhis New 130
12 Corporate Secretarial Practice New 137
13 Removal of Name of Comapany from Register of New 141
ROC
14 Miscellaneous Provisions New 144
15 Arbitration and Conciliation Act, 1996 New 154
16 Foreign Contribution (Regulation) Act,2010 New 178
17 Foreign Exchange Management Act, 1999 New 202
18 Securities Exchange Board of India Act, 1992 New 232
19 Prevention of Money Laundering Act, 2002 New 252
20 Insolvency and Bankruptcy Code, 2016 New 257
APPOINTMENT AND QUALIFICATION OF DIRECTORS
Section 149 - COMPANY TO HAVE BOARD OF DIRECTORS

1. NO. OF DIRECTORS:
Every Company should have a Board of Directors consisting of individuals as directors and
shall have –
(a) Minimum Directors:
Public Company = 3 Private Company = 2 One Person Company = 1
(b)Maximum = 15 directors:
If a Company wants to appoint more than fifteen directors, it must pass a special resolution.
** This section is Not Applicable to: Government Companies & section 8 Companies.
(c) Women director: Second Proviso to Section 149(1)

Prescribed class or classes of companies shall have at least one woman director.
Prescribed = Company
Listed Company Unlisted Public Company Private Company
Always Applicable 2 conditions - If any one satisfied, atleast 1

WD must be appointed :
Not Applicable
1. PUSC >= Rs. 100Cr.
2. T/o >= Rs. 300Cr.
* Any vacancy in office of the woman director shall be filled up by board at the earliest but
not later than:
Immediate next Board meeting OR Whichever is later
3 months from date of vacancy
** Second proviso to Sub-section (1) of section 149 shall not apply to Specified IFSC Public
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Company
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2. RESIDENT DIRECTOR:
Every Company shall have atleast one director who has stays in India for a total period of
not less than one hundred and eighty-two days during the financial year.
Provided that in case of a newly incorporated company the requirement under this sub-
section shall apply proportionately at the end of the financial year in which it is incorporated.
** This sub-section shall apply to a Specified IFSC public company in respect of financial years
other than the first financial year from the date of its incorporation
3. INDEPENDENT DIRECTOR:
a. Prescribed:
i) Every listed Company shall have at least one-third of the total number of directors as
independent directors.
ii) The CG may prescribe the minimum number of independent directors in case of any class
or classes of public companies.
iii) Any fraction contained in such one-third number shall be rounded off as one.
b. According to Companies (Appointment & Qualification of Director) Rules, 2014 Public

company falling under any of the following criteria’s shall have atleast 2 Directors as
Independent Directors.
(i) Paid up share capital >= Rs. 10 Crore.
(ii) Turnover >= Rs. 100 Crore.
(iii) AGGREGATE of O/s loans + debentures + deposits > Rs. 50 Crore.
However, the following classes of unlisted public companies shall not be required to have any
independent director:
(a) A joint venture
(b) A wholly owned subsidiary
(c) A dormant company as defined under section 455 of the Act.
Any vacancy in office of the Independent director shall be filled up by board at the earliest
but not later than:
Immediate next Board meeting OR Whichever is later

3 months from date of vacancy
C. Discontinuation of applicability. :
When a Company does not satisfy any of the 3 conditions for consecutive 3 years, then this
section shall cease to apply.
i.e., should not be satisfying even 1 condition for 3 years.
4.WHO CAN BECOME an INDEPENDENT DIRECTOR: Sec 149(6)

An independent director in relation to a Company, means a director other than a managing
director or a whole-time director or a nominee director, who fulfills the following criteria:
Key: I MRF VENOM
Who can become the Independent Director Section 149(6):
In relation to a Company, an independent director means a director
other than a managing director or a whole – time director or a
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nominee director, and who fulfills the following criteria:

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(1) who, in the opinion of the Board, is a person of Integrity and possesses relevant expertise
and experience;
Amendment - in case of a Government Company, the word "Board' shall be substituted by
thewords "Ministry or Department of the CG which is administratively in charge of the
Company or as the case may be, the State Government"
(2) (a) who is or was not a promoter of the Company or its holding, subsidiary or associate
Company;
(b) who is not Related to promoters or directors in the Company, its holding, subsidiary
or associate Company;
(3) who has or had no Pecuniary Relationship, other than remuneration as such director or
having transaction not exceeding 10 % of his total income or such amount as may be prescribed
with the Company, its holding, subsidiary or associate Company, or their promoters, or
directors, during the two immediately preceding financial years or during the current financial
year.
Amendment - Point no. (3) section 149(6)(c) shall not apply in case of a Government
Company.
(4) none of whose relatives has or had pecuniary/monetary relationship or transaction with
the Company, its holding, subsidiary or associate Company, or their promoters, or directors,
amounting to 2% or more of its gross turnover or total income or 50 lakh Rs. or such higher
amount as may be prescribed, whichever is lower, during the two immediately preceding
financial years or during the current financial year;
Exception: Holding by relatives upto following limits is allowed:

(i) Rs. 50 Lakhs or
Upto 2% of PUSC of Company (Co. includes …)
Whichever is less
(ii) is indebted to the company, (Co. includes … or their promoters, or directors) not in
excess of such amount as may be prescribed during the two immediately preceding financial
years or during the current financial year;
(iii) has given a guarantee or provided any security in connection with the indebtedness of
any third person to the company (Co. includes … or their promoters or directors of such
holding company) for such amount as may be prescribed during the two immediately
preceding financial years or during the current financial year; or
(iv) has any other pecuniary transaction or relationship with the company (co. includes …)
not amounting to 2% or more of its gross turnover or total income singly or in combination
with the transactions referred to in sub-clause (i), (ii) or (iii).
(5) who, himself—

(a) holds or has held the position of a key managerial personnel or is or has been Employee of
the Company or its holding, subsidiary or associate Company in any of the 3 financial years
immediately preceding the financial year in which he is proposed to be appointed; or Relative
is an Employee in CY
(b) is or has been an employee or proprietor or a partner, in any of the three financial years
immediately preceding the financial year in which he is proposed to be appointed, of—
(i) a Firm of auditors or Company secretaries in practice or cost auditors of the Company or
its holding, subsidiary or associate Company; or
(ii) any legal or a consulting firm that has or had any transaction with the Company, its
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holding, subsidiary or associate Company amounting to 10 % or more of the gross turnover

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of such firm;
(c) holds together with his relatives 2% or more of the total voting power of the Company;
or
(d) is a Chief Executive or director, by whatever name called, of any Non- profit organisation
that receives 25% or more of its receipts from the Company, any of its promoters, directors or
its holding, subsidiary or associate Company or that holds 2% or more of the total Voting
power of the Company; or
(6) who possesses such Other qualifications as may be prescribed.
According to the Companies (Appointmentand Qualification of Directors) Rules, 2014,
independent director shall possess appropriate skills, experience and knowledge in one or more
fields of finance, law, management, sales, marketing, administration, research, corporate
governance, technical operations or other disciplines related to the Company‘s business.
Declaration by Independent Director Section 149(7):
Every independent director shall-
(1) at the first meeting of the Board in which he participates as a director; and
(2) thereafter at the first meeting of the Board in every financial year; or
(3) whenever there is any change in the circumstances which may affect his status as an
independent director, give a declaration that he meets the criteria of independence as
provided in sub-section (6).
Code for independent directors Section 149(8):
The Company and independent directors shall abide by the provisions specified in Schedule
IV to the Companies Act, 2013.
Remuneration of Independent Directors Section 149(9):
Notwithstanding anything contained in any other provision of this Act, but subject to the
provisions of sections 197 and 198, an independent director shall not be entitled to any stock
option and may receive remuneration by way of-
(1) fee provided under section 197(5),
(2) reimbursement of expenses for participation in the Board and other meetings and
(3) profit related commission as may be approved by the members.
Provided that if a company has no profits or its profits are inadequate, an independent
director may receive remuneration, exclusive of any fees payable under sub-section (5) of
section 197, in accordance with the provisions of Schedule V.
Tenure Section 149(10) & (11):
(i) Subject to the provisions of section 152 (Appointment of directors),
Term = Max 5 Consecutive Years (1st term)
Re-appointment = Max 5 Consecutive years (2nd term) and disclosure of such
appointment in the Board's report.
(ii) No independent director shall hold office for more than two consecutive terms.
Cooling Period = 3 years
During the said period of three years, such independent director shall not, be appointed in or
be associated with the Company in any other capacity, either directly or indirectly.
Liability Section 149(12):
As per section 149(12) of the Companies Act, 2013, notwithstanding anything contained in
this Act,—
(i) an independent director;
(ii) a non-executive director not being promoter or key managerial personnel, shall be held
liable, only in respect of such acts of omission or commission by a Company which had occurred
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with his knowledge, attributable through Board processes, and with his consent or connivance
or where he had not acted diligently.
Retirement by rotation Section 149(13):
The provisions of retirement of directors by rotation covered under sub-sections (6) and (7)
of section 152 shall not be applicable to appointment of independent director.
(Note: The provisions of retirement of directors by rotation covered under sub-sections (6) and
(7) of section 152 will be discussed later on in this chapter)
Here, in section 149 ― “Nominee director” means a director nominated by any financial
institution in pursuance ofthe provisions of any law for the time being in force, or of any
agreement, or appointed by any Government, or any other person to represent its interests.
Note - The provisions of sub-section (4), (5), (6), (7), (8), (9), (10),(11), clause (i) of sub- section
(12) [related to independent director] and sub- section (13) of section 149 of the Companies
Act, 2013 is Not Applicable to a Section 8 Company
In case of Specified IFSC Public Company - Sub-sections (4) to (11), clause (i) of subsection (12)
and subsection (13) of section 149 shall not apply.
Amendment - Rule 6: Compliances required by a person eligible and willing to be appointed as an ID
(1) Every individual –
(a) who has been appointed as an independent director in a company, on the date of
commencement of the Companies (Appointment and Qualification of Directors) Fifth Amendment
Rules, 2019, shall within a period of thirteen months from such commencement; or
(b) who intends to get appointed as an independent director in a company after such
commencement, shall before such appointment,
apply online to the institute for inclusion of his name in the data bank for a period of one year or
five years or for his life-time, and from time to time take steps as specified in sub-rule (2), till he
continues to hold the office of an independent director in any company:
Provided that any individual, including an individual not having DIN, may voluntarily apply to the
institute for inclusion of his name in the data bank.
(2) Every individual whose name has been so included in the data bank shall file an application for
renewal for a further period of one year or five years or for his life-time, within a period of thirty
days from the date of expiry of the period upto which the name of the individual was applied for
inclusion in the data bank, failing which, the name of such individual shall stand removed from the
data bank of the institute: Provided that no application for renewal shall be filed by an individual
who has paid life-time fees for inclusion of his name in the data bank.
(3) Every independent director shall submit a declaration of compliance of sub-rule (1) and sub-rule
(2) to the Board, each time he submits the declaration required under sub-section (7) of section 149
of the Act.
(4) Every individual whose name is so included in the data bank under sub-rule (1) shall pass an
online proficiency self-assessment test conducted by the institute within a period of Two years from
the date of inclusion of his name in the data bank, failing which, his name shall stand removed from
the databank of the institute: Provided that an individual shall not be required to pass the online
proficiency self-assessment test when he has served for a total period of not less than three years as
on the date of inclusion of his name in the data bank,-
(A) as a director or key managerial personnel, as on the date of inclusion of his name in the
databank, in one or more of the following, namely:-
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(a) listed public company; or

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(b) unlisted public company having a paid-up share capital of rupees ten crore or more; or
(c) body corporate listed on any recognized stock exchange or in a country which is a member State
of the Financial Action Task Force on Money Laundering and the regulator of the securities market in
such member State is a member of the International Organization of Securities Commissions; or
(d) bodies corporate incorporated outside India having a paid-up share capital of US$ 2 million or
more; or
(e) statutory corporations set up under an Act of Parliament or any State Legislature carrying on
commercial activities; or
(B) in the pay scale of Director or above in the Ministry of Corporate Affairs or the Ministry of
Finance or Ministry of Commerce and Industry or the Ministry of Heavy Industries and Public
Enterprises and having experience in handling the matters relating to corporate laws or securities laws
or economic laws; or
(C) in the pay scale of Chief General Manager or above in the Securities and Exchange Board or the
Reserve Bank of India or the Insurance Regulatory and Exchange Board or the Reserve Bank of India
or the Insurance Regulatory and Development Authority of India or the Pension Fund Regulatory
and Development Authority and having experience in handling the matters relating to corporate laws
or securities laws or economic laws:
Provided further that for the purpose of calculation of the period of three years referred to in the first
proviso, any period during which an individual was acting as a director or as a key managerial
personnel in two or more companies or bodies corporate or statutory corporations at the same time
shall be counted only once.
Explanation: For the purposes of this rule,-
(a) the expression “institute” means the ‘Indian Institute of Corporate Affairs at Manesar’ notified
under sub-section (1) of section 150 of the Companies Act, 2013 as the institute for the creation and
maintenance of data bank of Independent Directors;
(b) an individual who has obtained a score of not less than fifty percent in aggregate in the online
proficiency self-assessment test shall be deemed to have passed such test;
(c) there shall be no limit on the number of attempts an individual may take for passing the online
proficiency self-assessment test.
Section 150 - Manner of selection of independent directors and

maintenance of data bank of Independent Directors
1. 150(1): An independent director may be selected from a data bank containing names,
addresses and qualifications of persons who are eligible and willing to act as independent
directors subject to the provisions contained in section 149(5).
Databank shall be maintained by any body, institute or association, as may be notified by
the CG, having expertise in creation and maintenance of such data bank and put on their
website for the use by the Company making the appointment of such directors.
The responsibility of exercising due diligence shall lie with the Company making such
appointment, before selecting a person from the data bank as an independent director.
2. 150(2): The appointment of independent director shall be approved by the Company in
general meeting andthe explanatory statement annexed to the notice of the general meeting
called to consider the said appointment, shall indicate the justification for choosing the
appointee for appointment as independent director.
3. 150(3): The data bank shall create and maintain data of persons willing to act as
independent director in accordance with such rules as may be prescribed.
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4. 150(4): The CG may prescribe the manner and procedure of selection of independent
directors who fulfil the qualifications and requirements specified under section 149.
Note – This Section is Not applicable to Section 8 Companies.
Section 151 - APPOINTMENT OF DIRECTOR ELECTED BY SMALL

SHAREHOLDERS
Applicability: A listed Company may have one Small shareholder director.
Small Shareholders means a shareholder holding shares of nominal value of not more than Rs.
20,000 or such other sum as may be prescribed.
Companies (Appointment & Qualification of directors) provides for procedure of
appointment of small shareholder director as follows:
1) MANNER OF APPOINTMENT:
A listed Company may appoint small shareholder director,
a) Either SUO MOTO; or
b) On application made by requisite no. of small shareholders.
2) MINIMUM REQUISITION:
Notice must be made by:
a) 1000 small shareholders; or
b) 1/10th of the total small shareholdersWHICHEVER IS LESS.
3) NOTICE TO COMPANY:
Small shareholders intending to propose a person as small shareholder director shall give a
notice to Company atleast 14 days before the meeting in writing.
4) CONTENTS OF NOTICE:
The notice shall specify the name, address, shares held & folio number (if any) of:
- The person proposed to be appointed; and
- The small shareholders proposing the appointment.
**If the person to be appointed doesn’t hold any shares then details as to shares held & folio
no. need not be given.
5) DECLARATION BY SSD:
Notice shall be accompanied with a declaration by proposed small shareholder director
stating:
-His DIN
-That he is not disqualified to act as director; and
-His consent to act as director of the Company.
6) SSD TO BE CONSIDERED INDEPENDENT DIRECTOR:
SSD shall be considered as INDEPENDENT director subject to compliance with section 149(6)
& 149(7).
7) TERM / TENURE:
- Term shall not exceed a period of 3 consecutive years.
- On the expiry of tenure, he shall not be eligible for reappointment.
- Cooling period shall be 3 years.
- During the cooling period (3 yrs from the date when he ceases to hold office) the SSD shall
not be appointed or be associated with the Company in any other capacity directly or
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indirectly.
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8) DISQUALIFICATION U/S 164:

A person cannot be appointed at SSD if he is disqualified u/s 164.
9) VACATION OF OFFICE:
SSD shall vacate his office if:
- Attracts disqualification u/s 164
- Section 167
- Ceases to be independent u/s 149
10) MAXIMUM COMPANIES:
-A person cannot hold the position of small shareholder in more than 2 Companies.
-However, second Company should not be into competing business or in conflicting business
with the first Company.
Section 152 - APPOINTMENT OF DIRECTORS

152(1):
i) First Director: AOA
Specifies name of 1st Director Does not specify name
Person whose name is so Specifies manner Does not specifies

manner
specified will be 1st Director
Person appointed by that All subscribers to MOA
manner will be 1st Director will be the directors of the
Company.
**In case of a One Person Company, an individual being member shall be deemed to be its
first director until the director or directors are duly appointed by the member.
152(2): Normally every director shall be appointed by the Company in general meeting.
152(3): A person shall not be appointed as a director of a Company unless he has been allotted
the Director Identification Number or any other number as may be prescribed under
section 153 under section 154.
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152(4): Every person proposed to be appointed as a director, shall furnish his Director
Identification Number or any other number as may be prescribed under section 153
and a declaration that he is not disqualified.
152(5): A person appointed as a director shall not act as a director unless he gives his consent
to hold the office as director to Company and such consent has also been filed with
the Registrar within 30 days of his appointment in such manner as may be prescribed.
**Not applicable to:
a) Director appointed by CG &
b) Section 8 Companies.
152(6): Retirement & Rotation:

(a) Not less than two-thirds of the total number of directors of a public Company shall be
persons whose period of office is liable to determination by retirement of directors by
rotation;
(b) At every AGM, one-third of such of the directors for the time being as are liable to retire
by rotation, or if their number is neither three nor a multiple of three, then, the number
nearest to one-third, shall retire from office.
The directors to retire by rotation at every AGM shall be those who have been longest in
office since their last appointment, but if two persons were appointed as directors on the
same day, retirement shall be:-
* By mutual agreement between them; or
* By lots.
(c)Where a director retires as aforesaid, the Company may fill up the vacancy by appointing
the retiring director or some other person.
(d)Total number of directors shall not include independent directors, whether appointed
under this Act or any other law for the time being in force, on the Board of a Company.
Note -
*Not applicable to:
a) Government companies
b) Subsidiary of (a)
c) Specified IFSC Public Company
152(7): Reappointment:
(a) If the vacancy of the retiring director is not so filled-up and the meeting has not expressly
resolved not to fill the vacancy, the meeting shall stand adjourned till the same day in the
next week, at the same time and place, or if that day is a national holiday, till the next
succeeding day which is not a holiday, at the same time and place.
(b) If at the adjourned meeting also, the vacancy of the retiring director is not filled up and
that meeting also has not expressly resolved not to fill the vacancy, the retiring director shall
be deemed to have been re-appointed at the adjourned meeting, unless—
(i) at that meeting or at the previous meeting a resolution for the reappointment of such
director has been put to the meeting and lost,
(ii) the retiring director has, by a notice in writing addressed to the Company or its Board
of directors, expressed his unwillingness to be so re-appointed;
(iii) he is not qualified or is disqualified for appointment;
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(iv) a resolution, whether special or ordinary, is required for his appointment or re-
appointment by virtue of any provisions of this Act; or
(v) Section 162 is applicable to the case.
-retiring director means a director retiring by rotation.
*Not applicable to:
a) Government companies
c) Specified IFSC Public Company
Exemptions:
Non applicability of section 152(6) and 152(7): Shall not apply to:
(a) Government company, which is not a listed company, in which not less than 51% of paid
up share capital is held by the CG, or by any State Governmentor Governments or by the CG
and one or more State Governments;
(b) a subsidiary of a Government company, referred to in (a) above
Section 153 - APPLICATION FOR ALLOTMENT OF DIRECTOR

IDENTIFICATION NUMBER
Every individual intending to be appointed as director of a Company shall make an application
for allotment of Director Identification Number to the CG in such form and manner and along
with such fees as may be prescribed.
Provided that the CG may prescribe any identification number which shall be treated as DIN
for the purposes of this Act
Section 154 - ALLOTMENT OF DIRECTOR IDENTIFICATION

NUMBER
The CG shall, within one month from the receipt of the application under section 153, allot a
Director Identification Number to an applicant in such manner as may be prescribed.
* CG has wide Notification delegated powers u/s 153 & Sec 154 to Regional Director, Joint
Director, Deputy Director, Assistant Director posted in office of Regional Director at Noida.
Section 155 - Prohibition to obtain more than one DIN

According to this section, no individual, who has already been allotted a DIN under section
154, shall apply for, obtain or possess another DIN.
Section 156 - Director to intimate DIN

Section 156 of the Companies Act, 2013, provides for a Director to intimate the DIN allotted
to him. According to this section, every existing director shall, within one month of the receipt
of DIN from the CG, intimate his DIN to the Company or all companies wherein he is a director.
Section 157 - Company to inform DIN to Registrar

According to section 157 of the Companies Act, 2013:
(i) Every Company shall, within 15 days of the receipt of intimation under section 156, furnish
the DIN of all its directors to the Registrar or any other officer or authority as may be specified
by the CG with such fees as may be prescribed or with such additional fees as may be prescribed.
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Every such intimation shall be furnished in such form and manner as may be prescribed.
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(ii) If any company fails to furnish the Director Identification Number –

Penalty on company – Min Rs. 25,000 + Rs. 100 per day until failure continues, subject to a
maximum of Rs. 100,000
and every Officer in default - Penalty Min Rs. 25,000 + Rs. 100 per day until failure continues,
subject to a maximum of Rs. 100,000
Section 158 - Obligation to indicate DIN

According to section 158 of the Companies Act, 2013,every person or Company, while
furnishing any return, information or particulars as are required to be furnished under this Act,
shall mention the Director Identification Number in such return, information or particulars in
case such return, information or particulars relate to the director or contain any reference of
any director.
Section 159 - Punishment for contravention

Section 159 of the Companies Act, 2013 provides for Punishment for contravention of any of
the provisions of section 152, 155 and 156 of the Act.
Such individual or director of the Company shall be punishable with fine which may extend to
Rs. 50,000 and where the contravention is a continuing one, with a further fine which may
extend to Rs. 500 for every day after the first during which the contravention continues.
Companies (Appointment and Qualification of Directors) Rules, 2014

▪ Director shall submit e-form DIR-3-KYC for the said financial year to the Central Government
on or before 30th September of immediate next financial year.
▪ Where an individual who has already submitted e-form DIR-3 KYC in relation to any PFY, it
shall be deemed to be sufficient compliance of the provisions of this rule, if he submits web-
form DIR-3 KYC-WEB through the web service in relation to any subsequent financial year.
▪ Individual can also update his personal mobile number or the email address, by submitting
updating e-form DIR-3 KYC.
▪ Fees for filing e-form DIR-3 KYC or web-form DIR-3 KYC-WEB, as the case may be, shall be
payable as provided in Companies (Registration Offices and Fees) Rules, 2014.
Section 160 - Right of persons other than retiring directors to stand for
directorship
1. Eligibility: A person who is not a retiring director shall, be eligible for appointment to the
office of a director at any general meeting.
2. Conditions for appointment: if he himself or some member intending to propose him as a

director has given at the registered office of the Company, a notice in writing nominating his
candidature as a director along with the deposit of Rs. 100,000
(Note - In case of nidhi companies, deposit shall be Rs. 10,000/-)
3. Time limit for filing nomination: Atleast 14 days before the meeting.
4. Refund of Deposit: Deposit shall be refunded if the person proposed gets elected as a
director gets more than 25% of total valid votes.
Note - Sec 8 companies i.e. NPO may refund even if votes received are less than or equal to
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25%.
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The Company shall inform its members of the candidature of the nominated person for the
office of director.
This section is NA to :
a) Government companies in which 100% of PUSC is held by CG/SG/both.
c) Private Company.
d) In case of Section 8 company - Section 160 shall not apply to companies whose articles
provide for election of directors by ballot
In case of Specified IFSC Public Company - Section 160 shall apply as per the articles framed
by the company.
Amendment: The requirements of deposit of amount shall not apply in case of appointment
of an ID or a director recommended by the Nomination and Remuneration Committee or a
director recommended by the Board of Directors of the Company, in the case of a company
not required to constitute Nomination and Remuneration Committee.
Section 161 - Appointment of additional director, alternate director and

nominee director
1. Additional director:
The articles of a Company may confer on its Board of Directors the power to appoint any
person, other than a person who fails to get appointed as a director in a general meeting, as
an additional director at any time who shall hold office up to the date of the next AGM or the
last date on which the AGM should have been held, whichever is earlier.
2. Alternate director:
The Board of Directors of a Company may appoint a person to act as an alternate director
for any director (original) during his absence for a period of not less than three months from
India. Board must be authorised by its articles or by a resolution passed in general meeting.
The alternate director appointed must not be holding any alternate directorship for any other
director in the Company at the time of appointment.
Alternate director for an independent director must be a person qualified to be appointed as
an independent director under the provisions of this Act.
Term: Alternate director shall not hold office for a period longer than that permissible to the
original director in whose place he has been appointed and shall vacate the office when the
director in whose place he has been appointed returns to India.
Re-appointment of original director: If the term of office of the original director ends before
he returns to India, any automatic re-appointment of retiring directors shall apply to the
original, and not to the alternate director.
An existing Director of a company cannot be appointed as an Alternate for any other director
of the same Company.
3. Nominee by third party:
The Board may appoint any person as a director, nominated by any institution in pursuance
of any agreement only if the articles of the Company allow such appointment.
4. Casual Vacancy:
If the office of any director appointed by the Company in general meeting is vacated before
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his term of office expires in the normal course, the resulting casual vacancy may, in default of
and subject to any regulations in the articles of the Company, be filled by the Board of
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Directors at a meeting of the Board which shall be subsequently approved by the

shareholders in the immediately next GM.
Any person so appointed shall hold office only up to the date up to which the director in
whose place he is appointed would have held office if it had not been vacated.
Section 162 - APPOINTMENT OF DIRECTORS TO BE VOTED

INDIVIDUALLY
1. At a general meeting of a Company, a motion for the appointment of two or more directors
of the Company by a single resolution shall not be moved unless a proposal to move such a
motion has first been agreed to at the meeting without any vote being cast against it.
2. A resolution moved in contravention of sub-section (1) shall be void, whether or not any
objection was taken when it was moved.
*This section is – Not Applicable to appointments made in board meetings.
Note –
In case of Specified IFSC Public Company & IFSC Private Company - In sub-section (3) of
Section 161, the following proviso shall be inserted, namely:-
“Provided that in case of a Specified IFSC public company & IFSC Private Company, the
Board may appoint, any person nominated by any institution or company or body corporate
as a director in pursuance of the provisions of any law for the time being in force or of any
agreement or by the CG or the State Government by virtue of its shareholding in a
Government company.”
Not applicable to:
c) Private Company
Section 163 - OPTION TO ADOPT PRINCIPLE OF PROPORTIONAL

REPRESENTATION FOR APPOINTMENT OF DIRECTORS
--Notwithstanding anything contained in this Act,
--the articles of a Company may provide for the appointment of
--not less than two-thirds of the total number of the directors of a Company
--in accordance with the principle of proportional representation,
--whether by the single transferable vote or by a system of cumulative voting or otherwise
and
--such appointments may be made once in every three years and
--casual vacancies of such directors shall be filled as provided in sub-section (4) of section 161.
**Note:
This section is Not Applicable to:
Section 164 - DISQUALIFICATIONS FOR APPOINTMENT OF

DIRECTOR
Key – U Chor Chor I I Chor Dur Raho Man
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(a) he is of unsound mind;

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(b) he has been convicted by a court of any offence,

- involving moral turpitude or otherwise, and

- imprisonment for not less than six months and
- period of five years has not elapsed from the date of expiry of the sentence.
Provided that if a person has been convicted of any offence and sentenced in respect thereof
to imprisonment for a period of 7 years or more, he shall not be eligible to be appointed as a
director in any Company;
(c) an order disqualifying him for appointment as a director has been passed by a court or
Tribunal and the order is in force;
(d) he is an undischarged insolvent;
(e) he has applied to be adjudicated as an insolvent and his application is pending;
(f) he has not paid any calls in respect of any shares of the Company held by him, whether
alone or jointly with others, and six months have elapsed from the last day fixed for the
payment of the call;
(g) he has been convicted of the offence dealing with Related party transactions under section
188 at any time during the last preceding five years; or
(h) he has not complied with sub-section (3) of section 152. i.e. he does not have DIN.
(i) If he has not complied with the Maximum no. of directorships provision of section 165
then he shall be Disqualified.
Note: Disqualifications referred to in points (b),(c) and (d) above shall continue to apply
even if the appeal or petition has been filed against the order of conviction or
disqualification.
1. No person who is or has been a director of a Company which—
(a) has not filed financial statements or annual returns for any continuous period of three
financial years; or
(b) has failed to repay the deposits accepted by it or pay interest thereon or to redeem any
debentures on the due date or pay interest due thereon or pay any dividend declared and such
failure to pay or redeem continues for one year or more, shall be eligible to be re-appointed
as a director of that Company or appointed in other Company for a period of five years
from the date on which the said Company fails to do so.
This section is Not Applicable to Government Companies.
**Note: Where a company does any such default in Sec 164(2), any person who is appointed
as a director of a company in preceding 6 months from the date of such default shall not be
disqualified.
2. A private Company may by its articles provide for any disqualifications for appointment as
a director in addition to those specified in sub-sections (1) and (2).
Section 165 - NUMBER OF DIRECTORSHIPS

No person, after the commencement of this Act, shall hold office as a director, including any
alternate directorship, in more than twenty companies at the same time.
Note –This section is Not Applicable to section 8 companies and Dormant Companies.
Provided that the maximum number of public companies in which a person can be appointed
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as a director shall not exceed ten.

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Explanation — For reckoning the limit of public companies in which a person can be appointed
as director, directorship in private companies that are either holding or subsidiary Company of
a public Company shall be included.
1. Subject to the provisions of sub-section (1), the members of a Company may, by special
resolution, specify any lesser number of companies in which a director of the Company may
act as directors.
2. Any person holding office as director in companies more than the limits as specified in sub-
section (1), immediately before the commencement of this Act shall, within a period of one
year from such commencement,—
(a) choose not more than the specified limit of those companies, as companies in which he
wishes to continue to hold the office of director;
(b) resign his office as director in the other remaining companies; and
(c) intimate the choice made by him under clause (a), to each of the companies in which he
was holding the office of director before such commencement and to the Registrar having
jurisdiction in respect of each such Company.
3. Any resignation made in pursuance of clause (b) of sub-section (3) shall become effective
immediately on the despatch thereof to the Company concerned.
4. No such person shall act as director in more than the specified number of companies,—
(a) after despatching the resignation of his office as director or non-executive director
thereof, in pursuance of clause (b) of sub-section (3); or (b) after the expiry of one year from
the commencement of this Act, whichever is earlier.
If a person accepts an appointment as a director in violation of this section, he shall be liable
to a penalty of Rs. 2000 for each day after the first during which such violation continues,
subject to a maximum of Rs.200,000
Section 166 - DUTIES OF DIRECTORS

Key – DUBAAI
1. A director of a Company shall act in accordance with the articles of the Company.
2. A director of a Company shall act in good faith in order to promote the objects of the
Company for the benefit of its members as a whole, and in the best interests of the
Company, its employees, the shareholders, the community and for the protection of
environment.
3. A director of a Company shall exercise his duties with due and reasonable care, skill and
diligence and shall exercise independent judgment.
4. A director of a Company shall not involve in a situation in which he may have a direct or
indirect interest that conflicts, or possibly may conflict, with the interest of the Company.
5. A director of a Company shall not achieve or attempt to achieve any undue gain or
advantage either to himself or to his relatives, partners, or associates and if such director is
found guilty of making any undue gain, he shall be liable to pay an amount equal to that
gain to the Company.
6. A director of a Company shall not assign his office and any assignment so made shall be
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void.
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7. If a director of the Company contravenes the provisions of this section such director shall
be punishable with fine which shall not be less than Rs. 100,000 but which may extend to
Rs. 500,000. A director of a Company shall act in accordance with the articles of the
Company.
Section 167 - VACATION OF OFFICE OF DIRECTOR

(1) The office of a director shall become vacant in case—
(a) he incurs any of the disqualifications specified in section 164;
Provided that where he incurs disqualification under sub-section (2) of section 164, the office
of the director shall become vacant in all the companies, other than the company which is in
default under that sub-section.
(b) he absents himself from all the meetings of the Board of Directors held during a period of
twelve months with or without seeking leave of absence of the Board;
(c) he acts in contravention of the provisions of section 184 relating to entering into contracts
or arrangements in which he is directly or indirectly interested;
(d) he fails to disclose his interest in any contract or arrangement in which he is directly or
indirectly interested, in contravention of the provisions of section 184;
(e) he becomes disqualified by an order of a court or the Tribunal;
(f) he is convicted by a court of any offence, whether involving moral turpitude or otherwise
and sentenced in respect thereof to imprisonment for not less than six months:
(g) he is removed in pursuance of the provisions of this Act;
(h) he, having been appointed a director by virtue of his holding any office or other
employment in the holding, subsidiary or associate Company, ceases to hold such office or
other employment in that Company.
(2)If a person, functions as a director even when he knows that the office of director held by
him has become vacant on account of any of the disqualifications specified in subsection (1), he
shall be punishable with fine which shall not be less than Rs. 100,000 but which may extend to
Rs. 500,000
(3)Where all the directors of a Company vacate their offices under any of the disqualifications
specified in sub-section (1), the promoter or, in his absence, the CG shall appoint the required
number of directors who shall hold office till the directors are appointed by the Company in
the general meeting.
(4) A private Company may, by its articles, provide any other ground for the vacation of the
office of a director in addition to those specified in sub-section (1).
Provided that the disqualifications referred to in clauses (e) and (f) of sub-section (1) shall not
take effect—
(i) for 30 days from the date of conviction or order of disqualification;
(ii) where an appeal or petition is preferred within 30 days as aforesaid against the conviction
resulting in sentence or order, until expiry of seven days from the date on which such appeal
or petition is disposed off; or
(iii) where any further appeal or petition is preferred against order or sentence within seven
days, until such further appeal or petition is disposed off.
(6) Where he incurs disqualification u/s 164(2), the office of the director shall become vacant
in all the companies, other than the company which is in default under that sub-section.
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Section 168 - RESIGNATION OF DIRECTOR

(1) A director may resign from his office by giving a notice in writing to the Company and the
Board shall on receipt of such notice take note of the same and the Company shall intimate the
Registrar in such manner, within such time and in such form as may be prescribed and shall also
place the fact of such resignation in the report of directors laid in the immediately following
general meeting by the Company.
Provided that a director may also forward a copy of his resignation along with detailed reasons
for the resignation to the Registrar within 30 days of resignation in such manner as may be
prescribed.
(2) The resignation of a director shall take effect from the date on which the notice is received
by the Company or the date, if any, specified by the director in the notice, whichever is later.
Provided that the director who has resigned shall be liable even after his resignation for the
offences which occurred during his tenure.
(3) Where all the directors of a Company resign from their offices, or vacate their offices under
section 167, the promoter or, in his absence, the CG shall appoint the required number of
directors who shall hold office till the directors are appointed by the Company in general
meeting.
Section 169 - REMOVAL

OF DIRECTORS
(1) A Company may, by
ordinary resolution, remove a
director, not being a director
appointed by the Tribunal under
section 242, before the expiry of
the period of his office after
giving him a reasonable
opportunity of being heard.
Provided that nothing contained in this sub-section shall apply where the Company has availed
itself of the option given to it under section 163 to appoint not less than two-third of the total
number of directors according to the principle of proportional representation i.e., director
appointed by proportional representation cannot be removed.
(2) A special notice shall be required of any resolution, to remove a director under this
section, or to appoint somebody in place of a director so removed, at the meeting at
which he is removed.
(3) On receipt of notice of a resolution to remove a director under
this section, the Company shall forthwith send a copy thereof to
the director concerned, and the director, whether or not he is a
member of the Company, shall be entitled to be heard on the
resolution at the meeting.
(4) On serving of notice of a resolution to remove director: Where
notice has been given of a resolution to remove a director under this
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section and the director concerned makes with respect thereto

representation in writing to the company and requests its notification
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to members of the company, the company shall, if the time permits it to do so -

* in any notice of the resolution given to members of the company, state the fact of the
representation having been made; and
* send a copy of the representation to every member of the company to whom notice of the
meeting is sent (whether before or after receipt of the representation by the company), and
if a copy of the representation is not sent as aforesaid due to insufficient time or for the
company’s default, the director may without prejudice to his right to be heard orally
require that the representation shall be read out at the meeting.
Provided that copy of the representation need not be sent out and the representation need
not be read out at the meeting if, on the application either of the company or of any other
person who claims to be aggrieved, the Tribunal is satisfied that the rights conferred by this
sub-section are being abused to secure needless publicity for defamatory matter; and the
Tribunal may order the company’s costs on the application to be paid in whole or in part
by the director notwithstanding that he is not a party to it.
* A vacancy created by the removal of a director under this section may, if he had been
appointed by the Company in general meeting or by the Board, be filled by the
appointment of another director in his place at the meeting at which he is removed,
provided special notice of the intended appointment has been given under subsection (2).
* A director so appointed shall hold office till the date up to which his predecessor would
have held office if he had not been removed. If the vacancy is not filled under sub-section
(5), it may be filled as a casual vacancy in accordance with the provisions of this Act.
Provided that the director who was removed from office shall not be re-appointed as a
director by the Board of Directors.
* Nothing in this section shall be taken–
- as depriving a person removed under this section of any compensation or damages
payable to him in respect of the termination of his appointment as director as per the
terms of contract or terms of his appointment as director, or of any other appointment
terminating with that as director; or
- as derogating from any power to remove a director under other provisions of this Act.
Section 170 - REGISTER OF DIRECTORS AND KEY MANAGERIAL

PERSONNEL AN THEIR SHAREHOLDING
1) Every Company shall keep at its registered office a register containing such particulars of its
directors and key managerial personnel as may be prescribed, which shall include the details
of securities held by each of them in the Company or its holding, subsidiary, subsidiary of
Company’s holding Company or associate companies.
2) A return containing such particulars and documents as may be prescribed, of the directors
and the key managerial personnel shall be filed with the Registrar within 30 days from the
appointment of every director and key managerial personnel, as the case may be, and within
30 days of any change taking place.
**Note – This section is Not Applicable to:
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Government companies in which 100% of PUSC is held by CG/SG/both.

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Section 171 - MEMBERS’ RIGHT TO INSPECT

(1) The register kept under sub-section (1) of section 170,—
(a) shall be open for inspection during business hours and the members shall have a right to
take extracts therefrom and copies thereof, on a request by the members, be provided to
them free of cost within 30 days; and
(b) shall also be kept open for inspection at every AGM of the Company and shall be made
accessible to any person attending the meeting.
(2) If any inspection as provided in clause (a) of sub-section (1) is refused, or if any copy required
under that clause is not sent within 30 days from the date of receipt of such request, the
Registrar shall on an application made to him order immediate inspection and supply of copies
required thereunder.
**Note –
In case of Specified IFSC Public Company and Specified IFSC Private Company - In Sub-section
(2) of section 170 for the words “thirty days” at both places read as “sixty days”.
This section is Not Applicable to:
Government companies in which 100% of PUSC is held by CG/SG/both.
Section 172 - PUNISHMENT

If a company is in default in complying with any of the provisions of this Chapter and for
which no specific penalty or punishment is provided therein, -
Company and every officer of the company who is in default shall be liable to a penalty of
Rs. 50,000 and in case of continuing failure, with a further penalty of Rs. 500 for each day
during which such failure continues,
subject to a maximum of Rs. 300,000 in case of a company and Rs. 100,000 in case of an
officer who is in default.
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Meetings of Board and its Powers

SECTION 173: MEETINGS OF BOARD
1. FREQUENCY OF BOARD MEETING:

a) First Board Meeting: Every Company shall hold the first meeting of the Board of Directors
within 30 days of the date of its incorporation.
b) Subsequent Board Meeting: Every Company shall hold a Minimum 4 meetings of its Board
of Directors every year
AND
provided that Maximum gap between two consecutive Board Meetings should not be more
than 120 days. CG may, by notification, exempt any class of companies form section 173.
Note:
In case of Specified IFSC Public Company & IFSC Private Company - In sub-section (1) of
Section 173, after the proviso, the following proviso shall be inserted, namely:-
“Provided further that a Specified IFSC public company shall hold the first meeting of the
Board of Directors within 60 days of its incorporation and thereafter hold at least one
meeting of the Board of Directors in each half of a calendar year.”
For section 8 companies: Minimum 1 board meeting within every 6 months.
2. PARTICIPATION IN BOARD MEETING:

a) The participation of directors in a meeting of the Board may be:
• either in person or
• through video conferencing or other audio visual means.
b) Such other audio visual capable of recording and recognizing the participation of the
directors and storing the proceedings of such meetings along with date and time.
c) CG may specify matters which shall not be dealt with through video conferencing, etc by
notification viz. –
1) Approval of the Annual Financial Statements
2) Approval of the board’s report
3) Approval of the Prospectus
4) Audit Committee meetings for consideration of financial statement including consolidated
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financial statement,if any

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5) Approval of the matter relating to Merger, Amalgamation, demerger, Acquisition and

Takeover.
Amendment: Where there is quorum in a meeting through physical presence of directors, any
other director may participate through video conferencing or other audio visual means in
such meeting.
Board Meeting - Matters not to be dealt with in a meeting through video conferencing or
other audio-visual means
For the period beginning from the commencement of the Companies (Meetings of Board and
its Powers) Amendment Rules, 2020 and ending on the 31st December, 2020 the meetings
on matters which are ideally not allowed to be discussed through Audio-Visual meansmay be
held through video conferencing orother audio-visual means.
(Due to COVID-19, benefit is givenby MCA)
3. NOTICE OF BOARD MEETING:
a) Notice to : every director;
b) Address : at his registered address;
c) Whether in or outside India : Both
d) Length: Atleast seven days before the meeting.
e) Modes: MUST BE IN WRITING. Sent by post or by electronic means or by hand delivery.
f) Shorter notice -- Valid. Subject to following 2 conditions:
(i) To transact urgent business
AND
(ii) At least one independent director, if any, must be present at the meeting.
g) In case of absence of independent directors from such a Board meeting (called by shorter
notice), decisions taken at such a meeting shall be final subject to following 2 conditions:
(i) Decisions taken must be circulated to ALL the directors
AND
(ii) Must be ratified by atleast by at least 1 independent director, if any.
h) Notice must specify availability of option for the directors to participate through video
conferencing.
4. FAILURE TO GIVE NOTICE:

Every officer in default shall be liable to a penalty of Rs. 25000.
5. EXCEPTION:
An OPC, Small company, Dormant company and a Private company (if such private
company is a start-up) shall be deemed to have complied with the provisions of this section if
at least one meeting of the Board of Directors has been conducted in each half of a calendar
year and the gap between the two meetings is not less than 90 days.
Provided that nothing contained in this subsection and in section 174 shall apply to One
person Company in which there is only one director on its Board of Directors.
Any director who intends to participate in the meeting through electronic mode may intimate
about such participation at the beginning of the calendar year and such declaration shall be
valid for one year.
Provided that such declaration shall not debar him from participation in the meeting in
person in which case he shall intimate the company sufficiently in advance of his intention to
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participate in person.
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Sec. 174:- Quorum
1/3rd of Total Strength When Interested Director is ≥ 2/3 of Total

OR No. of Director then atleast 2 Disinterested
2 Directors should be present
For Sec. 8 Co.:

Min – 8 Members OR
25% of Total Members (Min. 2)
Whichever is less
- If the meeting has to be Adjourned due to Lack of Quorum then such meeting shall be
Adjourned as follows:-
If Specified in AOA Otherwise

 
As per AOA Next Week, Same day, Same time, Same
Place
-If it is a National holiday then next working day.
- Where there is quorum in a meeting through physical presence of directors, any other
director may participate through video conferencing or other audio visual means in such
meeting.
Note : The interested director may also be counted towards quorum in such meeting after
disclosure of his interest pursuant to section 184.
SECTION 175: RESOLUTION BY CIRCULATION

(i) The Act allows the Board of directors to pass resolution by Circulation also. No resolution
shall be deemed to have been duly passed by the Board or by a committee thereof by
circulation unless:
(a)The resolution has been circulated in draft, together with the necessary papers, if any, to
all the directors, or members of the committee, as the case may be,
(b) at their addresses registered with the Company in India,
(c) by hand delivery or by post or by courier, or through such electronic means as may be
prescribed, and
(d) and has been approved by a majority of the directors or members, who are entitled to
vote on the resolution.
If at least 1/3rd of the total number of directors of the Company for the time being require that
any resolution under circulation must be decided at a meeting, the chairperson shall put the
resolution to be decided at a meeting of the Board (instead of being decided by circulation)
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(ii) A resolution that has been passed by circulation shall have to be necessarily be noted in
the next meeting of board or the committee, as the case may be, and made part of the
minutes of such meeting.
SECTION 176: DEFECTS IN APPOINTMENT OF DIRECTOR NOT TO

INVALIDATE ACTIONS TAKEN BY DIRECTORS
1. When after appointment of a director, it is subsequently noticed that his appointment was
invalid by reason of any defect or disqualification contained in this Act or in the articles of
the Company, All acts done by such director PRIOR TO showing of such defect shall
continue to remain VALID.
2.But All acts done by such director AFTER showing of such defect shall be INVALID.
SECTION 177: AUDIT COMMITTEE

1. FORMATION OF AUDIT COMMITTEE:
Audit committee must be constituted by the Board
of Directors of:
a) every listed Public Company and
b) such other class or classes of companies, as may
be prescribed, shall constitute an Audit
Committee. Companies (Meeting of Board and
its Powers) Rules, 2014 have prescribed the
following classes of companies which shall have
to constitute an Audit committee:
i) All public companies with PUSC of Rs. 10 crore
or more.#
ii) All public companies having turnover of Rs. 100 crore or more.#
iii) All public companies having in aggregate, Outstanding Loans or Borrowings orDebentures
or Deposits Exceeding Rs. 50 crore.#
#As on the date of last audited financial statements.
2. COMPOSITION:
The Audit Committee shall consist of:-
a) A minimum of 3 directors
b) With independent directors forming a majority.
c) Provided that majority of members of Audit Committee including its Chairperson must be
persons financially literate.
**Amendment – Point (b) above is not applicable to Sec. 8 Company
3. RESPONSIBILITIES OF AUDIT COMMITTEE:

As specified in writing by the Board, including,—
a) The recommendation for appointment, remuneration and terms of appointment of
auditors.
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b) Review and monitor the auditor’s independence and performance, and effectiveness of
audit process.
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c) Examination of the financial statement and the auditors’ report thereon;

d) Approval or any subsequent modification of transactions of the Company with related
parties;
e) Scrutiny of inter-corporate loans and investments;
f) Valuation of undertakings or assets of the Company, wherever it is necessary;
g) Evaluation of internal financial controls and risk management systems;
h) Monitoring the end use of funds raised through public offers and related matters.
4. RIGHTS OF AUDIT COMMITTEE:

The Audit Committee may call for the comments of the auditors about:
a) Internal control systems,
b) Scope of audit,
c) Observations of the auditors.
d) Review of financial statement before their submission to the Board.
e) Any other related issues with the internal and statutory auditors of the Company.
5. AUTHORITY TO INVESTIGATE:
The Audit Committee shall have authority to investigate into any matter related to its functions
or referred to it by the Board and for this purpose shall have power to obtain professional
advice from external sources and have full access to information contained in the records of
the Company.
6. ROLE OF AUDITOR IN AUDIT COMMITTEE:
The auditors of a Company and the key managerial personnel shall have a right to be heard
in the meetings of the Audit Committee when it considers the auditor’s report but shall not
have the right to vote.
7. DISCLOSURE IN BOARD REPORT:
The Board’s report must disclose the composition of an Audit Committee and where the
Board had not accepted any recommendation of the Audit Committee, the same must be
disclosed in such report along with the reasons.
8. VIGIL MECHANISM:
Every listed Company or such class or classes of companies, as may be prescribed, must
establish a vigil mechanism for directors and employees to report genuine concerns in such
manner as may be prescribed. Companies (Meeting of Board and its Powers) Rules, 2014
have prescribed the following classes of companies which shall have to set up a vigil
mechanism:
a) A Company which accepts Public deposits.
b) A Company which has borrowed money from banks & public financial institutions in
excess of Rs. 50 Crore.
Objective of formation of vigil mechanism:
(a) A vigil mechanism shall be formed for directors and employees to report genuine concerns
in such manner as may be prescribed.
(b) The vigil mechanism shall provide for adequate safeguards against victimization of persons
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who use such mechanism and make provision for direct access to the chairperson of the Audit
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Committee in appropriate or exceptional cases. It is imperative for the Company to disclose

the details of the establishment of vigil mechanism on the website of the Company and in
Board‘s report.
According to the Companies (meetings of Board and its powers) Rules, 2014:
(1) ‘Persons who use such mechanism’ means employees and directors who avail the vigil
mechanism.
(2) The companies which are required to constitute an audit committee shall oversee the vigil
mechanism through the committee and if any of the members of the committee have a
conflict of interest in a given case, they should rescue themselves and the others on the
committee would deal with the matter on hand.
(3) In case of other companies, the Board of directors shall nominate a director to play the
role of audit committee for the purpose of vigil mechanism to whom other directors and
employees may report their concerns.
(4) The employees and directors who avail of vigil mechanism may have direct access to the
Chairperson of the Audit Committee or the director nominated to play the role of Audit
Committee, as the case may be, in exceptional cases.
(5) In case of repeated frivolous complaints being filed by a director or an employee, the
audit committee or the director nominated to play the role of audit committee may take
suitable action against theconcerned director or employee including reprimand.
Note: For related party transaction- Approval from audit committee (in case 177 applies to
the Company) is must. But they can give omnibus (blanket) approval of Rs. 1 crore per
Financial Year.
Note: The recommendation for appointment, remuneration and terms of appointment of
auditors of the Company is normally done by audit Co. but for government Company the
word appointment will not come, rest and all same, because C&AG will take care of that.
SECTION 178: NOMINATION & REMUNERATION COMMITTEE &

STAKE HOLDERS RELATIONSHIP COMMITTEE.
I. Nomination and Remuneration Committee:
Formation of nomination and remuneration committee:
A nomination and remuneration committee shall be constituted by the Board of directors of:
(a) Every listed Public Company, and
(b) Such other class or classes of companies as may be prescribed.*
*- all public companies with a paid up capital of 10 crore Rs. or more;
- all public companies having turnover of 100 crore Rs. or more;
- all public companies, having in aggregate, outstanding loans or borrowings or debentures
or deposits exceeding 50 crore Rs.
- As on the date of last audited financial statements
-shall constitute the Nomination and Remuneration Committee,
-consisting of three or more non-executive directors,
-out of which not less than one-half shall be independent directors.
The chairperson of the Company (whether executive or non-executive) may be appointed as
a member of the Nomination and Remuneration Committee but shall not chair such
25
Committee.
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FUNCTIONS OF THE COMMITTEE:

(a) Formulate the criteria for determining qualifications; positive attributes and independence
of a director recommend to the Board a policy, relating to the remuneration for the directors,
key managerial personnel and other employees.
(b) identify persons who are qualified to become directors,
(c) recommend to the Board their appointment and removal of directors and senior
management and shall specify the manner for effective evaluation of performance of Board,
its committees and individual directors to be carried out either by the Board, by the
Nomination and Remuneration Committee or by an independent external agency and review
its implementation and compliance.
(d) Such policy shall be placed on the website of the company, if any, and the salient features
of the policy and changes therein, if any, along with the web address of the policy, if any,
shall be disclosed in the Board's report.
Note – (a) This section is not applicable to section 8 companies
(b) In case of Government company- Sub-sections (2), (3) and (4) of Section 178, shall not
apply except with regard to appointment of 'senior management' and other employees.
(c) In case of Specified IFSC Public Company - Section 178 shall not apply.
II. STAKEHOLDERS RELATIONSHIP COMMITTEE
(a) A Company which consists of more than one thousand shareholders/ debenture-holders/
deposit-holders / any other security holders at any time during a financial year - must
constitute a Stakeholders Relationship Committee.
(b) Consisting of a chairperson who must be a non-executive directorand other members as
decided by the Board.
(c) The Stakeholders Relationship Committee shall consider and resolve the grievances of
security holders of the Company.
(d) The chairperson of each of the abovecommittees constituted under thissection or, in his
absence, any othermember of the committee authorized byhim in this behalf shall attend
thegeneral meetings of the company.
Penalty for contravention section 177 and this section :
Company – Rs. 500,000 and every officer in default – Rs. 100,000
Inability to resolve or consider any grievance by the Stakeholders Relationship Committee in
good faith shall not constitute a contravention of this section.
SECTION 179: POWERS OF BOARD

(1) Powers of Company = Powers of BOD (Subject to Act, MOA, AOA & regulations)
(2) Powers of shareholders cannot be exercised by BOD.
(3) Prior acts are valid.
(2) The Board of Directors of a Company shall exercise the following powers ONLY AT A
BOARD MEETING (i.e. resolution by circulation not allowed for these), namely:
Key - ABCD BIL GROF
26
(a) to take over a Company or acquire a controlling or substantial stake in another

Page
Company;
(b) to authorise buy-back of securities under section 68;

(c) to borrow monies;
(d) to make calls on shareholders in respect of money unpaid on their shares;
(e) to issue securities, including debentures, whether in or outside India;
(f) to invest the funds of the Company;
(g) to grant loans;
(h) to approve financial statement and the Board’s report;
(i) to approve amalgamation, merger or reconstruction, to diversify the business of
theCompany;
(j) any other matter which may be prescribed: PAA
- Political Contribution u/s/ 182
- Appointment & removal of key managerial personnel.
- Appointment of Internal Auditor and Secretarial Auditor.
(k) to give guarantee or provide security in respect of loans.
The Board may delegate to any committee of directors, the managing director, the manager or
any other officer the powers specified in points (c), (f), (g), (k), on such conditions as it may
specify by a resolution passed at a meeting.
**Note – Section 8 companies may pass Resolution by circulation for matters included in
Points (c), (f), (g) above.
The members of Company can impose restrictions and conditions on the exercise by the Board
of any of the powers by passing a resolution at general meeting.
SECTION 180: RESTRICTIONS ON POWERS OF BOARD

(1) The Board of Directors of a Company shall exercise the following powers only with the
consent of the Company by a SPECIAL RESOLUTION:—
Restriction if–
(a) to borrow money, where the money to be borrowed, together with the money already
borrowed by the Company will exceed aggregate of its paid-up share capital, free reserves
and Securities Premium, apart from temporary loans obtained from the Company’s bankers in
the ordinary course of business.
Explanation— For the purposes of this clause, the expression ―temporary loans means loans
repayable on demand or within 6 months from the date of the loan such as short-term, cash
credit arrangements, the discounting of bills and the issue of other short-term loans of a
seasonal character, but does not include loans raised for the purpose of financial expenditure
of a capital nature;
(b) to invest otherwise in trust securities the amount of compensation received by it as a result
of any merger or amalgamation.
(c) to remit, or give time for the repayment of any debt due from a director.
(d) to sell, lease or otherwise dispose of the whole or substantially the whole of the
undertaking of the Company.
“Undertaking” shall mean an undertaking in which the investment of the Company exceeds
twenty percent of its net worth as per the audited balance sheet of the preceding financial year
27
or an undertaking which generates twenty percent of the total income of the Company during
the previous financial year;
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The expression “substantially the whole of the undertaking” in any financial year shall mean
twenty percent or more of the value of the undertaking as per the audited balance sheet of
the preceding financial year.
(2) Every special resolution passed by the Company in general meeting in relation to
borrowings shall specify the total amount up to which monies may be borrowed by the
Board of Directors.
(3) A debt incurred by the Company in excess of the limit imposed by clause on borrowing
shall not be valid or effectual, unless the lender proves that he advanced the loan in good faith
and without knowledge that the limit imposed by that clause had been exceeded.
Exception: Nothing contained in point with respect to sell, lease or otherwise dispose of the
whole or substantially the whole of the undertaking of the company shall affect—
(1) the title of a buyer or other person who buys or takes on lease any property, investment
or undertaking as is referred to in that clause, in good faith; or
(2) The sale or lease of any property of the company where the ordinary business of the
company consists of, or comprises, such selling or leasing.
Imposition of condition: Any special resolution passed by the company consenting to the
transaction as is referred above may stipulate such conditions as may be specified in such
resolution, including conditions regarding the use, disposal or investment of the sale proceeds
which may result from the transactions.
**Amendment – This section is Not Applicable to Private companies.
SECTION 181: CONTRIBUTION TO BONAFIDE AND CHARITABLE

FUNDS ETC.
(1) The Board of Directors of a Company may contribute to bonafide charitable and other
funds without any permission from shareholders till contribution doesnot exceed 5% of its
average net profits for the three immediately preceding financial years.
(2) Prior permission of Shareholders shall be required for such contribution in case the
aggregate amount, in any financial year, exceeds 5% of its average net profits for the three
immediately preceding financial years.
SECTION 182: PROHIBITIONS AND RESTRICTIONS REGARDING

POLITICAL CONTRIBUTIONS
(1) WHO CANNOT CONTRIBUTE?
a) A Government Company and
b) A Company which has been in existence for less than three financial years.
(2) POLITICAL CONTRIBUTION:

Contribution of any amount directly or indirectly to any political party.
(3) REQUIREMENT FOR MAKING CONTRIBUTION:

Such contribution shall be made by a Company only after passing a resolution authorising the
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contribution at a Board meeting and such resolution shall be deemed to be justification in law
for the making and the acceptance of the contribution authorised by it.
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(4) CONTRIBUTIONS WHICH SHALL BE DEEMED TO BE INDIRECT

CONTRIBUTION TO POLITICAL PARTY:
a) A donation or subscription or payment given by a Company on its behalf which can
reasonably be regarded as likely to affect public support for a political party shall also be
deemed to be contribution for a political purpose;
b)the amount of expenditure incurred, directly or indirectly, by a Company on an
advertisement in any publication, being a publication in the nature of a souvenir, brochure,
tract, pamphlet or the like, shall also be deemed,—
(i) where such publication is by or on behalf of a political party, to be a contribution of
such amount to such political party, and
(ii) where such publication is not by or on behalf of, but for the advantage of a political
party, to be a contribution for a political purpose.
(5) Every Company shall disclose in its profit and loss account any amount or amounts
contributed by it to any political party during the financial year to which that account relates,
giving particulars of the total amount contributed and the name of the party to which such
amount has been contributed.
(6) MODE OF CONTRIBUTION: Shall not be made except by an account payee cheque
drawn on a bank or an account payee bank draft or use of electronic clearing system through
a bank account.
(7) If a Company makes any contribution in contravention of the provisions of this section,
the Company shall be punishable with fine which may extend to five times the amount so
contributedandevery officer of the Company who is in default shall be punishable with
imprisonment for a term which may extend to six months and with fine which may extend to
five times the amount so contributed.
SECTION 183: POWERS OF THE BOARD AND OTHER PERSONS TO

MAKE CONTRIBUTIONS TO NATIONAL DEFENCE FUNDS ETC.
(1) The Board of Directors of any Company may contribute such amount as it thinks fit to the
National Defense Fund or any other Fund approved by the CG for the purpose of national
defense.
(2) Such contribution shall be made notwithstanding anything contained in -
(a) sections 180, 181 and section 182 or
(b) any other provision of this Act or
(c) in the memorandum, or
(d) in articles or
(e) any other instrument relating to the Company.
(3) Every Company shall disclose in its profit and loss account the total amount or amounts
contributed by it to the Funds during the financial year to which the amount relates.
SECTION 184: DISCLOSURE OF INTEREST BY DIRECTOR

Section 184 is applicable on all directors of the Company and all types of Companies.
(i) When to disclose:
29
Every director shall:

(a) At the First meeting of the Board in which he participates as a director, and
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(b) Thereafter, at the first meeting of the Board in every financial year, or
(c) Whenever there is any change in the disclosures

already made, then at the first Board meeting held
after such change.
(ii) What to disclose:
Every director shall disclose his concern or interest in
any Company or Companies orbody corporates, firms,
or other association of individuals which shall include
the shareholding, in such manner as may be prescribed.
(iii) Circumstances requiring disclosure of
interest:
Whenever any director of a Company who is in any
way, whether directly or indirectly, concerned or
interestedin a contract or arrangement or proposed
contract or arrangement entered into or to be entered into shalldisclose the nature of his
concern or interest at the meeting of the Board in which the contract or arrangement is
discussed and shall not participate in such meeting.
Following are the circumstances where disclosure is necessary:
Whenever any director of the Company, who is in any way, whether directly or indirectly,
concerned or interested in a contract or arrangement or proposed contract or arrangement
entered into or to be entered into—
(a) with a body corporate in which such director or such director in association with any other
director, holds more than two percent shareholding of that body corporate, or is a promoter,
manager, Chief Executive Officer of that body corporate; or
(b) with a firm or other entity in which, such director is a partner, owner or member, as the
case may be.
However, where any director who is not so concerned or interested at the time of entering
into such contract or arrangement, he shall, if he becomes concerned or interested after the
contract or arrangement is entered into, disclose his concern or interest forthwith when he
becomes concerned or interested or at the first meeting of the Board held after he becomes so
concerned or interested.
Note: Nothing contained in this section shall apply to any contract or arrangement entered
into or to be entered into between two companies or between one or more companies and
one or more bodies corporate where any of the directors of the one company or body
corporate or two or more of them together holds or hold not more than 2% of PUSC in the
other company or the body corporate.
(1) SUBSEQUENT ARISING OF INTEREST :

Where a director is not so concerned or interested at the time of entering into such contract or
arrangement, but he becomes concerned or interested after the contract or arrangement is
entered into, then he must disclose his concern or interest at the first meeting of the Board held
after he becomes so concerned or interested.
(2) CONTRAVENTION:
a) CONTRACT: A contract entered into without disclosure or with participation by a director
who is concerned or interested directly or indirectly shall be voidable at the option of the
30
Company.
b) DIRECTOR IN DEFAULT: If a director of the Company contravenes, such director shall be
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liable to a penalty of Rs. 100,000

**Amendment – In case of Private Company, After disclosure of interest, that director may
participate in Meeting.
**Amendment - Section 8 Companies: Disclosure of interest required only if Transaction
value in which director is interested exceeds Rs.1,00,000/-
SECTION 185: LOAN TO DIRECTOR

(1) No company shall, directly or indirectly, advance any loan to -
(a) any director of company, or of a company which is its holding
company or any partner or relative of any such director; or
(b) any firm in which any such director or relative is a partner.
Exception:
(2) A company may advance any loan directly or indirectly subject
to the condition that—
(a) SR in GM is passed alongwith an explanatory statement disclosing the full particulars of
the loans given, or guarantee given or security provided and the purpose for which the loan
or guarantee or security is proposed to be utilised by the recipient of the loan or guarantee or
security and any other relevant fact; and
(b) the loans are utilised by the borrowing company for its principal business activities.
(3) Nothing contained in sub-sections (1) and (2) shall apply to—
(a) the giving of any loan to a managing or whole-time director—
(i) as a part of the conditions of service extended by the company to all its employees; or
(ii) pursuant to any scheme approved by the members by a special resolution; or
(b) a company which in the ordinary course of its business provides loans or gives guarantees
or securities for the due repayment of any loan and in respect of such loans an interest is
charged at a rate not less than the rate of prevailing yield of one year, three years, five years
or ten years Government security closest to the tenor of the loan; or
(c) any loan made by a holding company to its wholly owned subsidiary company or any
guarantee given or security provided by a holding company in respect of any loan made to
its wholly owned subsidiary company and utilised by the subsidiary company for its principal
business activities; or
(d) any guarantee given or security provided by a holding company in respect of loan made
by any bank or financial institution to its subsidiary company and utilised by the subsidiary
company for its principal business activities.
(4) If any loan is advanced or a guarantee or security is given or provided or utilised in
contravention of the provisions of this section,—
(i) the company shall be punishable with fine Min Rs.5lakh to Max Rs. 25 Lakh;
(ii) every officer of the company who is in default shall be punishable with imprisonment for
a term upto 6 months or with fine Min Rs. 5lakh to Max Rs. 25 Lakh and
(iii) the director or the other person to whom any loan is advanced or guarantee or security is
given or provided in connection with any loan taken by him or the other person, shall be
punishable with imprisonment upto 6 months or with fine which shall Min Rs. 5lakh to Max
Rs. 25 Lakh or with both.
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SECTION 186: INTERCORPORATE LOANS, INVESTMENTS ETC.

(1) a company shall not make investment through more than two layers of investment
companies:
Provided that the provisions of this sub-section shall not affect,—
(i) a company from acquiring any other company incorporated outside India if such other
company has investment subsidiaries beyond two layers as per the laws of such country;
(ii) a subsidiary company from having any investment subsidiary for the purposes of meeting
the requirements under any law.
(2) No company shall directly or indirectly —
(a) give any loan to any person or other body corporate;
(b) give any guarantee or provide security in connection with a loan to any other body
corporate or person; and
(c) acquire by way of subscription, purchase or otherwise, the securities of any other body
corporate, exceeding 60% of its PUSC+FR+SP or 100% of its FR+SP account whichever is
more.
‘Person’ does not include an EMPLOYEE of the Company.
(3) Where the aggregate of the loans, investment, Guarantee or Security made or proposed
to be made exceeds the limits specified under sub-section (2), no investment or loan or
guarantee or security shall be made unless SR in a GM is passed.
Exception: SR in GM not required where a loan or guarantee is given or where a security has
been provided or Investment is made by a company to its wholly owned subsidiary
company or a joint venture company.
(4) The company shall disclose in the financial statement the full particulars of the loans
given, investment made or guarantee given or security provided and the purpose for which
the loan or guarantee or security is proposed to be utilised by the recipient of the loan or
guarantee or security.
(5) No investment shall be made or loan or guarantee or security given by the company
unless the resolution sanctioning it is passed at a meeting of the Board with the consent of all
the directors present at the meeting and the prior approval of the public financial institution
concerned where any term loan is subsisting, is obtained.
Exception: No approval of PFI is required if the transaction is within the limits specified u/s
186(2).
(6) No company, which is registered under section 12 of the SEBI Act, 1992 and covered
under such class or classes of companies as may be prescribed, shall take inter-corporate loan
or deposits exceeding the prescribed limit and such company shall furnish in its financial
statement the details of the loan or deposits.
(7) No loan shall be given under this section at a rate of interest lower than the prevailing
yield of one year, three year, five year or ten year Government Security closest to the tenor
of the loan.
Note : Nothing contained in this sub-section shall apply to a company in which 26% or
32
more of the paid-up share capital is held by the CG/SG or both, in respect of loans provided
Page
by such company for funding Industrial Research and Development projects in furtherance
objects as stated in its memorandum of association.
(8) No company which is in default in the repayment of any deposits accepted before or
after the commencement of this Act or in payment of interest thereon, shall give any loan or
give any guarantee or provide any security or make an acquisition till such default is
subsisting.
(9) Every company giving loan or giving a guarantee or providing security or making an
acquisition under this section shall keep a register which shall contain such particulars and
shall be maintained in such manner as may be prescribed.
(10) The register referred to in sub-section (9) shall be kept at the registered office of the
company and
(a) shall be open to inspection at such office; and
(b) extracts may be taken therefrom by any member, and copies thereof may be furnished to
any member of the company on payment of such fees as may be prescribed.
(11) This section [except (1)] is not applicable to —
(a) to any loan made, any guarantee given or any security provided or any investment made
in the ordinary course of its business, or a company established with the object of and
engaged in the business of financing industrial enterprises, or of providing infrastructural
facilities by :
- Banking company, or
- Insurance company, or
- Housing finance company
(b) to any investment—
(i) made by an investment company;
(ii) made in shares allotted in pursuance of section 62(1)(a) or in shares allotted in
pursuanceof rights issues made by a body corporate;
(iii) made, in respect of investment or lending activities, by a non-banking financial company
registered under Chapter III-B of the Reserve Bank of India Act, 1934 and whose principal
business is acquisition of securities.
(12) The Central Government may make rules for the purposes of this section.
(13) If a company contravenes the provisions of this section, the company shall be
punishable with fine which shall not be less than twenty-five thousand rupees but which may
extend to five lakh rupees and every officer of the company who is in default shall be
punishable with imprisonment for a term which may extend to two years and with fine
which shall not be less than twenty-five thousand rupees but which may extend to one lakh
rupees.
Explanation— For the purposes of this section,—
(a) the expression “investment company” means a company whose principal business is the
acquisition of shares, debentures or other securities and a company will be deemed to be
principally engaged in the business of acquisition of shares, debentures or other securities, if
its assets in the form of investment in shares, debentures or other securities constitute not less
33
than fifty percent of its total assets, or if its income derived from investment business
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constitutes Min 50% as a proportion of its gross income

Note for students –

Rule 11(2) of Companies (Meetings of Board and its Powers) Rules, 2014 –
For the purposes of clause (a) of sub-section (11) of section 186, the expression "business of
financing industrial enterprises" shall include, with regard to a Non-Banking Financial
Company registered with Reserve Bank of India, "business of giving of any loan to a person
or providing any guaranty or security for due repayment of any loan availed by any person
in the ordinary course of its business".
SECTION 187: INVESTMENTS OF COMPANY TO BE HELD IN ITS

OWN NAME
(1) All investments held by a Company must be in its own name.
(2) But the Company may hold any shares in its subsidiary Company in the name of any
nominee or nominees of the Company, if it is necessary to do so, to ensure that the number of
members of the subsidiary Company is not reduced below the statutory limit.
(3) Exception— In the following cases Investments may be held in a name other than
Company’s own name.
a) Depositing with a bank, being the bankers of the Company, any shares or securities for
the collection of any dividend or interest payable thereon; or
b) Depositing with, or transferring to, or holding in the name of, the state bank of india
or a scheduled bank,being the bankers of the Company, shares or securities, in order to
facilitate the transfer thereof.
*Provided that if transfer does not take place within a period of six months from the date on
which the shares or securities are transferred by the Company to the state bank of india, the
Company shall, as soon as practicable after the expiry of that period, have the shares or
securities re-transferred to it from the state bank of India in its own name; or
c) Depositing with, or transferring to, any person any shares or securities, by way of
security for the repayment of any loan advanced to the Company or the performance of
any obligation undertaken by it or;
d) Holding investments in the name of a depository when such investments are in the
form of securities held by the Company as a beneficial owner.
(4) Where in pursuance of point (d) of (3), any shares or securities in which investments have
been made by a Company are not held by it in its own name, the Company must maintain a
register which shall contain such particulars as may be prescribed and such register shall be open
to inspection by any member or debenture-holder of the Company without any charge during
business hours subject to such reasonable restrictions as the Company may by its articles or in
general meeting impose.
(5) Penalty for Contravention –
Company – Rs. 500,000 and
Every officer company in default – Rs. 50,000
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SECTION 188: RELATED PARTY TRANSACTIONS

1. Except with the consent of the Board of Directors given by a Board resolution and subject to
such conditions as may be prescribed, no Company shall enter into any contract or arrangement
with a related party with respect to : -
Key: SALAS US
(a) sale, purchase or supply of any goods or materials;
(b) selling or otherwise disposing of, or buying, property of any kind;
(c) appointment of any agent for purchase or sale of goods, materials, services or property;
(d) leasing of property of any kind;
(e) availing or rendering of any services;
(f) such related party's appointment to any office or place of profit in the Company, its
subsidiary Company or associate Company; and
(g) underwriting the subscription of any securities or derivatives thereof, of the Company:
2. In the case of a Company having Transactions exceeding prescribed sums, Prior approval of
the Company by an Ordinary resolution will be mandatory.
3. Member of the Company who is also a related party shall not vote on such resolution.
4. According to the Companies (Meeting of Board & its Powers) Rules, 2014 resolution shall
be mandatory in the following cases. Where the transaction to be entered into exceeds the
following Transaction Values:-
Key: SALAS US
(i) sale, purchase or supply of any goods or materials either directly or through appointment
of any agent, where value of transaction exceeding:
10% of the TURNOVER of theCompany
(ii) selling or otherwise disposing of, or buying, property of any kind, either directly or
through appointment of any agent, where value of transaction exceeding:
10% of the NETWORTH of the Company
(iii) Leasing of property of any kind where value of transaction exceeding:
10% of the TURNOVER of the Company
(iv) Availing or rendering of any services, either directly or through appointment of any
agent, where value of transaction exceeding:
10% of the TURNOVER of the Company
(v) Appointment to any office or place of profit in the Company, its subsidiary Company or
associate Company at a monthly remuneration exceeding Rs. 2.5 lakh.
(vi) Remuneration for underwriting the subscription of any securities or derivatives thereof, of
the Company exceeding 1% of the Networth.
5. Exemption to Government Companies : Chapter XII, first and second proviso to sub-section (1) of
section 188, Shall not apply to –
(a) a Government company in respect of contracts or arrangements entered into by it with any other
Government company, or with Central Government or any State Government or any combination
thereof;
(b) a Government company, other than a listed company, in respect of contracts or arrangements other
than those referred to in clause (a), in case such company obtains approval of the Ministry or
Department of the Central Government which is administratively in charge of the company, or, as the
35
case may be, the State Government before entering into such contract or arrangement.
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6. Every RPT entered shall be disclosed in the Board’s report along with the justification for
entering into such contract or arrangement.
7. Contravention:
Where any contract or arrangement is entered into without
obtaining the consent of the Board or approval by a Ordinary resolution in the general
meeting
Can be ratified
within three months from the date of contract
By the Board By the Shareholders
If not ratified within 3 months
Voidable Voidable
*If the contract or arrangement is with a related party to any director, or is authorised by any
other director, the directors concerned shall indemnify the Company against any loss incurred
by it.
8. The Company can proceed against a director or any other employee who had entered into
such contract or arrangement in contravention of the provisions of this section for recovery
of any loss sustained by it as a result of such contract or arrangement.
9. Any director or any other employee of a Company, who had entered into or authorized
the contract or arrangement in violation of the provisions of this section shall,—
a. In case of listed Company, liable to a penalty of Rs. 25,00,000 AND
b. In case of any other Company, liable to a penalty of Rs. 500,000
**AMENDMENT - This section shall Not be Applicable if:

a) Transaction between 2 Government companies. Or
b) Transaction by an Unlisted Government Company, with approval of Government.
c) No member of the company shall vote on such special resolution, to approve any contract
or arrangement which may be entered into by the company, if suchmember is a related party.
Provided also that nothing contained in the above proviso shall apply to a company in which
90% or more members, in number, are relatives of promoters or are related parties.
SECTION 189: REGISTER OF CONTRACTS OR ARRANGEMENTS IN

WHICH DIRECTORS ARE INTERESTED.
* Section 189 of the Companies Act, 2013 makes it mandatory for all companies to keep one
or more registers giving separately the particulars of all contracts or arrangements as
required under:
(a) section 184(2) [interested director] or
(b) section 188 [related party].
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Page
* The register shall be prepared in such manner and containing such particulars as may be
prescribed and after entering the particulars, the duly filled and updated register or registers
shall be placed before the next meeting of the Board and signed by all the directors present
at the meeting.
* Such register shall be prepared in such manner and contain such particulars as may be
prescribed.
* Every director or key managerial personnel shall, within a period of 30 days of his
appointment, or relinquishment of his office, as the case may be, disclose to the Company
the particulars specified in section 184(1) relating to his concern or interest in the other
associations which are required to be included in the register under that sub-section or such
other information relating to himself as may be prescribed.
* The register shall be kept at the registered office of the Company and it shall be open for
inspection at such office during business hours
* Extracts may be taken from the register, and copies thereof as may be required by any
member of the Company shall be furnished by the Company to such extent, in such
manner, and on payment of such fees as may be prescribed.
* The register shall also be produced at the commencement of every AGM of the Company
and shall remain open and accessible during the continuance of the meeting to any person
having the right to attend the meeting. Thus, even a proxy has the rights to inspect the
Register.
* Nothing contained in section 189(1) shall apply to any contract or arrangement-
(a) for the sale, purchase or supply of any goods, materials or services if the value of such
goods and materials or the cost of such services does not exceed Rs. 5,00,000 in the
aggregate in any year; or
(b) by a banking Company for the collection of bills in the ordinary course of its business.
*
Every director who fails to comply with the provisions of this section and the rules made
thereunder shall be liable to a penalty of Rs. 25,000.
SECTION 190: CONTRACT OF EMPLOYMENT WITH MANAGING

OR WHOLE TIME DIRECTORS
(1) Every Company shall keep at its registered office,—
(a) a copy of the contract of service with a managing or whole-time director where a contract
is in writing; or
(b) where such a contract is not in writing, a written memorandum setting out its terms.
(2) The copies of the contract or the memorandum shall be open to inspection by any
member of the Company without payment of fee.
(3) If any default is made, the Company shall be liable to a penalty of 25000 Rs. andthe
Company who is in default shall be liable to a penalty of 5000 Rs. for each default.
(4)The provisions of this section shall not apply to a private Company.
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SECTION 191: PAYMENT TO DIRECTIOR FOR LOSS OF OFFICE ETC.

IN CONNECTION WITH TRANSFER OF UNDERTAKING, PROPERTY
OR SHARES.
(1) A director of a Company shall not receive any payment by way of compensation for loss
of office or as consideration for retirement from office, or in connection with such loss or
retirement in case of:
(a) the transfer of the whole or any part of any undertaking or property of the Company; or
(b) the transfer to any person of all or any of the shares in a Company.
unless
➔ particulars and the amount with respect to the payment proposed to be made, have been
disclosed to the members of the Company and
➔ the proposal has been approved by the Company in general meeting.
(2) Exception: Consideration for retirement from office or in connection with such loss or
retirement within limits or priorities, as may be prescribed.
(3) If the payment is not approved for want of quorum either in a meeting or an adjourned
meeting, the proposal shall not be deemed to have been approved.
(4) If a director receives payment of any amount in contravention of (1) or the proposed
payment is made before it is approved in the meeting, the amount so received by the director
shall be deemed to have been received by him in trust for the Company.
(5) Penalty for Contravention on director – Rs. 1 lakh
(6) According to the Companies (Meeting of Board & its Powers) Rules, 2014:
(a)Particulars to be disclosed to members for taking approval:
(i) Name of Director.
(ii) Amount proposed to be paid.
(iii) Event due to which compensation became payable.
(iv) Date of Board meeting.
(v) Basis for amount determined.
(vi) Reason for justification of payment.
(vii)Manner of payment.
(viii)Sources of payment.
(ix) Other relevant particulars.
(b) Compensation paid u/s 191 shall not exceed limit set out u/s 202.
(c) Compensation for loss of office shall not be paid if:
(i)The Company has defaulted in repayment of Public deposits or Interest thereon.
(ii)The Company has defaulted in Redemption of Debentures or payment of Interest thereon.
(iii)The Company has defaulted in repayment of any liability, secured or unsecured payable
to bank or Public financial Institution or any other financial Institution.
(iv) The Company has defaulted in payment of dues towards Taxes and duties by whatever
name called, payable to CG, SG, Local authority or Statutory authority.
(v) There are outstanding dues payable to Workmen & employees of the Company.
(vi) The Company has not paid dividend on preference shares or has not redeemed
preference shares on due date.
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SECTION 192: RESTRICTION ON NON CASH TRANSACTION

INVOLVING DIRECTORS
(i) No Company shall enter into an arrangement by which—
(a) a director of the Company or its holding, subsidiary or associate Company or a person
connected with him acquires or is to acquire assets for consideration other than cash,
from the Company; or
(b) the Company acquires or is to acquire assets for consideration other than cash, from such
director or person so connected, unless prior approval for such arrangement is accorded
by a resolution of the Company in general meeting and if the director or connected
person is a director of its holding Company, approval shall also be required to be
obtained by passing a resolution in general meeting of the holding Company.
(ii)The notice for approval of the resolution by the Company or holding Company in general
meeting shall include the particulars of the arrangement along with the value of the assets
involved in such arrangement duly calculated by a registered valuer.
(iii) Any arrangement entered into by a Company or its holding Company in contravention of
the provisions of this section shall be voidable at the instance of the Company unless -
(a) the restitution of any money or other consideration which is the subject -matter of the
arrangement is no longer possible and the Company has been indemnified by any other
person for any loss or damage caused to it; or
(b) any rights are acquired bona fide for value and without notice of the contravention of
the provisions of this section by any other person.
Section 193: Contract by one person Company

(1) Where One Person Company limited by shares or by guarantee enters into a contract with
the sole member of the Company who is also the director of the Company, the Company
shall, unless the contract is in writing, ensure that the terms of the contract or offer are
contained in a memorandum or are recorded in the minutes of the first meeting of the Board
of Directors of the Company held next after entering into contract.
Exception: Contracts entered into by the Company in the ordinary course of its business.
(2) The Company shall inform the Registrar about every contract entered into by the
Company and recorded in the minutes of the meeting of its Board of Directors within a
period of fifteen days of the date of approval by the Board of Directors.
SECTION 194: PROHIBITION ON FORWARD DEALINGS IN

SECURITIES OF COMPANY BY DIRECTOR OR KEY MANAGERIAL
PERSONNEL- OMITTED
SECTION 195: PROHIBITION ON INSIDER TRADING OF SECURITIES

– OMITTED
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APPOINTMENT & REMUNARATION OF MANAGERIAL

PERSONNEL
Sec 196: APPOINTMENT OF MANAGING DIRECTOR, WHOLE TIME
DIRECTOR OR MANAGER.
1. A Company shall not appoint or employ a managing director and a manager at the same
time
2. Appointment or re-appointment: Max. 5 years.
Re-appointment: Not earlier than 1 year before the expiry of his term.
**Amendment - This provision shall not apply to a Government Company.
3. No Company shall appoint or continue the employment of any person as managing
director, whole - time director or manager who-
• is below the age of 21 years or has attained the age of 70 years.
• More than 70 years – Pass SR in GM + Explanatory statement giving justification.
If no such SR is passed but votes cast in favour exceed the votes, if any, cast against the motion
and the CG is satisfied, on an application made by the Board, that such appointment is most
beneficial to the company, the appointment of the person who has attained the age of seventy
years may be made.
• Is an undischarged insolvent or has at any time been adjudged as an insolvent; or
• has at any time suspended payment to his creditors or makes, or has at any time made,
a composition with them; or
• has at any time been convicted by a court of an offence and sentenced for a period of
more than six months.
4. Appointment and remuneration payable shall be approved by the Board of Directors at a
meeting & it shall be subject to approval by shareholders at the next general meeting of the
Company and A return shall be filed within 60 days of such appointment with the Registrar
of companies.
5. Where an appointment of a managing director, whole-time director or manager is not
approved by the Company at a general meeting, any act done by him prior to such approval
shall remain valid.
**Amendment - Point 4 & 5:- NOT APPLICABLE TO GOVERNMENT COMPANY AND
PRIVATE COMPANY
Point 4:- NOT APPLICABLE TO SPECIFIED IFSC PUBLIC COMPANY
Sec 197: OVERALL MAXIMUM MANAGERIAL REMUNERATIONAND

MANAGERIAL REMUNERATION IN CASE OFABSENCE OR
INADEQUACY OF PROFITS
(1) The total managerial remuneration payable by a public company, to its directors,
including managing director and whole-time director, and its manager in respect of any
financial year shall not exceed 11% of the net profits of that company for that financial year
computed in the manner laid down in section 198 except that the remuneration of the
directors shall not be deducted from the gross profits:
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* Provided that the company in general meeting may, authorise the payment of
remuneration exceeding 11% of the net profits of the company, subject to the provisions
of Schedule V:
* Provided further that, except with the approval of the company in general meeting By a
special resolution, —
* (i) the remuneration payable to any one managing
director; or whole-time director or manager shall not exceed PROFIT
5% of the net profits of the company and if there is more
than one such director remuneration shall not exceed 10%
of the net profits to all such directors and manager taken
together;
(ii) the remuneration payable to directors who are neither
managing directors nor whole-time directors shall not
exceed,
* (A) 1% of the net profits of the company, if there is a managing or whole-time director or
manager;
* (B) 3% of the net profits in any other case.
Provided also that, where the company has defaulted in payment of dues to any bank or public
financial institution or non-convertible debenture holders or any other secured creditor, the
prior approval of the bank or public financial institution concerned or the non-convertible
debenture holders or other secured creditor, as the case may be, shall be obtained by the
company before obtaining the approval in the general meeting.
(2) The percentages aforesaid shall be exclusive of any fees payable to directors under sub-
section (5).
(3) Notwithstanding anything contained in sub-sections (1) and (2), but subject to the provisions
of Schedule V, if, in any financial year, a company has no profits or its profits are inadequate,
the company shall not pay to its directors, including any managing or wholetime director or
manager or any other non-executive director, including an independent director, by way of
remuneration any sum exclusive of any fees payable to directors under sub-section (5)
hereunder except in accordance with the provisions of Schedule V .
(4) The remuneration payable to the directors of a company, including any managing or whole-
time director or manager, shall be determined, in accordance with and subject to the provisions
of this section, either by the articles of the company, or by a resolution or, if the articles so
require, by a special resolution, passed by the company in general meeting and the
remuneration payable to a director determined aforesaid shall be inclusive of the remuneration
payable to him for the services rendered by him in any other capacity:
* Provided that any remuneration for services rendered by any such director in other capacity
shall not be so included if—
(a) the services rendered are of a professional nature; and
(b) in the opinion of the Nomination and Remuneration Committee, if the company is covered
under sub-section (1) of section 178, or the Board of Directors in other cases, the director
possesses the requisite qualification for the practice of the profession.
(5) A director may receive remuneration by way of fee for attending meetings of the Board or
Committee thereof or for any other purpose whatsoever as may be decided by the Board:
* Provided that the amount of such fees shall not exceed the amount as may be prescribed:
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* Provided further that different fees for different classes of companies and fees in respect of
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independent director may be such as may be prescribed.

(6) A director or manager may be paid remuneration either by way of a monthly payment or
at a specified percentage of the net profits of the company or partly by one way and partly by
the other.
(7) Omitted
(8) The net profits for the purposes of this section shall be computed in the manner referred to
in section 198.
(9) If any director draws or receives, directly or indirectly, by way of remuneration any such
sums in excess of the limit prescribed by this section or without approval required under this
section, he shall refund such sums to the company, within two years or such lesser period as
may be allowed by the company, and until such sum is refunded, hold it in trust for the
company.
(10) The company shall not waive the recovery of any sum refundable to it under sub-section
(9) unless approved by the company by special resolution within two years from the date the
sum becomes refundable.
* Provided that where the company has defaulted in payment of dues to any bank or public
financial institution or non-convertible debenture holders or any other secured creditor, the
prior approval of the bank or public financial institution concerned or the non-convertible
debenture holders or other secured creditor, as the case may be, shall be obtained by the
company before obtaining approval of such waiver.
(11) In cases where Schedule V is applicable on grounds of no profits or inadequate profits, any
provision relating to the remuneration of any director which purports to increase or has the
effect of increasing the amount thereof, whether the provision be contained in the company’s
memorandum or articles, or in an agreement entered into by it, or in any resolution passed by
the company in general meeting or its Board, shall not have any effect unless such increase is in
accordance with the conditions specified in that Schedule.
(12) Every listed company shall disclose in the Board’s report, the ratio of the remuneration of
each director to the median employee’s remuneration and such other details as may be
prescribed.
(13) Where any insurance is taken by a company on behalf of its managing director, whole-
time director, manager, Chief Executive Officer, Chief Financial Officer or Company Secretary
for indemnifying any of them against any liability in respect of any negligence, default,
misfeasance, breach of duty or breach of trust for which they may be guilty in relation to the
company, the premium paid on such insurance shall not be treated as part of the remuneration
payable to any such personnel:
* Provided that if such person is proved to be guilty, the premium paid on such insurance
shall be treated as part of the remuneration.
(14) Subject to the provisions of this section, any director who is in receipt of any commission
from the company and who is a managing or whole-time director of the company shall not be
disqualified from receiving any remuneration or commission from any holding company or
subsidiary company of such company subject to its disclosure by the company in the Board’s
report.
(15) If any person makes any default in complying with the provisions of this section, he shall
be liable to a penalty of one lakh rupees and where any default has been made by a company,
the company shall be liable to a penalty of five lakh rupees.
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(16) The auditor of the company shall, in his report under section 143, make a statement as to
whether the remuneration paid by the company to its directors is in accordance with the
provisions of this section, whether remuneration paid to any director is in excess of the limit
laid down under this section and give such other details as may be prescribed
(17) On and from the commencement of the Companies (Amendment) Act, 2017, any
application made to the Central Government under the provisions of this section [as it stood
before such commencement], which is pending with that Government shall abate, and the
company shall, within one year of such commencement, obtain the approval in accordance
with the provisions of this section, as so amended
REMUNERATION PAYABLE BY COMPANIES HAVING NO PROFITS OR
INADEQUATE PROFITS WITHOUT APPROVAL OF CG - SCHEDULE V-PART II-
SECTION II
In any financial year where a Company has no profits or its profits are inadequate, it may pay
higher of following two options (either A or B) as remuneration to a managerial person:
Option (A)
Company can pay remuneration as per limits shown in table by passing ordinary resolution:
If special resolution is passed instead of ordinary resolution by the shareholders, the above
limits can be doubled for payment of managerial remuneration.
Option (B)
(B) In case of a managerial person or other director who is functioning in a professional
capacity, remuneration as per item (A) may be paid, if such managerial person or other
director is not having any interest in the capital of the company or its holding company or
any of its subsidiaries directly or indirectly or through any other statutory structures and not
having any, direct or indirect interest or related to the directors or promoters of the company
or its holding company or any of its subsidiaries at any time during the last two years before
or on or after the date of appointment and possesses graduate level qualification with
expertise and specialised knowledge in the field in which the company operates:
Provided that any employee of a company holding shares of the company not exceeding
0.5% of its paid up share capital under any scheme formulated for allotment of shares to such
employees including Employees Stock Option Plan or by way of qualification shall be deemed
to be a person not having any interest in the capital of the company;
Provided further that the limits specified under items (A) and (B) of this section shall apply, if-
(i) payment of remuneration is approved by a resolution passed by the Board and, in the case
of a company covered under sub-section (1) of suction 178 also by the Nomination and
Remuneration Committee;
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(ii)the company has not committed any default in payment of dues to any bank or public
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financial institution or non-convertible debenture holders or any other secured creditor, and
in case of default, the prior approval of the bank or public financial institution concerned or
the non-convertible debenture holders or other secured creditor, as the case may be, shall be
obtained by the company before obtaining the approval in the general meeting.
(iii) an ordinary resolution or a special resolution, as the case may be, has been passed for
payment of remuneration as per 13[Omitted] item (A) or a special resolution has been passed
for payment of remuneration as per item (B), at the general meeting of the company for a
period not exceeding three years.
(iv) a statement along with a notice calling the general meeting referred to in clause (iii) is
given to the shareholders containing the following information, namely:-
I. General information:
(1) Nature of industry
(2) Date or expected date of commencement of commercial production
(3) In case of new companies, expected date of commencement of activities as per project
approved by financial institutions appearing in the prospectus
(4) Financial performance based on given indicators
(5) Foreign investments or collaborations, if any.
II. Information about the appointee:
(1) Background details
(2) Past remuneration
(3) Recognition or awards
(4) Job profile and his suitability
(5) Remuneration proposed
(6) Comparative remuneration profile with respect to industry, size of the company, profile
of the position and person (in case of expatriates the relevant details would be with respect
to the country of his origin)
(7) Pecuniary relationship directly or indirectly with the company, or relationship with the
managerial personnel or other director, if any.
III. Other information:
(1) Reasons of loss or inadequate profits
(2) Steps taken or proposed to be taken for improvement
(3) Expected increase in productivity and profits in measurable terms
IV. Disclosures
The following disclosures shall be mentioned in the Board of Director’s report under the
heading “Corporate Governance”, if any, attached to the Financial statement:
(i) all elements of remuneration package such as salary, benefits, bonuses, stock options,
pension, etc., of all the directors;
(ii) details of fixed component. and performance linked incentives along with the
performance criteria;
(iii) service contracts, notice period, severance fees; and
(iv) stock option details, if any, and whether the same has been issued at a discount as well as
the period over which accrued and over which exercisable.
Disclosure of remuneration in Boards report
Amendment: Disclose Top Ten employees of the Company and Name of employees who
was in receipt of remuneration not less than Rs. 1.02 Crores p.a. / Rs. 8.50 Lakhs p.m.)
The following disclosures shall be mentioned in the Board of Director’s report under the
44
heading “Corporate Governance”, if any, attached to the Financial statement:

Page
(i) all elements of remuneration package such as salary, benefits, bonuses, stock options,
pension, etc., of all the directors;
(ii) details of fixed component. and performance linked incentives along with the
performance criteria;
(iii) service contracts, notice period, severance fees; and stock option details, if any, and
whether the same has been issued at a discount as well as the period over which accrued and
over which exercisable.
**EFFECTIVE CAPITAL
* Remuneration to the managerial personal under Schedule V is paid according to effective
capital of Company. Effective capital is calculated as under:
Particular Amount
Paid up share capital (excluding share application money or advances against
shares)
Add: Reserve and surplus (excluding revaluation reserve)
Add: Securities premium account
Add: Long term loans
Add: Deposits repayable after one year (excluding working capital loan,
overdraft, interest due
on loan, bank guarantee)
Less: Investments
Less: Accumulated loss and Preliminary expenses not written off
Total
Important Note:
Negative effective capital means effective capital less than zero.
Time when effective capital shall be calculated
* Where the appointment of the managerial person is made in the year in which
Company has been incorporated, the effective capital shall be calculated as on the date of
such appointment.
* In any other case, the effective capital is calculated as on the last date of the financial year
preceding the financial year in which the appointment of the managerial person is made.
Sec 199: RECOVERY OF REMUNERATION IN CERTAIN CASES
* Where a Company is required to re-state its financial statements due to fraud or non-
compliance with any requirement under this Act and the rules made thereunder,
* the Company shall recover from any past or present managing director or whole-time
director or manager or Chief Executive Officer (by whatever name called)
* who, during the period for which the financial statements are required to be re-stated,
received the remuneration (including stock option)
* in excess of what would have been payable to him as per restatement of financial
statements.
Sec 200: COMPANY TO FIX LIMIT WITH REGARD TO

REMUNARATION
A Company may, fix the remuneration within the limits specified in this Act, at such amount or
45
percentage of profits of the Company, as it may deem fit.

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While fixing the remuneration, the Company shall have regard to—
* the financial position of the Company;
* the remuneration or commission drawn by the individual concerned in any other capacity;
* the remuneration or commission drawn by him from any other Company;
* professional qualifications and experience of the individual concerned;
* such other matters as may be prescribed.
According to Rule 6 of the Companies for the purposes of clause (e) above the company shall
have regard to the following matters, namely:-
(1) the Financial and operating performance of the company during the three preceding
financial years.
(2) the relationship between remuneration and performance.
(3) the principle of proportionality of remuneration within the company, ideally by a rating
methodology which compares the remuneration of directors to that of other directors on the
board and employees or executives of the company.
(4) whether remuneration policy for directors differs from remuneration policy for other
employees and if so, an explanation for the difference.
(5) the securities held by the director, including options and details of the shares pledged as at
the end of the preceding financial year.
Sec 201: FORMS OF AND PROCEDURE IN RELATION TO CERTAIN

APPLICATIONS
* Application to CG shall be made under Sec 196 shall be in the prescribed form.
* Before making any application to CG under Sec 196, the Company shall issue a general
notice to the members, indicating:
• the nature of the application proposed to be made.
• Such notice shall be published in two newspapers.
• The copies of notices shall be attached to the application.
Rule 7 of the Companies prescribes that the companies other than listed companies and
subsidiary of a listed company may without CG approval pay remuneration to its managerial
personnel, in the event of no profit or inadequate profit beyond ceiling specified in Section II,
Part II of Schedule V, subject to complying with the following conditions namely:-
(a) Payment of remuneration is approved by a resolution passed by the Board and, in the
case of a company covered under sub-section (1) of section 178 also by the Nomination and
Remuneration Committee, if any.
(b) The company has not made any default in repayment of any of its debts (including public
deposits) or debentures or interest payable thereon, preference shares and dividend on
preference shares for a continuous period of thirty days in the precedingfinancial year before
the date of payment to such managerial personnel.
(c) The approval of shareholders by way of a special resolution at a general meeting of the
46
company for payment of remuneration for a period not exceeding three years.
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(d) a statement along-with a notice calling the general meeting referred to above point (c),
shall contain the information as per sub clause (iv) of second proviso to clause (B) of section II
of part-II of Schedule V of the Act including reasons and justification for payment of
remuneration beyond the said limit.
(e) The company has filed Balance Sheet and Annual Return which are due to be filed with
the Registrar of Companies.
(f) Every such application seeking approval shall be made to the CG within a period of ninety
days from the date of such appointment.
Sec 202: COMPENSATION FOR LOSS OF OFFICE OF MANAGING

OR WHOLE TIME DIRECTOR OR MANAGER.
1. Compensation may be paid -
• for loss of office; or
• as consideration for retirement from office; or
• in connection with such loss or retirement.
2. Compensation can be paid only to MD, WHOLE TIME
DIRCTOR OR MANAGER
3. Amount of compensation – to be calculated as per next
point.
4. Permissible period Lower of:
• the unexpired tenure of directorship; or
• 3 years.
5. Basis -
'Average remuneration' actually earned during:
• 3 years immediately preceding the date of cessation of office;or
• Such shorter period for which the director has held his office.
6. Prohibition of compensation in certain cases:
* Reconstruction or amalgamation of Company takes place. As a result of such reconstruction
or amalgamation, the director resigns from the Company, but is appointed as MD or
manager or any other officer of the reconstructed or amalgamated Company.
* The director resigns voluntarily.
* The office of director is vacated u/s 167.
* The director has instigated or is responsible for the termination of his directorship.
* The Company is wound up by or subject to supervision of the Court due to negligence of
director.
* The director is guilty of fraud or breach of trust or gross negligence in the conduct of the
affairs of the Company.
However, mere allegations that a director was involved in certain questionable transactions
will not disentitle him from receiving compensation.
Sec 203: APPOINTMENT OF KEY MANAGERIAL PERSONNEL

Who is key managerial Personnel?
As per Section 2(51), “Key managerial personnel”, in relation to a Company, means;
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• the Chief Executive Officer or the managing director or the manager;

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• the Company secretary;

• the whole-time director;

• the CFO; and
• such other officer as may be prescribed.
Companies required to appoint KMP

Section 203 of the Companies Act, 2013 read with Rule 8 provide the appointment of Key
Managerial Personnel and makes it compulsory for a listed Company and every other public
Company having a paid-up share capital of Rs. 10 cr or more, to appoint following whole-time
key managerial personnel:
• managing director, or Chief Executive Officer or Manager and in their absence, a
whole-time director;
• Company secretary; and
• CFO
“Every private company which has a paid up share capital of ₹10 crore rupees or more
shall have a whole-time company secretary.”
Manner of appointment
• Every whole-time key managerial personnel of a Company is appointed by board
resolution. It should contain and approve the terms and conditions of the appointment
including the remuneration.
• Any vacancy in the office of any whole-time key managerial personnel is filled-up by
the Board within a period of 6 months from the date of such vacancy.
Restrictions regarding appointment of KMP
* An individual shall not be appointed at same time, as the chairman of the Company, as
well as:
• the managing director or
• Chief Executive Officer,
• the articles of the Company contain provision for appointment of same person, or
• the Company carries only a single business, or
• the Company is engaged in multiple businesses and has appointed one or more Chief
Executive Officers for each such business as may be notified by the CG.
The MCA on 25.07.14 notifies that public companies having paid-up share capital of Rs. 100
crore or more and annual turnover of Rs. 1,000 or more which are engaged in multiple
businesses and have appointed Chief Executive Officer for each such business shall be the class
of companies for the purpose of the second proviso to sub-section (1) of section 203 of the
said Act.
A whole-time key managerial personnel shall not hold office in more than one Company at
the same time, except:
• In the Company’s subsidiary Company,
• As a director in any other Company with the permission of the Board,
• A person, who is managing director of one Company, may be appointed as a
managing director or manager of not more than one another Company, if following
conditions are satisfied:
- An appointment is approved by unanimous resolution of Board of another Company
with consent of all directors present at meeting.
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- Specific notice is given to all directors in India.

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- Specific notice should state that such resolution shall be moved at the board meeting.
- A whole-time key managerial personnel holding office in more than one Company at
the same time, shall, within a period of 6 months from such commencement, choose
one Company, in which he wishes to continue to hold the office of key managerial
personnel.
Other provisions relating to KMP
A KMP is included within the meaning of “Officer In Default” under the Act.
* A document or proceeding requiring authentication by a Company; or contracts made by
or on behalf of a Company, may be signed by any key managerial personnel or an officer
of the Company duly authorised by the Board in this behalf.
* Details regarding KMP, changes therein and the remuneration paid to them are required to
be disclosed in the Annual Return of the Company.
* A person whose relative is employed as a KMP in a Company is disqualified to be
appointed as auditor in that Company.
* A person is disqualified to be appointed as an independent director if he either himself or
through his relative holds or has held the position of a key managerial personnel of the
Company or its holding, subsidiary or associate Company in any of the 3 financial years
immediately preceding the financial year in which he is proposed to be appointed.
* The key managerial personnel shall have a right to be heard in the meetings of the Audit
Committee when it considers the auditor’s report but shall not have the right to vote.
Section 4A: The provisions of sub-section (1), (2), (3) and (4) of this section shall not apply to
a managing director or Chief Executive Officer or manager and in their absence, a whole time
director of the Government company.”
Penalty -
Co. – Rs. 5 lakh and
Every director and key managerial personnel in default – Rs. 50,000 + Rs.1000 per day until
default continues but Max Rs. 5 lakh
Sec 204: SECRETARIAL AUDIT FOR BIGGER COMPANIES

* Every listed Company and a Company belonging to other class of companies as may be
prescribed shall annex with its Board’s report, a secretarial audit report, given by a
Company secretary in practice.
* Rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules,
2014 provides that for the purposes of section 204 (1), the other class of companies shall be
as under:
(a) Every public company having a paid up share capital of Rs. 50 crore or more; or
(b) Every public company having a turnover of Rs. 250 crore or more.
(c) outstanding loans or borrowings from banks or PFI >= Rs. 100 Crore or more
* It shall be the duty of the Company to give all assistance and facilities to the Company
Secretary in practice, for auditing the secretarial and related records of the Company.
* The Board of Directors, in their report made in terms of sub-section (3) of section 134, shall
49
explain in full any qualification or observation or other remarks made by the Company
secretary in practice in his report under sub-section (1).
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Contravention:
If a Company or any officer of the Company or the Company secretary in practice, contravenes
the provisions of this section, the Company, every officer of the Company or the Company
secretary in practice, who is in default, shall be liable to a penalty of Rs. 200,000.
Sec 205: FUNCTIONS OF COMPANY SECRETARY

* The functions of the Company secretary shall include,—
- to report to the Board about compliance with the provisions of this Act, the rules made
thereunder and other laws applicable to the Company;
- to ensure that the Company complies with the applicable secretarial standards;
- to discharge such other duties as may be prescribed.
* The provisions contained in section 204 and section 205 shall not affect the duties and
functions of the Board of Directors, chairperson of the Company, managing director or
whole-time director under this Act, or any other law for the time being in force.
Notes for Practice:
50
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Prevention of Oppression & Mismanagement

[Sec. 241 – 245 Co.’s Act, 2013]
Sec. 241:- Application to Tribunal for Relief in case of oppression etc.
(1) Any Member may apply to the Tribunal for:
Oppression Mismanagement
 
Affairs of the Co. Any Material Change
(Post / Present) [Existing / Propose]
 In BOD (Mgt.),
Pre-Judicial in In Ownership (Share Capital)
Public Interest, Interest of Company, or Membership (No Share Capital),
Applicant himself, Others etc. pre-judicial to the Interest of Stake-holders
etc.
(2) The Central Government, if it is of the opinion that the affairs of the company are being
conducted in a manner prejudicial to public interest, it may itself apply to the Tribunal
for an order under this Chapter.
Provided that the applications under this sub-section, in respect of such company or class of
companies, as may be prescribed, shall be made before the Principal Bench of the Tribunal
which shall be dealt with such Bench.
Amendment - Sec 241(3) - Where in the opinion of the Central Government there exist
circumstances suggesting that–
(a) any person concerned in the conduct and management of the affairs of a company is or
has been in connection therewith guilty of fraud, misfeasance, persistent negligence or default
in carrying out his obligations and functions under the law or of breach of trust;
(b) the business of a company is not or has not been conducted and managed by such person
in accordance with sound business principles or prudent commercial practices;
(c) a company is or has been conducted and managed by such person in a manner which is
likely to cause, or has caused, serious injury or damage to the interest of the trade, industry or
business to which such company pertains; or
(d) the business of a company is or has been conducted and managed by such person with
intent to defraud its creditors, members or any other person or otherwise for a fraudulent or
unlawful purpose or in a manner prejudicial to public interest, the Central Government may
initiate a case against such person and refer the same to the Tribunal with a request that the
Tribunal may inquire into the case and record a decision as to whether or not such person is a
fit and proper person to hold the office of director or any other office connected with the
conduct and management of any company.
Sec 241(4) - The person against whom a case is referred to the Tribunal under sub-section (3),
51
shall be joined as a respondent to the application.

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241(5) - Every application under sub-section (3) ––

(a) shall contain a concise statement of such circumstances and materials as the Central
Government may consider necessary for the purposes of the inquiry; and
(b) shall be signed and verified in the manner laid down in the Code of Civil Procedure, 1908,
for the signature and verification of a plaint in a suit by the Central Government.
Sec. 244:- Right to Apply u/s 241
Co. having Share Capital Otherwise

 [e.g. Guarantee Co.]
1/10 of Total SH’s or
th 
100 SHs (w.e.l) 1/5 of Total Member
th
OR
1/10 of Issued Share Capital
th
- Tribunal may accept application of Lesser No. of People that specified above if it deems fit.
- Joint Shareholder = 1 shareholder
Sec. 242:- Powers of Tribunal
General Powers Specific Powers Interim Orders Alteration of

   MOA / AOA
As Tribunal may SAFAR Any order Before the 
deem fit RACO final Order e.g. Stay No alteration
e.g. Powers of Civil Order allowed without
Court Tribunals Approval
Otherwise Penalty*
Penalty:-
Company OID
 
1,00,000 – 25,00,000 Fine: 25,000 – 1,00,000
Key : S A F A R R A C O
S- Relating to Shareholding of the Co.
[Reduction of Share Capital, Restriction on Transfer / Allotment etc.]
3
A- Affairs of the Co.

[May Intervene in the day to day affairs of the Co.]
3
F- Fraudulent Preference
52
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A- Agreement:-
With Director Otherwise

[i.e. Third Party]
 
No compensation if Just & Equitable No compensation subject to a
[Justifiable] due show cause notice
& consent of concerned party
Note : Tribunal shall have the power to alter, modify or set aside any such agreement entered
by the company with the director or the third party.
R- Removal of MD / Manager / Director and fixing the manner for appointment of MD /
Manager / Director.
R- Recovery of undue Gains of MD / Manager / Director
If Victim identifiable Otherwise

 
Repay to the Victim Transfer to IEPF
A- Appointment of Nominee Director by Tribunal who shall Report to the Tribunal on

specified matters.
C- Imposed costs as Tribunal may deem fit.
O- Other orders as Tribunal may deemed Just & Equitable.
→ Note:-
1) Any type of order passed / Alterations made by Tribunal shall be filled with ROC within 30
days of such order / Alteration.
2) Sec 242(4A) - At the conclusion of the hearing of the case in respect of sub-section (3) of
section 241, the Tribunal shall record its decision stating therein specifically as to whether or
not the respondent is a fit and proper person to hold the office of director or any other
office connected with the conduct and management of any company.
Sec. 243:- Consequences of Terminations Modification of Certain Cases

/ Agreements
(1) Where an order made under section 242 terminates, sets aside or modifies an agreement
such as is referred to in sub-section (2) of that section,—
(a) such order shall not give rise to any claims whatever against the company by any person
for damages or for compensation for loss of office or in any other respect either in pursuance
of the agreement or otherwise;
(b) no managing director or other director or manager whose agreement is so terminated or
set aside shall, for a period of five years from the date of the order terminating or setting
53
aside the agreement, without the leave of the Tribunal, be

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appointed, or act, as the managing director or other director or manager of the company:
Provided that the Tribunal shall not grant leave under this clause unless notice of the
intention to apply for leave has been served on the Central Government and that
Government has been given a reasonable opportunity of being heard in the matter.
(1A) The person who is not a fit and proper person pursuant to sub-section (4A) of section
242 shall not hold the office of a director or any other office connected with the conduct and
management of the affairs of any company for a period of five years from the date of the
said decision:
Provided that the Central Government may, with the leave of the Tribunal, permit such
person to hold any such office before the expiry of the said period of 5 years.
(1B) Notwithstanding anything contained in any other provision of this Act, or any other law
for the time being in force, or any contract, memorandum or articles, on the removal of a
person from the office of a director or any other office connected with the conduct and
management of the affairs of the company, that person shall not be entitled to, or be paid,
any compensation for the loss or termination of office.
Sec 243(2) - Any person who knowingly acts as a managing director or other director or
manager of a company in contravention of clause (b) of sub-section (1) or sub-section (1A),
and every other director of the company who is knowingly a party to such contravention,
shall be punishable with with fine which may extend to Rs. 500,000.
Sec. 245:- Class Action Suits
Members Depositors
 
5% of Total Depositors or
Co. having Share Otherwise 100 Depositors (w.e.l.)
Capital atleast 5% of  or Such other Depositors to whom the Co.
SH’s 1/5th of Total owes 5 % of total debt of Co.
or 100 SH’s (w.e.l.) members
OR 5% of ISC
(Unlisted Co.) / 2%
of ISC (Listed Co.)
2) Such No (as above), if are of the opinion that the affairs of the Co. are prejudicial to the
Interest of Members, Depositors or Co. itself then they may file application to Tribunal seeking
the following orders:-
a. Restrain the Co.:
i) From committing any act which is ultra-virus its AOA / MOA.
ii) From committing breach of any Provision of its MOA / AOA.
iii) From taking any Action that is contrary to any Resolution Passed by SH’s
iv) From doing any other Act in Contradiction to any Provision under this section or any
other law for the time being in Force.
54
b. To claim Damages / Compensation or demand any action against:-

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i) Co. / Director’s for any Unlawful / Wrongful Act.

ii) The Auditor’s or any Experts / Advirors / Consultants for any unlawful or wrongful Acts
or for Disclosing any Improper or Mis-leading statement in its Reports.
c. Seek any other Remedy as Tribunal may deem fit.
3) Conditions for Accepting / Considering the Application of Members / Depositors:-
The Tribunal shall take into A/c’s the following:-
i) Whether the Member / Depositor is Acting in Good faith while making application.
ii) Involvement of any other person other than Directors if any
iii) Views of other members / Depositors of the Company.
iv) Where the cause of Action is on Act / Omission
Already Occurred Yet to occur

 
Whether it is likely to be Ratified by Co. Whether it is likely to be Authorize by Co.
Before it occurs OR Ratified by Co. After it
occurs.
4) If Application u/s 245 is Accepted by Tribunal, it must be with Regards to the following:
- Serve a Public Notice to the Members / Depositors
- Consolidate any Similar Action / Application Prevalent in any Jurisdiction.
- Two Class Action Applications for the same cause – Not allowed
- Cost of Application = DEFRAYED (Provided) by the Co. or any other person Responsible
for such oppressive Act.
5) Order of Tribunal:-
- It shall be Final & Binding on Co., Creditors, Members, Depositors, Auditors, Audit Firms,
Experts, Consultants etc.
6) Penalty for Contravention on Order of Tribunal
Company OID
 
5,00,000 – 25,00,000 Fine:- 25,000 - 1,00,000
Imprisonment: Upto 3 yrs. OR Both
7) Application filed to the Tribunal:-
If found frivolous (Not having serious purpose) vexatious (Try to bring action without sufficient
against one person)

Tribunal may Reject the Application along with Reasons for Rejections in writing & Require the
Applicant to pay Max. ` 1,00,000 to opposite Party.
Note:-This Sec. is not applicable to a Banking Co.
Sec. 246- Application of certain provisions to proceedings under
Sec.241 or Sec.245
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The provisions of Sec.337-341 (relating to winding up) shall apply mutatis mutandis in
relation to an application made to the tribunal under 241 or 245.
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COMPROMISE, ARRANGEMENTS AND AMALGAMATION
Company “A” Company “B”
Company“AB
”
* Compromise = to give away some rights
* Arrangement = Reorganisation of Co.’s Sharecapital = Consolidation / Subdivision
Note: Wherever the word ‘tribunal’ occurs in Section 230,231 & 232,
the word ‘CG’ chall be substituted.
Sec. 230: Power to make Compromise & Arrangement
1) Application to Tribunal: (Form NCLT 1)
2) Disclosure to Tribunal by Affidavit (NCLT – 6 Form)

* Co. or any person making application must make full. Disclosure
Material facts of Company Reduction of Scheme of Corporate

Share Capital Debt Restructuring
e.g. Latest Aud. Report / If any If approved by
Latest Financial Position atleast 75% secured Crs.
Including
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i) Crs. Responsibility statement

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(Form CAA- 1)
3) Order to Call & hold the meeting.

* Notice of Meeting:
- atleast 1 month before Dt. Fixed by Tribunal for holding meeting
- Form CAA-2
- sent by Chairperson / Company / Liquidator etc. as decided byTribunal
- sent to all Crs. / Members / Debn holders etc.
- sent by Courier, Regd. Post, Hand Delivery, E-mail etc.
* Contents of Notice:
- Details of C&A
- Copy of Valuation Report
- Effect on Crs / KMP / Promoters / Dir / Debn Holders / Debn Trustees etc.
* Disclosure of Notice:
- Website of Company
- If Listed Company:- to Stock Exchange & SEBI for their Websites.
- Publish in 2 Daily Newspapers - one of English language and one of vernacular language of
the district of the registered office of the company or as the tribunal may direct.
- Advtertisement shall include time wherein copy of C&A Scheme would be available free of
cost.
4) Attending the meeting + raising objections.

-Notice must specify that member may vote by P, P, P
• Physically
• Proxy
• Postal Ballot
- Raising Objection = allowed only if :
1) Holding Not less than 10% of Sh. Holding
2) O/s Debt Not less than 5% of Total O/s Debt
5) Notice to Statutory Authorities:

CG
Tribunal RBI
Intimate to SEBI
CCI & SE, if applicable
ROC
I.T. Authorities etc.
Sent opinions in 30 days if any
6) Sanction of Scheme:
- Scheme Approved if == Majority in nos.
+
Min 3/4 (in value) of Crs./ Members/ etc.
th
Voting, agree to scheme (Present & Voting)

+
57
- Sanctioned by order of Tribunal after being intimated by Company

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* Once approved, it is a binding on Company / Crs. / Memb. / Liquidator etc.

7) Order of Tribunal
- As it may deem fit
- Order by tribunal = only after Auditors Certificate is recd., that accounting treatment as per
new scheme is in accordance with prescribed AS.
8) ROC –Order of tribunal = File to ROC within 30 Days of receipt of order.

9) Dispense holding of meeting:
If atleast 90% value holding of the Crs. agree by affidavit to scheme of C&A then the
Tribunal may dispense holding meeting of such Crs.
10) Buy-Back
-No C&A if Buy-Back is not as prescribed u/s 68 of the Co’s Act, 2013.
11) Take Over

Any compromise or arrangement may include takeover offer made in such manner as may be
prescribed:
Provided that in case of listed companies, takeover offer shall be as per the regulations framed
by the Securities and Exchange Board.
12) Aggrieved Party:

An aggrieved party may make an application to the Tribunal in the event of any grievances
with respect to the takeover offer of companies other than listed companies in such manner
as may be prescribed and the Tribunal may, on application, pass such order as it may deem
fit.
Rule 3(5) of Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 :

A member of the company shall make an application for arrangement, for the purpose of takeover
offer in terms of section 230(11), when such member along with any other member holds not less
than 3/4th of the shares in the company, and such application has been filed for acquiring any part of
the remaining shares of the company.
Explanation I. - "shares" means the equity shares of the company carrying voting rights, and includes
any securities, such as depository receipts, which entitles the holder thereof to exercise voting rights.
Explanation II.-Nothing in this sub-rule shall apply to any transfer or transmission of shares through a
contract, arrangement or succession, as the case may be, or any transfer made in pursuance of any
statutory or regulatory requirement.
Rule 3(6) of Companies (Compromises, Arrangements and Amalgamations) Rules, 2016

An application of arrangement for takeover offer shall contain:-
(a) the report of a registered valuer disclosing the details of the valuation of the shares proposed to
be acquired by the member after taking into account the following factors: -
(i) the highest price paid by any person or group of persons for acquisition of shares during last 12
months;
(ii) the fair price of shares of the company to be determined by the registered valuer after taking into
account valuation parameters including return on net worth, book value of shares, earning per share,
price earning multiple vis-a-vis the industry average, and such other parameters as are customary for
valuation of shares of such companies.
58
(b) details of a bank account, to be opened separately, by the member wherein a sum of amount not
less than one-half of total consideration of the takeover offer is deposited.
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Sec. 231: Powers of Tribunal to Enforce C&A

1) If order of C&A u/s 230 is passed
Power to supervise the + Power to give Directions/make modifications

implementation of C&A in order to C&A at any time for smoothly
implementation
2) If Tribunal Satisfied that the Scheme of C&A IS NOT / CANNOT be implemented Properly,
it may order winding up of Such Company
Sec. 232: Merger & Amalgamation of Companies

1) Application to Tribunal
Approval for compromise to

/arrangement u/s 230 Tribunal
may Order a meeting of Members/ Crs.

as required u/s 230(3) to (6)
2) Company Members / Crs. for meeting (Duties of Tribunal)

Intimate alongwith
i) Draft of Scheme Proposed
ii)Confirmation of Copy of Scheme filed with ROC
iii)Effects of Scheme
iv)Valuation Report from Expert
3) If (1) & (2) above satisfied = (Order of Tribunal)

Tribunal may sanction & pass following orders:
- Trf. of Property from Old to New Company
- Allotment of Shares / Debentures etc. by New Company to Old Company Sh. Holders as
per Scheme
AND
The New Company shall NOT hold any Shares of Old Company its own Name / Subsidiary
Name / as trustee etc.
AND
All shares/securities of Old Company shall be Cancelled
- Trf. of Legal Proceedings form Old to New Company
- Dissolution Without Winding Up
- Auditors Certificate that AS as applicable is complied is must before granting sanction.
4) Additional Order:
- Property / Liab. Of Old Company shall be Trf. to New Company
AND
Tribunal may Direct New Company to ‘Free’ any property if held against any CHARGE.
59
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5) Filing to ROC
Within 30 Days of receipt of Certified copy of order.
6) Appointed Date
Scheme shall be applicable from ‘Appointed Date’ onwards mentioned in Scheme
7) Untill final completion of Scheme
Every Company shall file a Statement to ROC
Certified by Expert
that all compliances are being Done

8) If a company fails to comply with sub-section (5), the company and every officer who is
in default shall be liable to a penalty of Rs. 20,000 + Rs. 1000 / day until the default
continues subject to a maximum of Rs. 300,000.
A Clarification issued by Ministry in interpretation of Sec 232(6) –

Sec 232(6) – for those following my notes, we are talking about the key word –
ADO All Fall All UP
(a) Companies can choose the 'appointed date' of their choice and mention it in the Scheme.
This date may be :-
a specific calendar date or
may be tied to the occurrence of an event viz. grant of license by a competent authority or
fulfilment of any preconditions agreed upon by the parties, or
meeting any other requirement as agreed upon between the parties, etc., which are relevant
to the scheme.
(b) The 'appointed date' identified under the scheme shall also be deemed to be the
'acquisition date' and date of transfer of control for the purpose of conforming to accounting
standards (including Ind-AS 103 Business Combinations).
(c) ‘Appointed date' may be chosen to precede the date of filing of the application for
scheme of merger/amalgamation in NCLT.
However, if the 'appointed date' is significantly ante-dated beyond a year from the date of
filing, the justification for the same would have to be specifically brought out in the scheme
and it should not be against public interest.
(d) The scheme may identify the 'appointed date' based on the occurrence of a trigger event
which is key to the proposed scheme and agreed upon by the parties to the scheme.
This event would have to be indicated in the scheme itself upon occurrence of which the
scheme would become effective.
However, in case of such event based date being a date subsequent to the date of filing the
order with the Registrar under section 232(5), the company shall file an intimation of the
same with the Registrar within 30 days of such scheme coming into force.
Sec. 233: Fast Track Merger (FTM)

Earlier Law: Any merger requires approval from HC.
New Law: Any merger requires approval from NCLT.
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BUT
Page
FAST TRACK MERGER = No Approval of NCLT Required

BUT
FTM allowed only in case of:
a) 2 or more Small Companies [Sec. 2(85)] or
b) Holding and Wholly owned subsidiary
Conditions:
* BR required in both companies where: - Scheme of merger is approved by BOD.
ROC &
Notice Official
* Form CAA9 Liquidator
=Opinions within 30 Days
* Convene a GM:
Scheme Approved if approved by atleast 90% SHs. (value)
* Declaration of Solvency shall be submitted in Form CAA-10
* Notice to Crs. → 21 Days Notice → approved by 90% Crs. (value)
* Submit Form CAA-11 scheme to CG, ROC & Official Liquidator by The Company (If ROC /
O.L. has any objection, they can submit to CG)
AND
If CG is satisfied that merger is Not in Public Int. / Crs.Int thenCG may dismiss the FTM &
refer the case to NCLT & require to be done as per Sec. 232. Form CAA-13
* If CG satisfied → It will grant approval for FTM & CAA-11 copy of merger → to ROC →
Form INC 28
* CG may refer case to NCLT within 60 days of receiving CAA-11
* IF NCLT Passes Order of Merger
Transferor Company will dissolve without winding up procedures
Effects of Merger:
(a) Trf. of Property / Liability of Transferer to Transferee
(b) Any charge on property of Transferer = enforceable as if it is the property of Transferee.
(c) Legal cases against Transferer = Now continue in name of Transferee
(d) Any payment to dissenting Shs/Crs. = Liability of Transferee Company
* Shs. of Transferer Company should be cancelled (Old Company)
* If Sh. Cap → after amalgation / merger = Transferee Company shall pay fees to ROC only
on revised Sh. Cap.
Eg. SC of New Company = 1,00,000 Fees Pd. = 1000
SC of New Company = 2,00,000 Fees Pd. = 2000
SC of New Company = 3,50,000 Fees Pd. = 500 (on Rs. 3 L – 3.5L) after
merger
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Sec.235: POWER TO ACQUIRE SHARES OF SHAREHOLDERS

DISSENTING FROM THE SCHEME OR CONTRACT APPROVED BY
MAJORITY
(1) Where a scheme or contract involving the transfer of shares or any class of shares in a
company (the transferor company) to another company (the transferee company) has, within
4 months after making of an offer in that behalf by the transferee company, been approved
by the holders of not less than 90% in value of the shares whose transfer is involved, other
than shares already held at the date of the offer by, or by a nominee of the transferee
company or its subsidiary companies, the transferee company may, at any time within two
months after the expiry of the said 4 months, give notice in the prescribed manner to any
dissenting shareholder that it desires to acquire his shares.
(2) Where a notice under sub-section (1) is given, the transferee company shall, unless on an
application made by the dissenting shareholder to the Tribunal, within 1 month from the date
on which the notice was given and the Tribunal thinks fit to order otherwise, be entitled to
and bound to acquire those shares on the terms on which, under the scheme or contract, the
shares of the approving shareholders are to be transferred to the transferee company.
(3) Where a notice has been given by the transferee company under sub-section (1) and the
Tribunal has not, on an application made by the dissenting shareholder, made an order to the
contrary, the transferee company shall, on the expiry of 1 month from the date on which the
notice has been given, or, if an application to the Tribunal by the dissenting shareholder is
then pending, after that application has been disposed of, send a copy of the notice to the
transferor company together with an instrument of transfer, to be executed on behalf of the
shareholder by any person appointed by the transferor company and on its own behalf by the
transferee company, and pay or transfer to the transferor company the amount or other
consideration representing the price payable by the transferee company for the shares which,
by virtue of this section, that company is entitled to acquire, and the transferor company
shall—
(a) thereupon register the transferee company as the holder of those shares; and
(b) within one month of the date of such registration, inform the dissenting shareholders of
the fact of such registration and of the receipt of the amount or other consideration
representing the price payable to them by the transferee company.
(4) Any sum received by the transferor company under this section shall be paid into a
separate bank account, and any such sum and any other consideration so received shall be
held by that company in trust for the several persons entitled to the shares in respect of which
the said sum or other consideration were respectively received and shall be disbursed to the
entitled shareholders within 60 days.
Sec. 238: Registration of offer of Schemes involving transfer of Shares.

1) In relation to every offer of a scheme or contract involving the transfer of shares or any
class of shares in the transferor company to the transferee company under section 235,—
(a) every circular containing such offer and recommendation to the members of the transferor
company by its directors to accept such offer shall be accompanied by such information and
in such manner as may be prescribed;
(b) every such offer shall contain a statement by or on behalf of the transferee company,
62
disclosing the steps it has taken to ensure that necessary cash will be available; and
Page
(c) every such circular shall be presented to the Registrar for registration and no such circular
shall be issued until it is so registered:
Provided that the Registrar may refuse, for reasons to be recorded in writing, to register any
such circular which does not contain the information required to be given under clause (a) or
which sets out such information in a manner likely to give a false impression, and
communicate such refusal to the parties within thirty days of the application.
(2) An appeal shall lie to the Tribunal against an order of the Registrar refusing to register any
circular under sub-section (1).
(3) The director who issues a circular which has not been presented for registration and
registered under sub-section (1)(c), shall be liable to a penalty of Rs. 100,000/-
Sec. 234: Merger or Amalgamation of a Co. with a Foreign Co.

[Also known as Cross Border Merger]
(1) The provisions of this Chapter unless otherwise provided under any other law for the time
being in force, shall apply mutatis mutandis to schemes of mergers and amalgamations
between companies registered under this Act and companies incorporated in the jurisdictions
of such countries as may be notified from time to time by the Central Government:
Provided that the Central Government may make rules, in consultation with the Reserve
Bank of India, in connection with mergers and amalgamations provided under this section.
(2) Subject to the provisions of any other law for the time being in force, a foreign company,
may with the prior approval of the Reserve Bank of India, merge into a company registered
under this Act or vice versa and the terms and conditions of the scheme of merger may
provide, among other things, for the payment of consideration to the shareholders of the
merging company in cash, or in Depository Receipts, or partly in cash and partly in
Depository Receipts, as the case may be, as per the scheme to be drawn up for the purpose.
Sec. 236: Purchase of Minority Shareholding

(1) In the event of an acquirer, or a person acting in concert with such acquirer, becoming
registered holder of 90% or more of the issued equity share capital of a company, or in the
event of any person or group of persons becoming 90% majority or holding 90% of the
issued equity share capital of a company, by virtue of an amalgamation, share exchange,
conversion of securities or for any other reason, such acquirer, person or group of persons, as
the case may be, shall notify the company of their intention to buy the remaining equity
shares.
(2) The acquirer, person or group of persons under sub-section (1)shall offer to the minority
shareholders of the company for buying the equity shares held by such shareholders at a
price determined on the basis of valuation by a registered valuer in accordance with such
rules as may be prescribed.
(3) Without prejudice to the provisions of sub-sections (1) and (2), the minority shareholders
of the company may offer to the majority shareholders to purchase the minority equity
shareholding of the company at the price determined in accordance with such rules as may be
63
prescribed under sub-section (2).

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(4)The majority shareholders shall deposit an amount equal to the value of shares to be
acquired by them under sub-section (2) or sub-section (3), as the case may be, in a separate
bank account to be operated by company whose shares are being transferred for at least 1
year for payment to the minority shareholders and such amount shall be disbursed to the
entitled shareholders within 60 days:
Provided that such disbursement shall continue to be made to the entitled shareholders for a
period of 1 year, who for any reason had not been made disbursement within the said period
of 60 days or if the disbursement have been made within the aforesaid period of 60 days, fail
to receive or claim payment arising out of such disbursement.
(5) In the event of a purchase under this section, company whose shares are being
transferred shall act as a transfer agent for receiving and paying the price to the minority
shareholders and for taking delivery of the shares and delivering such shares to the majority,
as the case may be.
(6) In the absence of a physical delivery of shares by the shareholders within the time
specified by the company, the share certificates shall be deemed to be cancelled, and
company whose shares are being transferred shall be authorised to issue shares in lieu of the
cancelled shares and complete the transfer in accordance with law and make payment of the
price out of deposit made under sub-section (4) by the majority in advance to the minority
by despatch of such payment.
(7) In the event of a majority shareholder or shareholders requiring a full purchase and
making payment of price by deposit with the company for any shareholder or shareholders
who have died or ceased to exist, or whose heirs, successors, administrators or assignees have
not been brought on record by transmission, the right of such shareholders to make an offer
for sale of minority equity shareholding shall continue and be available for a period of three
years from the date of majority acquisition or majority shareholding.
(8) Where the shares of minority shareholders have been acquired in pursuance of this section
and as on or prior to the date of transfer following such acquisition, the shareholders holding
seventy-five per cent. or more minority equity shareholding negotiate or reach an
understanding on a higher price for any transfer, proposed or agreed upon, of the shares held
by them without disclosing the fact or likelihood of transfer taking place on the basis of such
negotiation, understanding or agreement, the majority shareholders shall share the additional
compensation so received by them with such minority shareholders on a pro rata basis.
(9) When a shareholder or the majority equity shareholder fails to acquire full purchase of the
shares of the minority equity shareholders, then, the provisions of this section shall continue
to apply to the residual minority equity shareholders, even though,—
(a) the shares of the company of the residual minority equity shareholder had been delisted;
and
(b) the period of one year or the period specified in the regulations made by the Securities
and Exchange Board under the Securities and Exchange Board of India Act, 1992, had elapsed.
Sec 237: Amalgamation / Merger in Public Interest (Key - PCA OOT)

P: Public Interest
CG shall ensure that such amalgamation is in Public Interest thereby ensuring that the Stake of
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Stakeholders in amalgamated Company is same as the stake in Old Company.

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C: Compensation
In case of alteration in the Sh. Capital of the Stakeholders, the stakeholders may Demand
Compensation for Differential Shareholding.
A: Appeal
Any compensation assessed to be paid shall be published in OG by CG.
If Dissatisfied with compensation, aggrieved party may file a case within 30 Days to Tribunal
for assessment.
O: Opportunity of Being Heard
A reasonable OOBH shall be provided to stakeholders.
O: Order (Draft)
Before making final Order,
* Copy of Draft Order shall be sent by Both Parties.
* CG has made necessary modification as it may deem fit in order of tribunal & given
stakeholders atleast 2 months time to give suggestions.
T: Terms of Final Order

CG may consider suggestions, if any & then draft the terms of final order.
Copy of final Order shall be then immediately laid before both houses of Parliament & then
Published in OG.
Sec 239: Preservation of Books & Papers of amalgamated Company

* Books & Papers CANNOT be DISPOSED without prior approval of CG.
* CG may conduct Inspection before granting any permission for Disposal.
Sec. 240: Liability for Offenses by Officers

* Offences committed before merger / Amalgamation Shall CONTINUE after the merger /
Amalgamation
Notes for Practice :

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WINDING UP (NEW)
(I) Winding up by Tribunal:

Sec 271: Circumstances in which Company may be wound up by
Tribunal
Company may, on petition under section 272, be wound up by Tribunal,
* if Company is unable to pay its debts ;
* if Company has, by SR, resolved that Company be wound up by Tribunal;
* if Company has acted against interests of sovereignty & integrity of India , security of State,
friendly relations with foreign States, public order, decency or morality;
* if Tribunal has ordered winding up of Company;
* if on application made by Registrar or any person authorised by CG by notification under
this Act,
* Tribunal is of opinion that affairs of Company have been conducted in fraudulent manner
or Company was formed for fraudulent and unlawful purpose or persons concerned in
formation/ management of its affairs have been guilty of fraud, misfeasance or misconduct
that it is proper that Company be wound up;
* if Company has made a default in filing with Registrar its FS or annual returns for
immediately preceding 5 consecutive F.Y. ; or
* if Tribunal is of opinion that it is just & equitable that Company should be wound up.
A Company shall be deemed to be unable to pay its debts:

* if creditor, to whom Company is indebted for amount exceeding Rs. 1 lakh due, has served
on Co., demand requiring Company to pay amount so due & Company has failed to pay
sum within 21 days after receipt of such demand or to provide adequate security or re-
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structure or compound debt to reasonable satisfaction of creditor;

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* if any execution or other process issued on decree or order of any court or tribunal in
favour of creditor of Company is returned unsatisfied in whole or in part; or
* if it is proved to satisfaction of Tribunal that Company is unable to pay its debts , Tribunal
shall take into account contingent & prospective liabilities of Company.
Section 272: Petition for winding up

Petition to Tribunal for winding up of Company shall be presented by:
* Company ;
* any creditors, including any contingent or prospective creditors,
* any contributories;
* all or any of persons specified in clauses (a), (b) & (c) together ;
* Registrar ;
* any person authorized by CG in that behalf; or
* by CG or SG.
* Contributory shall be entitled to present petition for winding up of Company,
notwithstanding that he may be holder of fully paid-up shares , or that Company may have
no assets at all or may have no surplus assets left for distribution among shareholders, &
shares in respect of which he is contributory or some of them were either originally allotted
to him or have been held by him, & registered in his name, for at least 6 months during 18
months immediately before commencement of winding up or devolved on him through
death of a former holder.
* Registrar be entitled to present petition for winding up on any of grounds specified u/s
271(1), except on grounds specified in clause (b)/ (d) or (g) of that subsection
* Registrar shall not present petition on ground that Company is unable to pay its debts
unless it appears to him either from financial condition of Company as disclosed in B/S or
report of inspector u/s 210
* Registrar shall obtain previous sanction of CG to presentation of petition
* CG shall not give its sanction unless Company has been given reasonable opportunity of
making representations
* Petition presented by Company before Tribunal be admitted only if accompanied by
statement of affairs
* Before petition presented by contingent or prospective creditor is admitted, leave of
Tribunal be obtained for admission of petition
* Copy of petition shall also be filed with Registrar & he shall submit his views to tribunal
within 60 days of receipt of such petition.
Sec 273: Powers of Tribunal

Tribunal may, on receipt of petition for winding up u/s 272 pass any of following orders:
* dismiss it, with/ without costs;
* make interim order as it thinks fit;
* appoint provisional liquidator of Company till making of winding up order;
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* make order for winding up of Company with/ without costs,

* any other order as it thinks fit:
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- Order be made within 90 days from date of presentation of petition

- Before appointing provisional liquidator under clause (c), Tribunal shall give notice to
Company & reasonable opportunity to make representations, if any, unless for special reasons
to be recorded in writing, Tribunal thinks fit to dispense with such notice
-Tribunal shall not refuse to make winding up order on ground only that assets of Company
have been mortgaged for amount equal to or in excess of those assets, or that Company has
no assets
-Where petition is presented on ground that it is just & equitable that Company should be
wound up, Tribunal may refuse to make order of winding up, if other remedy is available to
petitioners & they are acting unreasonably in seeking to have Company wound up.
Sec 274: Directions for filing statement of affairs

* Where petition for winding up is filed before Tribunal by person other than Co., Tribunal
shall, ifsatisfied, by order direct Company to file its objections along with statement of
affairs within 30 days of order:
* allow further 30 days in situation of contingency or special circumstances
* direct petitioner to deposit security for costs as precondition to issue directions
* Company, which fails to file statement of affairs , shall forfeit right to oppose petition &
directors & officers of Company found responsible for such noncompliance, be liable for
punishment
* Directors & officers of Co, shall, within 30 days of order u/s 273(1)(d), submit, at cost of
Co, books of account completed & audited up to date of order, to liquidator in manner
specified by Tribunal
* Director or officer of Company in default shall be punishable with imprisonment for term
which may extend to 6 months or with fine of Rs. 25,000/- to Rs. 5,00,000/-, or with both
* Complaint may be filed in this behalf before Special Court by Registrar, provisional
liquidator, Company Liquidator or person authorised by Tribunal.
Sec 275: Company Liquidators & their appointment

* For winding up of Company by Tribunal, Tribunal at time of passing of order of winding
up, shall appoint Official Liquidator or liquidator from panel as Company Liquidator
* Provisional liquidator or Company Liquidator, as case may be, shall be appointed from
panel maintained by CG consisting of names of CA, advocates, CS, Cost Accountants or
firms or bodies corporate having such CAs, advocates, CS, Cost Accountants & other
professionals notified by CG or from firm or body corporate of persons having
combination of professionals & having at least 10 years’ experience in Company matters.
* Tribunal may limit & restrict powers of provisional liquidator, by order appointing him or
by subsequent order, but otherwise he shall have same powers as liquidator
* CG may remove name of person or firm or body corporate from panel, on grounds of
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misconduct, fraud, misfeasance, breach of duties or professional incompetence, after giving

reasonable opportunity of being heard
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* Terms & conditions of appointment & fee payable be specified by Tribunal on basis of task
required to be performed, experience, qualification of such liquidator & size of Company
* On appointment as provisional liquidator or Company Liquidator, liquidator shall file
declaration within 7 days from date of appointment disclosing conflict of interest or lack of
independence in respect of his appointment, with Tribunal
Sec 276: Removal & replacement of Liquidator

Tribunal may, on reasonable cause & for reasons to be recorded in writing, remove
provisional liquidator or Company Liquidator, on any of following grounds:
* misconduct;
* fraud or misfeasance ;
* professional incompetence or failure to exercise due care & diligence in performance of
powers & functions;
* inability to act as provisional liquidator or as case may be, Company Liquidator;
* conflict of interest or lack of independence during term of appointment that justify
removal.
* In event of death, resignation or removal of provisional liquidator or Company Liquidator,
Tribunal may transfer work assigned to him to another Company Liquidator for reasons
recorded in writing.
* Where Tribunal is of opinion that liquidator is responsible for causing any loss or damage
to Company due to fraud or misfeasance or failure to exercise due care & diligence in
performance of his or its powers & functions, Tribunal may recover such loss or damage
from liquidator & pass orders as it may think fit.
* Tribunal shall, before passing any order, provide reasonable opportunity of being heard to
provisional liquidator or Company Liquidator.
Sec 277: Intimation to Company Liquidator, provisional liquidator &

Registrar
* Where Tribunal makes order for appointment of provisional liquidator or for winding up
of Company, it shall, within period not exceeding 7 days from date of passing of order,
cause intimation to be sent to Company Liquidator or provisional liquidator & Registrar.
* On receipt of copy of order, Registrar shall make endorsement to that effect in his records
relating to Company & notify in Official Gazette that order has been made & in case of
listed Company, Registrar shall intimate about appointment or order, to stock exchanges
where securities of Company are listed.
* Winding up order shall be deemed to be notice of discharge to officers, employees &
workmen of Company, except when business of Company is continued
* Within 3 weeks from date of passing of winding up order, Company Liquidator shall
application to Tribunal for constitution of winding up committee to assist & monitor
progress of liquidation proceedings by Company Liquidator in carrying out function & such
winding up committee shall comprise:
• nominee of secured creditors;
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• professional nominated by Tribunal

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• Company Liquidator be convener of meetings of winding up committee which shall

assist & monitor liquidation proceedings.
* Company Liquidator shall place before Tribunal report along with minutes of meetings of
committee on monthly basis duly signed by members present in meeting till final report for
dissolution of Company is submitted before Tribunal.
* Company Liquidator shall prepare draft final report for consideration & approval of
winding up committee
* Final report so approved by winding up committee be submitted by Company Liquidator
before Tribunal for passing of dissolution order in respect of Company
Sec 278: Effect of Winding up order

Order for winding up of Company shall operate in favour of all creditors & all contributories
of Company as if it had been made out on joint petition of creditors & contributories.
Sec 279: Stay of suits, etc., on winding up order

* When winding up order has been passed or provisional liquidator has been appointed, no
suit or other legal proceeding be commenced, or if pending at date of winding up order,
shall be proceeded with, by or against Company, except with leave of Tribunal & subject
to such terms as Tribunal may impose Application to Tribunal seeking leave under this
section be disposed of by Tribunal within 60 days.
* Nothing in subsection (1) shall apply to proceeding pending in appeal before Supreme
Court or High Court
Sec 280: Jurisdiction of Tribunal

Tribunal shall, notwithstanding anything contained in any other law for time being in force,
have jurisdiction to entertain, or dispose of:
* any suit or proceeding by or against Co,
* any claim made by or against Co, including claims by or against any of its branches in India;
* application made u/s 233;
* scheme submitted u/s 262 ;
* any question of priorities or any question whatsoever, whether of law or facts
* whether such suit or proceeding has been instituted , or is instituted, or such claim or
question has arisen or arises or such application has been made or is made or such scheme
has been submitted, or is submitted, before or after order for winding up of Company is
made.
Sec 281: Submission of report by Company Liquidator

Where Tribunal has made winding up order or appointed Company Liquidator, such
liquidator shall, within 60 days from order, submit to Tribunal, report containing:
* nature & details of assets of Company including location & value, stating separately cash in
hand & in bank, & negotiable securities held
* amount of capital issued, subscribed & paid-up ;
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* existing & contingent liabilities of Company stating separately amount of secured &
unsecured debts, & in case of secured debts, particulars of securities given
* debts due to Company & names, addresses, occupations of persons from whom they are
due & amount likely to be realised,
* guarantees , extended by Co;
* list of contributories & dues , payable by them & details of any unpaid call;
* details of trade marks & intellectual properties owned
* details of subsisting contracts, joint ventures & collaborations ,
* details of holding & subsidiary companies,
* details of legal cases filed by or against Co; &
* other information which Tribunal may direct or Company Liquidator may consider
necessary.
* Company Liquidator shall include manner in which Company was promoted/ formed &
whether in his opinion fraud has been committed in its promotion/ formation or by officer
of Company since formation & other matters desirable to bring to notice of Tribunal
* Company Liquidator shall also make report on viability of business of Company or steps
which, in his opinion, are necessary for maximising value of assets
* Company Liquidator may also, if he thinks fit, make any further reports
* Person describing himself in writing to be creditor or contributory of Company be entitled
by himself or by his agent at all reasonable times to inspect report & take copies/ extracts
on payment of prescribed fees
Sec 282: Directions of Tribunal on report of Company Liquidator

* Tribunal, on consideration of report of Company Liquidator, fix time limit within which
entire proceedings be completed & Company be dissolved.
* Tribunal, at any stage of proceedings, or on examination of reports submited by Company
Liquidator & after hearing Company Liquidator, creditors or contributories or other
interested person, is of opinion that it will not be advantageous or economical to continue
proceedings, revise time limit.
* Tribunal may, also order sale of Company as going concern or its assets or part thereof
* Where it considers fit, appoint sale committee comprising such creditors, promoters &
officers of Company as Tribunal may decide to assist Company Liquidator in sale.
* Where report is received from Company Liquidator or CG or any person that fraud has
been committed in respect of Company, Tribunal shall, without prejudice to process of
winding up, order for investigation u/s 210, & on consideration of report of such
investigation it may pass order & give directions u/s 339 to 342 or direct Company
Liquidator to file criminal complaint against persons involved in commission of fraud
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* Tribunal may order for taking such steps & measures, as

may be necessary, to protect, preserve or enhance value of
assets of Company.
* Tribunal may pass other order or give such other
directions as it considers fit.
Sec 283: Custody of Company’s Properties

* Where winding up order has been made or where provisional liquidator has been
appointed, Company Liquidator or provisional liquidator, shall, on order of Tribunal, take
into his or its custody or control all property, effects & actionable claims to which
Company is or appears to be entitled to & take steps & measures, as may be necessary, to
protect & preserve properties of Company.
* Notwithstanding anything contained in sub-section (1), all property & effects of Company
shall be deemed to be in custody of Tribunal from date of order for winding up.
* On application by Company Liquidator or otherwise, Tribunal may, at any time after
making of winding up order, require any contributory on list of contributories, & any
trustee, receiver, banker, agent, officer or other employee of Company, to pay, deliver,
surrender or transfer, or within such time as Tribunal directs, to Company Liquidator, any
money, property or books & papers in his custody or under his control to which Company
is or appears to be entitled.
Sec 284: Promoters, directors, etc., to cooperate with Company

Liquidator
(1) The promoters, directors, officers and employees, who are or have been in employment
of the company or acting or associated with the company shall extend full cooperation to the
Company Liquidator in discharge of his functions and duties.
(2) If any person required to assist or cooperate with the Company Liquidator under sub-section
(1) does not assist or cooperate, the Company Liquidator may make an application to the
Tribunal for necessary directions.
(3) On receiving an application under sub-section (2), the Tribunal shall, by an order, direct
the person required to assist or cooperate with the Company Liquidator to comply with the
instructions of the Company Liquidator and to cooperate with him in discharging his functions
and duties.
Sec 285: Settlement of list of Contributories & application of assets

* After passing of winding up order by Tribunal, Tribunal shall settle list of contributories,
cause rectification of register of members where required in this Act & shall cause assets of
Company to be applied for discharge of its liability
* Where it appears to Tribunal that it would not be necessary to make calls on or adjust
rights of contributories, Tribunal may dispense with settlement of list of contributories
* In selling list of contributories, Tribunal shall distinguish between those who are
contributories in their own right & those who are contributories as being representatives of,
or liable for debts of, others.
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* While settling, Tribunal shall include every person, who is or has been member, who shall
be liable to contribute to assets of Company amount sufficient for payment of debts &
liabilities & costs, charges & expenses of winding up, & for adjustment of rights of
contributories among themselves, subject tofollowing conditions:
• person who has been member not be liable to contribute if he has ceased to be
member for preceding 1 year or more before commencement of winding up;
• person who has been member not be liable to contribute in respect of any debt or
liability of Company contracted after he ceased to be member;
• no person who has been member be liable to contribute unless it appears to Tribunal
that present members are unable to satisfy contributions required to be made by them
in pursuance of this Act;
• in case of Company limited by shares , no contribution be required exceeding amount,
unpaid on shares in respect of which he is liable as such member;
• in case of Company limited by guarantee, no contribution be required exceeding
amount undertaken to be contributed to assets of Company in event of its being
wound up but if Company has share capital, member shall be liable to contribute to
extent of sum unpaid on shares held by him as if Company were Company limited by
shares.
Sec 286: Obligation of Directors & managers

In case of limited Co, director or manager, whose liability is unlimited, shall, in addition to his
liability, to contribute as ordinary member, be liable to make further contribution as if he was
member of unlimited Co:
Provided that-
* he shall not be liable to make such further contribution, if he has ceased to hold office for
year or upwards before commencement of winding up;
* he shall not be liable to make such further contribution in respect of any debt or liability of
Company contracted after he ceased to hold office;
* subject to articles of Company, director or manager shall not be liable to make such further
contribution unless Tribunal deems it necessary to require contribution to satisfy debts &
liabilities of Company, & costs, charges & expenses of winding up.
Sec 287: Advisory committee

* Tribunal may, while passing order of winding up, direct that there shall be, Advisory
committee to advise Company Liquidator & to report to Tribunal
* It shall consist of not more than 12 members, being creditors & contributories or other
persons
* Company Liquidator shall convene meeting of creditors & contributories, within 30 days
from date of order of winding up for enabling Tribunal to determine members of advisory
committee
* It shall have right to inspect books of account & other documents, assets & properties of
Company under liquidation at reasonable time.
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* Convening of meetings, procedure to be followed thereat & other matters to conduct of

business by advisory committee be prescribed.
* Meeting of advisory committee shall be chaired by Company Liquidator.
Sec 288: Submission of Periodical reports to Tribunal

* Company Liquidator shall make periodical reports to Tribunal & in any case make report at
end of each quarter with respect to progress of winding up
* Tribunal may, on application by Company Liquidator, review orders made by it & make
such modifications as it thinks fit.
Sec 290: Powers & Duties of Company Liquidator

Subject to directions by Tribunal, Company Liquidator, in winding up of Company by
Tribunal, shall have power:
* to carry on business of Co . necessary for beneficial winding up ;
* to do all acts & to execute, in name & on behalf of Company, all deeds, receipts & other
documents, to use, when necessary, Company’s seal;
* to sell immovable & movable property
* to sell whole of undertaking of Company as going concern;
* to raise any money required on security of assets
* to institute or defend any suit, prosecution or other legal proceeding , civil or criminal, in
name & on behalf of Co;
* to inspect records & returns of Company on files of Registrar or other authority;
* to take out, in his official name, letters of administration to any deceased contributory
* to take such actions, steps, or to sign, execute & verify any paper, deed, document,
application, petition, affidavit, bond or instrument:
* for winding up of Co;
* for distribution of assets ;
* in discharge of his duties & obligations & functions as Company Liquidator;
* to apply to Tribunal for such orders or directions necessary for winding up of Company
Sec 291: Provision for professional assistance to Company Liquidator

* Company Liquidator may, with sanction of Tribunal, appoint one or more CAs/ CS / Cost
Accountants or legal practitioners or other professionals on terms & conditions, necessary,
to assist him in performance of his duties & functions.
* Person appointed under this section shall disclose to Tribunal any conflict of interest or lack
of independence in respect of his appointment.
Sec 292: Exercise & Control of Company Liquidator’s powers

* Subject to provisions of this Act, Company Liquidator shall, have regard to directions given
by resolution of creditors or contributories at GM or by advisory committee.
* Directions given by creditors or contributories at GM shall, in case of conflict, be deemed
to override directions given by advisory committee
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* Company Liquidator :
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• may summon meetings of creditors or contributories , whenever he thinks fit, for

ascertaining their wishes;
• shall summon meetings at such times, as creditors or contributories , may, by resolution,
direct, or whenever requested in writing to do so by not less than 1/10th in value of
creditors or contributories
* Person aggrieved by act or decision of Company Liquidator may apply to Tribunal, &
Tribunal may confirm, reverse or modify act or decision complained of & make further
order as it thinks just & proper.
Sec 293: Books to be kept by Company Liquidator

* Company Liquidator shall keep proper books, in which he shall cause entries or minutes to
be made of proceedings at meetings
* Any creditor or contributory may, subject to control of tribunal, inspect books, personally
or through his agent.
Sec 294: Audit of Company Liquidator accounts

* Company Liquidator shall maintain proper & regular books of account including accounts
of receipts & payments made by him.
* He shall, at times as may be prescribed but not less than twice in each year during his
tenure of office, present to Tribunal account of receipts & payments as such liquidator in
duplicate, which be verified by declaration.
* Tribunal shall cause accounts to be audited in manner as it thinks fit, Company Liquidator
shall furnish vouchers & information as Tribunal may require, & Tribunal may, require
production of, & inspect, any books of account kept by Company Liquidator.
* When accounts of Company have been audited, one copy be filed by Company Liquidator
with Tribunal, & other copy be delivered to Registrar which shall be open to inspection by
any creditor, contributory or person interested.
* Where account relates to Government Company, Company Liquidator forward copy:
• to CG, if it is member of Government Company; or
• to any SG, if it is member of Government Company; or
• to CG & any SG , if both Governments are members of Government Company
* Company Liquidator shall cause accounts when audited , or summary , to be printed , &
send by post to every creditor & every contributory
* Tribunal may dispense with compliance of this sub-section in any case it deems fit
Sec 295: Payment of debts by contributory & extent of set off

* Tribunal may, after passing of winding up order, pass order requiring contributory for me
being on list of contributories to pay, in manner directed by order, money due to
Company, from him or from estate of person whom he represents, exclusive of money
payable by him or estate by virtue of call
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* Tribunal, in making order, may:

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• in case of unlimited Co, allow to contributory, by way of set-off, money due to him or
to estate, but not money due to him as member of Company in respect of any
dividend or profit; &
• in case of limited Co, allow director or manager whose liability is unlimited, or his
estate, set-off
* In case of Company, whether limited or unlimited, when all creditors have been paid in
full, money due to contributory from Company may be allowed to him by way of set-off
against subsequent call.
Sec 296: Powers of Tribunal to make calls

Tribunal may, after passing of winding up order, & either before or after it has ascertained
sufficiency of assets:
* make calls on all or any of contributories on list of contributories, to extent of their
liability, for payment of money Tribunal considers necessary to satisfy debts & liabilities of
Company, & costs, charges & expenses of winding up, & for adjustment of rights of
contributories; &
* make order for payment of any calls so made.
Sec 297: Adjustment of rights of Contribution

Tribunal shall adjust rights of contributories among themselves & distribute any surplus among
entitled persons.
Sec 298: Power to order costs

Tribunal may, in event of assets of Company being insufficient to satisfy its liabilities, make
order for payment out of assets, of costs, charges & expenses incurred in winding up, in such
order of priority inter se as Tribunal thinks just & proper.
Sec 299: Power to summon persons suspected of having property of

Company, etc.
Tribunal may, after appointment of provisional liquidator or passing of winding up order,
summon officer of Company or person known or suspected to have in his possession any
property or books or papers, or be indebted to Co, or person whom Tribunal thinks to be
capable of giving information concerning promotion, formation, trade, dealings, property,
books or papers, or affairs of Company.
Tribunal may examine officer or person so summoned on oath, either by word of mouth or
on written interrogatories or affidavit & may, in first case, reduce his answers to wring & require
him to sign them.
Tribunal may require officer or person so summoned to produce any books & papers relating
to Company in his custody or power, but, where he claims lien on books or papers produced
by him, production be without prejudice to such lien.
Tribunal may direct liquidator to file report in respect of debt or property of Company in
possession of other persons
If Tribunal finds that -
1. A person is indebted to Co, may order him to pay to provisional liquidator or, liquidator at
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such me, amount in which he is indebted, either in full discharge of whole amount or not, as
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Tribunal thinks fit, with or without costs of examination;

2. A person is in possession of property belonging to Company, may order him to deliver to

provisional liquidator or liquidator, that property or any part, at such me, manner & terms as
Tribunal may consider just
* If officer or person so summoned fails to appear before Tribunal at me appointed without
reasonable cause, Tribunal may impose appropriate cost
* Every order shall be executed in the same manner as decrees for the payment of money or
for the delivery of property under the Code of Civil Procedure, 1908.
* Any person making any payment or delivery in pursuance of an order shall by such
payment or delivery be, unless otherwise directed by such order, discharged from all
liability whatsoever in respect of such debt or property.
Sec 300: Power to order examination of Promoters, Directors, etc.

* Where order made for winding up of Company by Tribunal, & Company Liquidator has
made report to Tribunal, stating in his opinion fraud has been committed by any person in
promotion, formation, business or conduct of affairs of Company since its formation,
Tribunal may, after considering report, direct person or officer shall attend before Tribunal
on day appointed by it for that purpose & be examined
* Company Liquidator shall take part in examination, & if specially authorised by Tribunal,
employ legal assistance
* Person shall be examined on oath & shall answer all such questions as Tribunal may put, or
allow to be put, to him
* Person ordered to be examined under this section-
• shall, before his examination, be furnished at his own cost with copy of report of
Company Liquidator; &
• may at his own cost employ CA/CS/ Cost Accountants or legal practitioners to appear
before Tribunal u/s 432
* If such person applies to Tribunal to be exculpated from any charges made or suggested
against him, it shall be duty of Company Liquidator to appear on hearing & call attention
of Tribunal to matters which appear relevant
* Tribunal may, adjourn examination from time to time.
* Examination, if Tribunal so directs, be held before any person or authority authorised by
Tribunal
Sec 301: Arrest of person trying to leave India or abscond

At any time either before or after passing winding up order, if Tribunal is satisfied that
contributory or person having property, accounts or papers of Company in his possession is
about to leave India or otherwise to abscond, or is about to remove or conceal any of his
property, for purpose of evading payment of calls or of avoiding examination respecting affairs
of Company, Tribunal may cause:
* contributory to be detained until such me as Tribunal may order; &
* his books & papers & movable property to be seized & safely kept until such me as Tribunal
may order
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Sec 302: Dissolution of Company by Tribunal

(1) When the affairs of a company have been completely wound up, the Company Liquidator
shall make an application to the Tribunal for dissolution of such company.
(2) The Tribunal shall on an application filed by the Company Liquidator under sub-section (1)
or when the Tribunal is of the opinion that it is just and reasonable in the circumstances of the
case that an order for the dissolution of the company should be made, make an order that the
company be dissolved from the date of the order, and the company shall be dissolved
accordingly.
(3) The Tribunal shall, within a period of thirty days from the date of the order,—
(a) forward a copy of the order to the Registrar who shall record in the register relating to the
company a minute of the dissolution of the company; and
(b) direct the Company Liquidator to forward a copy of the order to the Registrar who shall
record in the register relating to the company a minute of the dissolution of the company.
Sec 303: Appeals from made before commencement of Act.

Shall continue as it is.
Note: Sec 304 to Sec 323 is Not a Part of CA Final (OLD/NEW)

Syllabus.
PART II: PROVISION APPLICABLE TO EVERY MODE OF

WINDING UP
Sec 324: Debts of all description to be admitted to proof
In every winding up, all debts payable on contingency, & all claims against Company, present
or future, certain or contingent, ascertained or sounding only in damages, shall be admissible
to proof against Company, just estimate being made, so far as possible, of value of such debts
or claims as may be subject to any contingency, or may sound only in damages, or for some
other reason may not bear certain value.
Sec 326: Overriding preferential payments

* Notwithstanding anything contained in this Act or any other law for me being in force, in
winding up of Company
• workmen’s dues; &
• debts due to secured creditors to extent such debts rank u/s 325(3)(b)(iii) pari passu
with such dues,-shall be paid in priority to all other debts
* In case of winding up of Company, sums towards wages or salary referred to u/s
325(3)(b)(i), which are payable for period of 2 years preceding winding up order, be paid
in priority to all other debts (including debts due to secured creditors), within 30 days of
sale of assets & shall be subject to such charge over security of secured creditors
* Debts payable under proviso to subsection (1) shall be paid in full before any payment is
made to secured creditors & thereafter debts payable under that subsection shall be paid in
full, unless assets are insufficient to meet them, in which case in they shall abate equal
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proportion.
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Sec 327: Preferential Payments

Subject to provisions of section 326, there shall be paid in priority to all other debts:
* all revenues, taxes, ceases & rates due to CG or SG or to local authority at relevant date, &
due & payable within 12 months immediately before that date;
* all wages or salary including wages for time/ piece work & commission of employee in
respect of services rendered to Company & due for period not exceeding 4 months within
12 months immediately before relevant date;
* all accrued holiday remuneration to employee, in case of his death, person claiming under
him
* unless Company is being wound up voluntarily for reconstruction/ amalgamation with
another Company, all contributions payable during 12 months immediately before relevant
date as employer under ESI
* unless Company has, at commencement of winding up, under contract with insurer, rights
capable of being transferred to & vested in workmen, all amount due in respect of any
compensation or liability for compensation in respect of death or disablement of employee
* all sums due to any employee from provident fund, pension fund, gratuity fund or other
fund for welfare of employees
* Where payment made to employee out of money advanced by person for that purpose, he
shall have right of priority for money so advanced
* Debts enumerated in this section shall
• rank equally among themselves & be paid in full, unless assets are insufficient to meet
them, in which case they shall abate in equal proportions;
• so far as assets of Company available for payment to general creditors are insufficient to
meet them, have priority over claims of holders of debentures under floating charge
created by Company, & be paid accordingly out of property comprised in or subject to
that charge
Subject to retention of sums as may be necessary for costs & expenses of winding up, debts be
discharged so far as assets are sufficient to meet them
Remuneration in respect of period of holiday or of absence from work on medical grounds
be deemed to be wage.
Sec 328: Fraudulent Preference

* Where Company has given preference to one of creditors or surety or guarantor for any of
debts or other liabilities of Company, which has effect of putting that person into position
which, in event of Company going into liquidation, will be better than position he would
have been in if that thing had not been done prior to 6 months of making winding up
application, Tribunal, if satisfied that, such transaction is fraudulent preference may order
for restoring position if Company had not given preference
* If Tribunal is satisfied that there is preference transfer of property, or delivery of goods,
payment, execution made, taken or done by or against Company within 6 months before
making winding up application, Tribunal may order & declare such transaction invalid &
restore position
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Sec 329: Transfer not in good faith to be fraud

Any transfer of property, movable or immovable, or any delivery of goods, made by
Company, not being transfer or delivery made in ordinary course of its business or in favour
of purchaser or encumbrance in good faith & for valuable consideration, if made within period
of 1 year before presentation of peon for winding up by Tribunal or passing of resolution for
voluntary winding up of Company, shall be void against Company Liquidator.
Sec 330: Certain Transfer to be void

Any transfer or assignment by Company of all its properties or assets to trustees for benefit of
all its creditors shall be void.
Sec 331: Liabilities & rights of certain person fraudulently preferred

* Where Company is being wound up & anything made, taken or done after commencement
of this Act is invalid under section 328 as fraudulent preference of person interested in
property mortgaged or charged to secure Company’s debt, then, person preferred be
subject to same liabilities, & shall have same rights, as if he had undertaken to be personally
liable as surety for debt, to extent of mortgage or charge on property or value of his
interest, whichever is less
* Value of interest of person preferred be determined as at date of transaction constituting
fraudulent preference, as if interest were free of all encumbrances
* On application made to Tribunal that payment was fraudulent preference of surety or
guarantor, Tribunal shall have jurisdiction to determine questions arising between person to
whom payment was made & surety or guarantor & to grant relief
Sec 332: Effect of floating charges

Where Company is being wound up, floating charge on undertaking or property of Company
created within 12 months immediately preceding commencement of winding up, shall, unless
it is proved that Company immediately after creation of charge was solvent, be invalid, except
for amount of cash paid to Company at time of, or subsequent to creation of, & in
consideration for, charge, together with interest on that amount at rate of 5% per annum or
such other rate as may be notified by CG in this behalf.
Sec 333: Disclaimer of Onerous Property

* Where part of property of Company which is being wound up consists of:
• land of any tenure, burdened with onerous covenants;
• shares or stocks in companies;
• any other property which is not saleable
• unprofitable contracts,
(a) Company Liquidator may, with leave of Tribunal, by writing signed by him, at any me
within 12 months after commencement of winding up or extended period, disclaim property
(b) Where Company Liquidator had not become aware of existence of any property within 1
month from commencement of winding up, power of disclaiming property may be exercised
at any me within 12 months after becoming aware thereof or extended period.
* Disclaimer shall operate to determine, from date of disclaimer, rights, interest & liabilities of
Company in or in respect of property disclaimed
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* Tribunal, before or on granting leave to disclaim, may require notices to be given to

persons interested, & impose terms as condition of granting leave, & make order it
considers just & proper
* Company Liquidator not be entitled to disclaim property, where application made to him
by person interested in property requiring him to decide whether he will or will not
disclaim & Company Liquidator, within 28 days after receipt of application or extended
period, not given notice to applicant that he intends to apply to Tribunal for leave to
disclaim
* Tribunal may, on application of person against Company Liquidator, make order rescinding
contract on terms as to payment by or to either party of damages for non-performance of
contract, or otherwise as Tribunal considers just & proper
* Tribunal may, on application by person who either claims interest in disclaimed property
or is under liability not discharged, make order for vesting of property in, or delivery of
property to, person entitled or to whom it may seem just, or trustee for him, & on terms as
Tribunal considers just & proper, & onvesting order being made, property comprised shall
vest in person named in that behalf
* Where property disclaimed is of leasehold nature, Tribunal shall not make vesting order in
favour of person claiming under Co, except upon terms of making that person-
subject to same liabilities & obligations as those to which Company was subject under lease
at commencement of winding up
* if Tribunal thinks fit, subject only to same liabilities & obligations as if lease assigned at that
date,
(a) in either event as if lease had comprised only property comprised in vesting order, & any
mortgagee or under lessee declining to accept vesting order upon terms be excluded from all
interest in, & security upon property
(b) if there is no person claiming under Company willing to accept order Tribunal have
power to vest estate & interest of Company in property in any person liable
* Person affected by operation of disclaimer be deemed to be creditor to amount of
compensation or damages payable in respect of such effect.
Sec 334: Transfer, etc, after commencement of winding up to be void

* In case of voluntary winding up, transfer of shares in Company, without sanction of
Company Liquidator, & alteration in status of members of Company, made after
commencement of winding up, shall be void
* In case of winding up by Tribunal, any disposition of property, including actionable claims,
of Company, & transfer of shares in Company or alteration in status of its members, made
after commencement of winding up, shall, unless Tribunal otherwise orders, be void.
Sec 335: Certain attachment, execution, etc., in winding up by Tribunal to

be void
Where any Company is being wound up by Tribunal,
* any attachment, distress or execution put in force, without leave of Tribunal against estate
or effects of Company, after commencement of winding up; or
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* any sale held, without leave of Tribunal of any of properties or effects of Company, after
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such commencement, shall be void

* Nothing in this section shall apply to any proceedings for recovery of tax or impost or any
dues payable to Government.
Sec 336: Offences by officer of companies in liquidation

If person, who is or has been officer of Co:
* does not, to best of his knowledge & belief, fully & truly disclose to Company Liquidator all
property, movable & immovable, of Company, & how & to whom & for what
consideration & when Company disposed of part, except disposed of in ordinary course of
business of Company;
* does not deliver to Company Liquidator, all part of movable & immovable property of
Company in his custody or his control;
* does not deliver to Company Liquidator, all books & papers of Company in his custody or
under his control & required by law to deliver up;
* within 12 months immediately before commencement of winding up or at any time
thereafter,
* conceals any part of property of Company to value of Rs. 1,000/- or more, or conceals any
debt due to or from Company;
* fraudulently removes any part of property of Company to value of Rs. 1,000/- or more;
* conceals, destroys or falsifies, or is privy to concealment, destruction, mutilation or
falsification of, any book or paper affecting or relating to, property or affairs of Company;
* fraudulently parts with, alters or makes any omission in, or is privy to fraudulent parting
with, altering or making of any omission in, any book or paper affecting or relating to
property or affairs of Company;
* by any false representation or other fraud, obtains on credit, property which Company
does not subsequently pay for;
* under false pretence that Company is carrying on its business, obtains on credit, for or on
behalf of the company, any property which the company does not subsequently pay for;
* makes material omission in any statement relating to affairs of Company;
* knowing or believing that false debt has been proved by person under winding up, fails for
period of 1 month to inform Company Liquidator thereof;
* after commencement of winding up, prevents production of any book or paper affecting
or relating to property or affairs of Company;
* after commencement of winding up or at any meeting of creditors of Company within 12
months next before commencement of winding up, attempts to account for any part of
property of Company by fictitious losses or expenses; or
* is guilty of any false representation or fraud for purpose of obtaining consent of creditors
of Company or any of them, to an agreement with reference to affairs of Company or to
winding up,
* he shall be punishable with imprisonment - 3 to 5 years & fine - Rs. 1,00,000/- to
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3,00,000/-
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* It shall be good defence if accused proves that he had no intent to defraud or to conceal
true state of affairs of Company or to defeat law
* Every person who takes in pawn or pledge or otherwise receives property, knowing it to
be pawned, pledged, or disposed of in circumstances, shall be punishable with
imprisonment- 3 to 5 years & fine - Rs. 3,00,000/- to 5,00,000/-.
Note : Sec 337 to Sec 343 are not applicable to CA Final (Old/New) Syllabus
Sec 344: Statement that Co. is in Liquidation

* Where Co. is being wound up, by Tribunal or voluntarily, every invoice, order for goods
or business letter issued by or on behalf of Co. or Co. Liquidator of Co., or receiver or
manager of property of Co., being document on or in which name of Co. appears, shall
contain statement that Co. is being wound up
* If Co. contravenes, Co., & every officer, Co. Liquidator & receiver or manager, who
willfully authorises or permits non-compliance, shall be punishable with fine - Rs. 50,000/-
to Rs. 3,00,000/-.
Sec 345: Books & paper of Co. to be evidence

Where Co. is being wound up, all books & papers of Co. & of Co. Liquidator shall, as
between contributories of Co., be prima facie evidence of truth of all matters purporting to
be recorded therein.
Sec 346: Inspection of Books & papers by creditors & contributories

* At any time after making of order for winding up of Co. by Tribunal, creditor or
contributory of Co. may inspect books & papers of Co. only in accordance with, & subject
to rules
* Exceptions:
• on CG or SG;
• on any authority or officer; or
• on any person acting under authority of Government or of any such authority or
officer.
Sec 347: Disposal of books & papers of Co.

1) When affairs of Company have been completely wound up & is about to be dissolved, its
books & papers & those of Co. Liquidator may be disposed of as follows:
* in case of winding up by Tribunal, in manner as Tribunal directs;
* in case of voluntary winding up, in manner as Co. by SR with prior approval of creditors
direct.
2) After expiry of 5 years from dissolution of Co., no responsibility shall devolve on Co., Co.
Liquidator, or person to whom custody of books & papers entrusted
3) CG may, by rules:
* prevent for such period as it thinks proper destruction of books & papers of Co. which has
been wound up & of its Co. Liquidator; &
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* enable creditor or contributory of Co. to make representations to CG in respect of matters

specified in clause (a) & to appeal to Tribunal from order which may be made by CG in
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matter
4) If person acts in contravention of rule framed or order under subsection (3), he shall be
punishable with fine upto Rs. 50,000.
Note : Sec 348 to Sec 351 are not applicable to CA Final (Old/New) Syllabus
Sec 352: Co. Liquidation Dividend & Undistributed Assets Account

Where Co. is being wound up & liquidator has in his hands or under his control money
representing:
* dividends payable to any creditor but which had remained unpaid for 6 months after they
were declared;
* assets refundable to any contributory which have remained undistributed for 6 months
after date on which they become refundable,
* liquidator shall deposit said money into separate special account to be known as Co.
Liquidation Dividend &
Undistributed Assets A/c in scheduled bank
* Liquidator shall, on dissolution of Co., pay into Co. Liquidation Dividend & Undistributed
Assets A/c any money representing unpaid dividends or undistributed assets at date of
dissolution
* Any money in Co. Liquidation Dividend & Undistributed Assets A/c, which remains
unclaimed for period of 15 years, be transferred to general revenue a/c of CG
* Liquidator retaining money which should have been paid by him into Co. Liquidation
Dividend & Undistributed Assets A/c shall:
• pay interest on amount retained @ 12% per annum & pay penalty by Registrar (CG
may remit in part/whole interest)
• be liable to pay any expenses by reason of his default; &
* where winding up is by Tribunal, be liable to have all/ part of his remuneration to be
disallowed, & be removed from office by Tribunal.
Sec 353: Liquidator to make returns, etc.

* If Co. Liquidator made default in filing, delivering or making any return, account or other
document, or in giving any notice which he is by law required to file, deliver, make or
give, fails to make good default within 14 days after service on him of a notice requiring
him to do so, Tribunal may, on an application made to it by contributory or creditor of
Co. or by Registrar, make order directing Co. Liquidator to make good default within me
specified in order
* Order may provide all costs of, & incidental to, application be borne by Co. Liquidator
* Nothing in this section shall prejudice operation of any enactment imposing penalties on
Co. Liquidator.
Sec 354: Meeting to ascertain wishes of creditors or contributories

In all matters relating to winding up of Co., Tribunal may:
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* have regard to wishes of creditors or contributories of Co., as proved to it by any sufficient

evidence;
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* if it thinks fit for purpose of ascertaining those wishes, direct meetings of creditors or
contributories to be called, held & conducted in manner as Tribunal may direct; &
* appoint person to act as chairman of any such meeting & to report result thereof to
Tribunal
* While ascertaining wishes of creditors, regard shall be had to value of each debt of creditor
* While ascertaining wishes of contributories, regard shall be had to number of votes which
may be cast by each contributory.
Sec 355: Court, Tribunal or person, etc., before whom affidavit may be
sworn
Affidavit required to be sworn under provisions/ this Chapter may be sworn:
* in India before any court, tribunal, judge or person lawfully authorised to take & receive
affidavits; &
* in any other country before any court, judge or person lawfully authorised to take &
receive affidavits or before Indian diplomatic or consular officer
* All tribunals, judges, Justices, commissioners & persons acting judicially in India shall take
judicial notice of seal, stamp or signature, of any such court, tribunal, judge, person,
diplomatic or consular officer, attached, appended or subscribed to affidavit or to other
document for purposes of this Chapter.
Sec 356: Powers of Tribunal to declare dissolution of Co. void

(1) Where a company has been dissolved, whether in pursuance of this Chapter or of section
232 or otherwise, the Tribunal may at any time within two years of the date of the dissolution,
on application by the Company Liquidator of the company or by any other person who
appears to the Tribunal to be interested, make an order, upon such terms as the Tribunal thinks
fit, declaring the dissolution to be void, and thereupon such proceedings may be taken as if the
company had not been dissolved.
(2) The Tribunal shall—

(a) forward a copy of the order, within thirty days from the date thereof, to the Registrar who
shall record the same; and
(b) direct the Company Liquidator or the person on whose application the order was made, to
file a certified copy of the order, within thirty days from the date thereof or such further period
as allowed by the Tribunal, with the Registrar who shall record the same.
Sec 357: Commencement of Winding up by Tribunal

Where, before presentation of petition for winding up of Co. by Tribunal, resolution has
been passed by Co. for voluntary winding up, winding up of Co. shall be deemed to have
commenced at time of passing of resolution, & unless:
* Tribunal, on proof of fraud or mistake, thinks fit to direct otherwise, all proceedings taken
in voluntary winding up shall be deemed to have been validly taken
* In any other case, winding up of Co. by Tribunal shall be deemed to commence at time of
presentation of petition for winding up.
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NATIONAL COMPANY LAW TRIBUNAL AND APPELATE TRIBUNAL
C.G. has set up 2 quasi judicial bodies. One is NCLT and another is NCLAT.
Constitution of National Company Law Tribunal (NCLT)
* NCLT will consist of President + such number of judicial Members + such number Technical
Members as CG may deem fit.
* There are many benches of NCLT across India BUT president will be there only in principal
bench other benches will constitute of only judicial and technical members.
Judicial Member Qualification:
* A judge of a High Court or
* A District Judge for at least five years or
* An advocate of a court for at least ten years.
Constitution of Appellate Tribunal:

* Chairperson + such number of judicial Members + such number of Technical Members as
CG may deem fit.
* They are empowered to hear appeals against tribunal or of National Financial Reporting
Authority and any direction, decision or order referred to in section 53A of the
Competition Act, 2002 in accordance with the provisions of that Act.
Selection of Members of Tribunal and Appellate Tribunal:

* The President of NCLT and (chairperson + Judicial Members of the NCLAT) + appointed
after consultation with the Chief Justice of India
* The Members of the NCLT and (Technical Members NCLAT) – appointed on the
recommendation of a Selection Committee
Constitution of selection Committee:

The Members of the Tribunal and the Technical Members of the Appellate Tribunal shall be
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appointed on the recommendation of a Selection Committee consisting of—

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(a) Chief Justice of India or his nominee—Chairperson;

(b) a senior Judge of the Supreme Court or Chief Justice of High Court—Member;
(c) Secretary in the Ministry of Corporate Affairs—Member; and
(d) Secretary in the Ministry of Law and Justice—Member.
Where in a meeting of the Selection Committee, there is equality of votes on any matter, the
Chairperson shall have a casting vote
Term of office of President, Chairperson and other Members

For NCLT – 5 years + reappointment for another 5 years
Age limit – Minimum 50 years and maximum – For president – 67 and for others – 65
For NCLAT – 5 years + reappointment for another 5 years
Age limit – Minimum 50 years and maximum – For chairman – 70 and for others – 67
Resignation of Members
The President, the Chairperson or any Member may, by notice in writing under his hand
addressed to the CG, resign from his office
Provided that the President, the Chairperson, or the Member shall continue to hold office
until
* The expiry of three months from the date of receipt of such notice by the CG or
* Until a person duly appointed as his successor enters upon his office or
* Until the expiry of his term of office,
Whichever is earlier.
Removal of Members
The CG may, after consultation with the Chief Justice of India, remove from office the
President, Chairperson or any Member, who has been
* adjudged an insolvent; or
* convicted of an offence which, involves moral turpitude; or
* has become physically or mentally incapable
* has acquired such financial or other interest
* has so abused his position
* acted prejudicial to the public interest;
**After giving opportunity of being heard
Staff of Tribunal and Appellate Tribunal to be appointed by C.G. on such allowances and
salaries fixed by them.
Benches of Tribunal
There shall be constituted such number of Benches of the Tribunal, as may, by notification, be
specified by the CG
Presently there are 11 benches. Set up at New Delhi, Ahmedabad, Allahabad, Chandigarh,
Chennai, Guwahati, Hyderabad, Kolkata, Mumbai.
The Principal Bench of the Tribunal shall be at New Delhi which shall be presided over by the
President of the Tribunal.
Benches consisting of two Members out of whom one shall be a Judicial Member and the
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other shall be a Technical Member.

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C.G. may constitute bench with 2/3 member also – provided judicial members forms
majority. Special bench for rehabilitation, restructuring, reviving, winding up can also be
formed. Since no more BIFR.
Orders of Tribunal
Can pass order after giving reasonable opportunity of being heard.
Within 2 years – it can review its own decision with a view to rectify mistake apparent from
record and amend the decision and send copy to parties concerned.
Appeal from orders of Tribunal

* Any person aggrieved by an order of the Tribunal may prefer an appeal to the Appellate
Tribunal. Appeal shall be filed within a period of 45 days and accompanied by such fees
* NCLAT may entertain an appeal after the expiry of the said period of 45 days from the
date aforesaid, but within a further period not exceeding 45 days, if it is satisfied that the
appellant was prevented by sufficient cause from filing the appeal within that period.
* After giving reasonable opportunity of being heard, NCLAT pass such orders thereon as it
thinks fit, confirming, modifying or setting aside the order appealed against.
Expeditious (speedy) disposal by Tribunal and Appellate Tribunal

Every case (application / appeal as the case may be) shall to be disposed off within 3 months.
If the appeal cannot be disposed off within 3 months, another 90 days time can be granted by
PRESIDENT / CHAIRMAN after recording the reason.
Appeal to Supreme Court

Any person aggrieved by any order of the Appellate Tribunal may file an appeal to the Supreme
Court within 60 days from the date of receipt of the order of the Appellate Tribunal to him on
any question of law arising out of such order, but Supreme Court will allow delay filing but
not exceeding 60 days.
Tribunal’s Civil Procedure.

* summoning and enforcing the attendance of any person ad examining him on oath;
* requiring the discovery and production of documents;
* receiving evidence on affidavits;
* requisitioning any public record or document or a copy of such record or document from
any office;
* examination of witnesses or documents;
* dismissing a representation for default or deciding it ex parte;
* setting aside any order of dismissal of any representation for default or any order passed by
it ex parte
Power to punish for contempt – if not respecting tribunal Delegation of

powers
To any of its officers or employees or any other person authorised by it to inquire into any
matter connected with any proceeding
President, Members, officers, etc., to be public servants.
Protection of action taken in good faith.
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Power to seek assistance of Chief Metropolitan Magistrate, etc

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In any proceeding relating to a sick Company or winding up of any other Company, in order
to take into custody or under its control all property, books of account or other documents.
Magistrate shall authorise.
Section 418A - Benches of Appellate Tribunal (Newly Inserted)

(1) The powers of the Appellate Tribunal may be exercised by the Benches thereof to be
constituted by the Chairperson:
Provided that a Bench of the Appellate Tribunal shall have at least one Judicial Member and
one Technical Member.
(2) The Benches of the Appellate Tribunal shall ordinarily sit at New Delhi or such other places
as the Central Government may, in consultation with the Chairperson, notify:
Provided that the Central Government may, by notification, after consultation with the
Chairperson, establish such number of Benches of the Appellate Tribunal, as it may consider
necessary, to hear appeals against any direction, decision or order referred to in section 53A of
the Competition Act, 2002 and under section 61 of the Insolvency and Bankruptcy Code, 2016.
Civil court not to have jurisdiction

No civil court shall have jurisdiction to entertain any suit or proceeding in respect of any
matter which the Tribunal or the Appellate Tribunal is empowered to determine by or under
this Act or any other law for the time being in force and no injunction shall be granted by
any court or other authority in respect of any action taken or to be taken in pursuance of any
power conferred by or under this Act or any other law for the time being in force, by the
Tribunal or the Appellate Tribunal.
Vacancy in Tribunal or Appellate Tribunal not to invalidate acts or proceedings

No act or proceeding of the Tribunal or the Appellate Tribunal shall be questioned or shall be
invalid merely on the ground of the existence of any vacancy or defect in the constitution of
the Tribunal or the Appellate Tribunal, as the case may be.
Right to legal representation

A party to any proceeding or appeal before the Tribunal or the Appellate Tribunal, as the
case may be, may either appear in person or authorise one or more chartered accountants or
company secretaries or cost accountants or legal practitioners or any other person to present
his case before the Tribunal or the Appellate Tribunal, as the case may be.
Limitation
The provisions of the Limitation Act, 1963 shall, as far as may be, apply to proceedings or
appeals before the Tribunal or the Appellate Tribunal, as the case may be.
Transfer of certain pending proceedings

(1) On such date as may be notified by the Central Government in this behalf,—
(a) all matters, proceedings or cases pending before the
Board of Company Law Administration (herein in this
section referred to as the Company Law Board)
constituted under sub-section (1) of section 10E of the
Companies Act, 1956, immediately before such date shall
stand transferred to the Tribunal and the Tribunal shall
dispose of such matters, proceedings or cases
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in accordance with the provisions of this Act;

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(b) any person aggrieved by any decision or order of the Company Law Board made before
such date may file an appeal to the High Court within 60 days from the date of
communication of the decision or order of the Company Law Board to him on any question
of law arising out of such order:
Provided that the High Court may if it is satisfied that the appellant was prevented by
sufficient cause from filing an appeal within the said period, allow it to be filed within a
further period not exceeding 60 days; and
(c) all proceedings under the Companies Act, 1956, including proceedings relating to
arbitration, compromise, arrangements and reconstruction and winding up of companies,
pending immediately before such date before any District Court or High Court, shall stand
transferred to the Tribunal and the Tribunal may proceed to deal with such proceedings
from the stage before their transfer:
Provided that only such proceedings relating to the winding up of companies shall be
transferred to the Tribunal that are at a stage as may be prescribed by the Central
Government.
Provided also that only such proceedings relating to cases other than winding-up, for which
orders for allowing or otherwise of the proceedings are not reserved by the High Courts shall
be transferred to the Tribunal:
Provided further that – (i) all proceedings under the Companies Act, 1956 other than the
cases relating to winding up of companies that are reserved for orders for allowing or
otherwise such proceedings; or (ii) the proceedings relating to winding up of companies
which have not been transferred from the High Courts; shall be dealt with in accordance with
provisions of the Companies Act, 1956 and the Companies (Court) Rules, 1959”
Provided also that proceedings relating to cases of voluntary winding up of a company where
notice of the resolution by advertisement has been given under sub-section (1) of section 485
of the Companies Act, 1956 but the company has not been dissolved before the 1st April,
2017 shall continue to be dealt with in accordance with orovisions of the Companies Act.
1956 and the Companies (Court) Rules, 1959.
(2) The Central Government may make rules consistent with the provisions of this Act to
ensure timely transfer of all matters, proceedings or cases pending before the Company Law
Board or the courts, to the Tribunal under this section.
CASES WHERE NCLT HAS BEEN REFERRED UNDER COMPANIES ACT

2013
Incorporation of Company –
Power of NCLT to pass orders, where a Company has been incorporated byfurnishing any
false information / suppressing any material fat or information or by any fraudulent action.
Alteration of Articles –
Alteration of articles having the effect of conversion of a public Company into a
privateCompany.
Issue & redemption of Preference Shares –
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Issue of fresh redeemable preference shares where the Companyis not in a position to redeem
preference shares and to pay dividend.
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Alteration of share capital –

Consolidation and division of share capital results in changes in voting percentage of
shareholders
Further issue of share capital –
Conversion of debentures issued or loan obtained from Government by a Company into shares
– If terms of conversion not acceptable to the Company, appeal can be made with the Tribunal.
Debentures –
Petition to be filed with the Tribunal on failure by the Company to redeem the debentures or
pay interest or them
AGMs, meeting of members –
Power of the Tribunal to call AGM, meetings of members in specified cases
Inspection of Minutes book of general meeting –
Power of Tribunal to grant inspection of minutes book of a general meeting as requested by a
member in a situation of refusal or default.
Re-opening of accounts and voluntary revisions of financial statements or Board’s report –
Re-opening of accounts to be done only on approval of Tribunal. Approval of the Tribunal
required for Voluntary revision of financial statements or Boards Report
Removal, resignation of auditor and giving special notice –
Powers granted to Tribunal to remove the auditor suo moto or on application made by the
CG.
Removal of Directors –
Powers of Tribunal in relation to removal of director
Investigation into Company’s affairs in other cases –
Power of Tribunal to investigate into Company’s affairs in specified cases.
Investigation of ownership of the Company –
Powers of Tribunal to investigate into of the ownership of the Company
Protection of employees during investigation –
Approval of Tribunal required for any action proposed against the employee Protection of
employees during Investigation
Freezing of assets of Company on inquiry and investigation –
Tribunal to have powers
Imposition of Restrictions upon securities –
Tribunal to have powers
Damages for Fraud -
Failure of the Company to repay the deposit along with interest within the time limit (extension
if any granted by the Tribunal as per section 74) or acceptance of deposit with an intention to
defraud the depositors, or for any other fraudulent purposes. See Note 1 below.
National Company Law Tribunal & Appellate Tribunal –
Detailed provisions in relation to operation, functioningof the Tribunal and its members
Compounding of Offences –
Power of NCLT to compound offences above Rs. 5 lakhs fine.
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Companies Incorporated Outside India
1. Foreign Company
According to section 2(42) of the Companies Act, 2013, “foreign Company” means any
Company or body corporate incorporated outside India which -
* has a place of business in India whether by it self or through an agent, physically or through
electronic mode; and
* conducts any business activity in India in any other manner.
According to the Companies (Registration of Foreign Companies) Rules, 2014, ”electronic
mode” means carrying out electronically based, whether main server is installed in India or not,
including, but not limited to -
* business to business and business to consumer transactions, data interchange and other
digital supply transactions;
* offering to accept deposits or inviting deposits or accepting deposits or subscriptions in
securities, in India or from citizens of India;
* financial settlements, web based marketing, advisory and transactional services, database
services and products, supply chain management;
* online services such as telemarketing, telecommuting, telemedicine, education and
information research; and
* all related data communication services,whether conducted by e-mail, mobile devices,
social media, cloud computing, document management, voice or data transmission or
otherwise.
2. Application of Act to foreign companies (Sec.379 of the Companies Act, 2013)
According to this section:
(1) Section 380 to 386 (both inclusive) and sections 392 and 393 shall apply to all foreign
companies.
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(2) Where not less than 50% of the paid-up share capital, whether equity or preference or
partly equity and partly preference, of a foreign Company is held by:
* one or more citizens of India; or
* by one or more companies or bodies corporate incorporated in India; or
* by one or more citizens of India and one or more companies or bodies corporate
incorporated in India,
whether singly or in the aggregate, such Company shall comply with the provisions of this
Chapter and such other provisions of this Act as may be prescribed with regard to the business
carried on by it in India as if it were a Company incorporated in India.
3. FILING OF DOCUMENTS BY FOREIGN COMPANY- SECTION 380

OF COMPANIES ACT, 2013
Foreign Company establishing a place of business in India should submit following documents
along with Form FC-1 to ROC within 30 days:
* Certified copy of charter, Memorandum, Article or other instrument defining constitution.
If it is not in English, its certified translated copy should be submitted.
* Full address of the registered or principal office of the Company.
* Full address of the principal place of business in India.
* Particulars of opening and closing of place of business in India on earlier occasion, if any.
* Name and address of persons resident in India, authorized to accept notices or other
documents on behalf of the Company.
* A list of the directors and secretary of the Company, specifying the following particulars:
• With respect to a director, it shall specify his name, surname, former name, and
residential address, nationality of origin, business occupation and particulars of other
directorships held by him.
• With respect to a secretary, it shall specify his name, surname, former name and
residential address.
* Declaration that none of the directors of Company or authorized in India has ever been
convicted or debarred from formation of Companies and management in India or abroad.
* Returns and documents required to be delivered to the registrar by a foreign Company
shall be filed with:
• ROC-New Delhi and
• ROC of the State in which the principal place of business of the Company is situated.
4. Change in details of foreign company - section 380(3)

Any alteration made in documents delivered by foreign Company shall be filed with the
registrar. It shall be filed within 30 days of the alteration in Form FC-2.
5. Accounts of foreign Company (Section 381 of the Companies Act,

2013)
* Every foreign Company shall, in every calendar year,—
* make out a balance sheet and profit and loss account in such form, containing such
particulars and including or having attached or annexed thereto such documents as may be
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prescribed, and
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* deliver a copy of those documents to the Registrar.

According to the Companies (Registration of Foreign Companies) Rules, 2014, every foreign
Company shall prepare financial statement of its Indian business operations in accordance with
Schedule III or as near thereto as possible for each financial year including:
* documents that are required to be annexed should be in accordance with Chapter IX i.e.
Accounts of Companies.
* The documents relating to copies of latest consolidated financial statements of the parent
foreign Company, as submitted by it to the prescribed authority in the country of its
incorporation under the applicable laws there.
* The CG is empowered to direct that, in the case of any foreign Company or class
of foreign companies, the requirements of clause (a) of section 381(1) shall not apply, or
shall apply subject to such exceptions and modifications as may be specified in notification
in that behalf.
* If any of the specified documents are not in the English language, a certified translation
thereof in the English language shall be annexed. [Section 381 (2)]
Every foreign Company shall send to the Registrar along with the documents required to be
delivered to him, a copy of a list in the prescribed form, of all places of business established
by the Company in India as at the date with reference to which the balance sheet referred to
in section381(1) is made.
According to the Companies (Registration of Foreign Companies) Rules, 2014, every foreign
Company shall file with the Registrar, along with the financial statement, in Form FC3 with
such fee as provided under Companies (Registration Offices and Fees) Rules, 2014 a list of all
the places of business established by the foreign Company in India as on the date of balance
sheet.
According to the Companies (Registration of Foreign Companies) Rules, 2014, if any foreign
Company ceases to have a place of b usiness in India, it shall forthwith give notice of the fact
to the Registrar, and as from the date on which notice is so given, the obligation of the
Company to deliver any document to the Registrar shall cease, if it does not have other place
of business in India.
According to the Companies (Registration of Foreign Companies) Rules, 2014,
(a) Further, every foreign Company shall, along with the financial statement required to be
filed with the Registrar, attach thereto the following documents; namely: -
• Statement of related party transaction
• Statement of repatriation of profits
• Statement of transfer of funds (including dividends, if any)
The above statements shall include such other particulars as are prescribed in the Companies
(Registration of Foreign Companies) Rules, 2014.
(b)All these documents shall be delivered to the Registrar within a period of 6 months of the
close of the financial year of the foreign Company to which the documents relate.
(c) Audit of accounts of foreign Company: According to the Companies (Registration
of Foreign Companies) Rules, 2014.
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* Every foreign Company shall get its accounts, pertaining to the Indian business operations
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prepared in accordance with section 381(1) and Rules thereunder, shall be audited by a
practicing Chartered Accountant in India or a firm or limited liability partnership of

practicing chartered accountants.
* The provisions of Chapter X i.e. Audit and Auditors and rules made there under, as far as
applicable, shall apply, mutatis mutandis, to the foreign Company.
6. Display of name,etc. of foreign Company (Section 382 of the

Companies Act, 2013)
Every foreign Company shall—
* conspicuously exhibit on the outside of every office or place where it carries o n business in
India, the name of the Company and the country in which it is incorporated, in letters
easily legible in English characters, and also in the characters of the language or one of the
languages in general use in the locality in which the office or place is situate;
* cause the name of the Company and of the country in which the Company is incorporated,
to be stated in legible English characters in all business letters, bill - heads and letter paper,
and in all notices, and other official publications of the Company; and
* if the liability of the members of the Company is limited, cause notice of that fact
* to be stated in every such prospectus issued and in all business letters, bill-heads, letter
paper, notices, advertisements and other official publications of the Company, in legible
English characters; and
* to be conspicuously exhibited on the outside of every office or place where it carries on
business in India, in legible English characters and also in legible characters of the language
or one of the languages in general use in the locality in which the office or place is situated.
7. Service on foreign Company (Section 383 of the Companies Act,

2013)
Any process, notice, or other document required to be served on a foreign Company shall be
deemed to be sufficiently served, if addressed to any person whose na me and address have
been delivered to the Registrar under section 380 and left at, or sent by post to, the address
which has been so delivered to the Registrar or by electronic mode.
8. Debentures, annual return, registration of charges, books of account

and their inspection (Section 384 of the Companies Act, 2013)
* The provisions of section 71 (Issue of Debentures) shall apply mutatis mutandis to a foreign
Company.
* The provisions of section 92 (Preparation and filing of Annual return) shall, subject to such
exceptions, modifications and adaptations as may be made therein by rules made under this
Act, apply to a foreign Company as they apply to a Company incorporated in India.
* According to the Companies (Registration of Foreign Companies) Rules, 2014, every
foreign Company shall prepare and file an annual return in Form FC-4 along with
prescribed fees, within a period of 60 days from the last day of its financial year, to the
Registrar containing the particulars as they stood on the close of the financial year.
* The provisions of section 128 (Books of account, etc., to be kept by Company) shall apply
to a foreign Company to the extent of requiring it to keep at its principal place of business
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in India, the books of account referred to in that section, with respect to monies received
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and spent, sales and purchases made, and assets and liabilities, in the course of or in relation
to its business in India.
* The provisions of Chapter VI (Registration of Charges) shall apply mutatis mutandis to
charges on properties which are created or acquired by any foreign Company.
* The provisions of Chapter XIV (Inspection, inquiry and investigation) shall apply mutatis
mutandis to the Indian business of a foreign Company as they apply to a Company
incorporated in India.
9. Fee for registration of documents

(Section 385 of the Companies Act, 2013)
There shall be paid to the Registrar for registering any document required by the provisions of
this Chapter to be registered by him, such fee, as may be prescribed.
According to the Companies (Registration of Foreign Companies) Rules, 2014 , fee to be paid
to the Registrar for registering any document relating to a foreign Company shall be such as
provided in the Companies (Registration Offices and Fees) Rules, 2014.
10. Interpretation (Section 386 of the Companies Act, 2013)

For the purposes of the foregoing provisions of this Chapter, the expression:
* “Certified” means certified in the prescribed manner to be a true copy or a correct
translation;
* “Director”, in relation to a foreign Company, includes any person in accordance with
whose directions or instructions the Board of Directors of the Company is accustomed to
act; and
* “Place of business” includes a share transfer or registration office.
11. Dating of prospectus and particulars to be contained therein (Section

387)
(1) No person shall issue, circulate or distribute in India any prospectus offering to subscribe
for securities of a company incorporated or to be incorporated outside India, whether the
company has or has not established, or when formed will or will not establish, a place of
business in India, unless the prospectus is dated and signed, and—
(a) contains particulars with respect to the following matters, namely:—
(i) the instrument constituting or defining the constitution of the company;
(ii) the enactments or provisions by or under which the incorporation of the company was
effected;
(iii) address in India where the said instrument, enactments or provisions, or copies thereof,
and if the same are not in the English language, a certified translation thereof in the English
language can be inspected;
(iv)the date on which and the country in which the company would be or was incorporated;
and
(v) whether the company has established a place of business in India and, if so, the address of
its principal office in India; and
(b)states the matters specified under section 26:

Provided that sub-clauses (i), (ii) and (iii) of clause (a) of this sub-section shall not apply in the
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case of a prospectus issued more than two years after the date at which the company is
entitled to commence business.
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(2) Any condition requiring or binding an applicant for securities to waive compliance with
any requirement imposed by virtue of sub-section (1), or purporting to impute him with
notice of any contract, documents or matter not specifically referred to in the prospectus,
shall be void.
(3) No person shall issue to any person in India a form of application for securities of such a
company or intended company as is mentioned in sub-section (1), unless the form is issued
with a prospectus which complies with the provisions of this Chapter and such issue does not
contravene the provisions of section 388:
Provided that this sub-section shall not apply if it is shown that the form of application was
issued in connection with a bona fide invitation to a person to enter into an underwriting
agreement with respect to securities.
(4) This section —

(a) shall not apply to the issue to existing members or debenture holders of a company of a
prospectus or form of application relating to securities of the company, whether an applicant
for securities will or will not have the right to renounce in favour of other persons; and
(b) except in so far as it requires a prospectus to be dated, to the issue of a prospectus relating
to securities which are or are to be in all respects uniform with securities previously issued
and for the time being dealt in or quoted on a recognised stock exchange,
but, subject as aforesaid, this section shall apply to a prospectus or form of application
whether issued on or with reference to the formation of a company or subsequently.
(5) Nothing in this section shall limit or diminish any liability which any person may incur
under any law for the time being in force in India or under this Act apart from this section.
12. Provisions as to expert’s consent and allotment (Section 388 of the

Companies Act, 2013)
(i) No person shall issue, circulate or distribute in India any prospectus offering for subscription
in securities of a Company incorporated or to be incorporated outside India, whether the
Company has or has not established, or when formed, will or will not establish, a place of
business in India -
* if, where the prospectus includes a statement purporting to be made by an expert, he has
not given, or has before delivery of the prospectus for registration withdrawn, his written
consent to the issue of the prospectus with the statement included in the form and context
in which it is included, or there does not appear in the prospectus a statement that he has
given and has not withdrawn his consent as aforesaid; or
* if the prospectus does not have the effect, where an application is made in pursuance
thereof, of rendering all persons concerned bound by all the provisions of sections 33 and
40, so far as applicable.
(ii) For the purposes of this section, a statement shall be deemed to be included in a prospectus,
if it is contained in any report or memorandum appearing on the face thereof or by reference
incorporated therein or issued therewith.
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13. Registration of prospectus (Section 389 of the Companies Act,

2013)
No person shall issue, circulate or distribute in India any prospectus offering for subscription in
securities of a Company incorporated or to be incorporated outside India, whether the
Company has or has not established, or when formed will or will not establish, a place of
business in India, unless before the issue, circulation or distribution of the prospectus in India, a
copy thereof certified by the chairperson of the Company and two other directors of the
Company as having been approved by resolution of the managing body has been delivered for
registration to the Registrar and the prospectus states on the face of it that a copy has been so
delivered, and there is endorsed on or attached to the copy, any consent to the issue of the
prospectus required by section 388 and such documents as may be prescribed.
According to the Companies (Registration of Foreign Companies) Rules, 2014, the following
documents shall be annexed to the prospectus, namely:
* any consent to the issue of the prospectus required from any person as an expert;
* a copy of contracts for appointment of managing director or manager and in case of a
contract not reduced into writing, a memorandum giving full particulars thereof;
* a copy of any other material contracts, not entered in the ordinary course of business, but
entered within preceding 2 years;
* a copy of underwriting agreement; and
* a copy of power of attorney, if prospectus is signed through duly authorized agent of
directors.
14. Offer of Indian Depository Receipts [section 390]

Notwithstanding anything contained in any other law for the time being in force, the Central
Government may make rules applicable for—
(a) the offer of Indian Depository Receipts;
(b) the requirement of disclosures in prospectus or letter of offer issued in connection with
Indian Depository Receipts;
(c) the manner in which the Indian Depository Receipts shall be dealt with in a depository
mode and by custodian and underwriters; and
(d) the manner of sale, transfer or transmission of Indian Depository Receipts,
by a company incorporated or to be incorporated outside India, whether the company has or
has not established, or will or will not establish, any place of business in India.
Important Rule - For the purposes of section 390, no company incorporated or to be

incorporated outside India, whether the company has or has not established, or may or may
not establish, any place of business in India (hereinafter in this rule called ‘issuing company’)
shall make an issue of Indian Depository Receipts (IDRs) unless such company complies with
the conditions mentioned under this rule, in addition to the Securities and Exchange Board of
India (Issue of Capital and Disclosure Requirements) Regulations, 2009 and any directions
issued by the Reserve Bank of India.
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15. APPLICATION OF SECTIONS 34 TO 36 AND CHAPTER XX

[SECTION 391]
(1) The provisions of sections 34 to 36 (both inclusive) shall apply to—
(i) the issue of a prospectus by a company incorporated outside India under section 389 as
they apply to prospectus issued by an Indian company;
(ii) the issue of Indian Depository Receipts by a foreign company.
(2) Subject to the provisions of section 376, the provisions of Chapter XX shall apply mutatis
mutandis for closure of the place of business of a foreign company in India as if it were a
company incorporated in India in case such foreign company has raised monies through offer
or issue of securities under this Chapter which have not been repaid or redeemed.
16. Punishment for contravention (Section 392 of the Companies Act,

2013)
Without prejudice to the provisions of section 391, if a foreign company contravenes the
provisions of this Chapter,
Foreign company - Fine Min. Rs. 100,000 to Max. Rs. 300,000 and in the case of a
continuing offence, with an additional fine which may extend to Rs. 50,000 for every day
after the first during which the contravention continues and
Every officer in default - Fine Min. Rs. 25,000 to Rs. 500,000
17. Company's failure to comply with provisions of this Chapter not to

affect validity of contracts, etc (Section 393 of the Companies Act,
2013)
Any failure by a company to comply with the provisions of this Chapter shall not affect the
validity of any contract, dealing or transaction entered into by the company or its liability to
be sued in respect thereof, but the company shall not be entitled to bring any suit, claim any
set-off, make any counter-claim or institute any legal proceeding in respect of any such
contract, dealing or transaction, until the company has complied with the provisions of this
Act applicable to it.
18. Exemptions under this Chapter (Section 393A of Companies Act,

2013)
The Central Government may, by notification, exempt any class of—
(a) foreign companies;
(b) companies incorporated or to be incorporated outside India, whether the company has or
has not established, or when formed may or may not establish, a place of business in India, as
may be specified in the notification, from any of the provisions of this Chapter and a copy of
every such notification shall, as soon as may be after it is made, be laid before both Houses of
Parliament.
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Inspection, Inquiry and Investigation
Sec. 206 - Power of the Registrar to call for information and inspect documents
(1) Where on a scrutiny of any document filed by a company or on any information
received by him, the Register is of the opinion that any further information or explanation or
any further documents relating to the company is necessary, he may by a written notice
require the company :-
a. to furnish in writing such information or explanation; or
b. to produce such documents, within such reasonable time, as may be specified in the
notice.
(2) On the receipt of a notice under sub-section (1), it shall be the duty of the company and
of its officers concerned to furnish such information or explanation to the best of their
knowledge and power and to Produce the documents to the Registrar within the time
specified or extended by the Registrar:
Provided that where such information or explanation relates to any past period, the officers
who had been in the employment of the company for such period, if so called upon by the
Registrar through a notice served on them in writing, shall also furnish such information or
explanation to the best of their knowledge.
(3) If no information or explanation is furnished to the Registrar within the time specified
under sub-section (1) -
or if an examination of the documents furnished is of the opinion that the information or
explanation furnished is inadequate or if the Registrar is satisfied on a scrutiny of the
documents furnished thatan unsatisfactory state of affairs exists in the company and does not
disclose a full and fair statement of the information required, he may, by another written
notice, call on the company to produce for his inspection such further books of account
books, papers and explanation as he may require at such place and at such time as he may
specify in the notice.
(4) If the Registrar is satisfied on the basis of information available with or funished to him
or on a representation made to him by any person that the business of a company is being
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carried on for a fraudulent or unlawful purpose or not incompliance with the provisions of
this Act or if the grievances of investors are not being addressed, the Registrar may, after
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informing the company of the allegations made against it by a written order, call on the
company to furnish in in writing any information or explanation matters specified in the order
within such time as he may specify therein and carry out such inquiry as a deems fit after
providing the company a reasonable opportunity of being heard.
Provided that the Central Government may, if it is satisfied that the circumstances so warrant,
direct the Registrar or an inspector appointed by it for the purpose to carry out the inquiry
under this sub-section:
Provided further that where business of a company has been or is being carried on for a
fraudulent or unlawful purpose, every officer of the company who is in default shall be
punishable for fraud in the manner as provided in section 447.
(5) Without prejudice to the foregoing provisions of this section, the Central Government
may, if it is satisfied that the circumstances so warrant, direct inspection of books and papers
of a company by an inspector appointed by it for the purpose.
(6) The Central Government may, having regard to the circumstances by general or special
order, authorise any statutory authority to carry out the inspection of books of account of a
company or class of companies.
(7) If a company fails to furnish any information or explanation or produce any document
required under this section, the company and every officer of the company, who is in default
shall be punishable with a fine which may extend to one lakh rupees and in the case of a
continuing failure, with an additional fine which may extend to five hundred rupees for every
day after the first during which the failure continues.
Section 207 - Duties of Directors, Officers & Employees

(1) Where a Registrar or inspector calls for the books of account and other books and papers
under section 206, it shall be the duty of every director, officer or other employee of the
company to produce all such documents to the Registrar or inspector and furnish him with
such statements, information or explanations in such form as the Registrar or inspector may
require and shall render all assistance to the Registrar or inspector in connection with such
inspection.
(2) The Registrar or inspector, making an inspection or inquiry under section 206 may, during
the course of such inspection or inquiry, as the case may be, - (a) make or cause to be made
copies of books of account and other books and papers; or
(b) place or cause to be placed any marks of identification in such books in token of the
inspection having been made.
(3) Registrar or inspector shall have all the power as are vested in a civil court under the Code
of Civil Procedure, 1908 while trying a suit in respect of the following matters, namely:-
(a) the discovery and production of books of account and other documents, at such place and
time as may be specified by such Registrar or inspector making the inspection or inquiry.
(b) summoning and enforcing the attendance of person and examining them on oath; and
(c) inspection of any books, registers and other documents of the company at any place.
(4) (i) If any director or officer of the company disobeys the the direction issued by the
Registrar or the Registrar or the inspector under this section, the director or the officer shall be
punishable with imprisonment which may extend to one year and with fine which shall not
be less than Rs. 25,000 but which may extend to Rs. 100,000.
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(ii) If a director or an officer of the company has been convicted of an offence under this
section, the director or the officer shall, on and from the date on which he is so convicted, be
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deemed to have vacated his office as such and on such and on such vacation of office, shall be
disqualified from holding on office in any company.
SECTION 208 - REPORT ON INSPECTION MADE

The Registrar or inspector shall, after the inspection of the books of account or an inquiry
under section 206 and other books and papers of The company under section 207, submit a
report in writing to the Central Government along with such documents, if any, and such
report may, if necessary, include a recommendation that further investigation into the affairs
of the company is necessary giving his reasons in support.
Note :The Central Government hereby delegates to the Regional Directors at Mumbai,
Kolkata. Chennai. Delhi, Ahmedabad, Hyderabad and Shillong, the power vested in it under
section 208 of the said Act for receiving the report from the Registrar (having jurisdiction over
the place of registered office of the company concerned) or from the Inspector where such
report recommends action for violation of offences under the said Act for which
imprisonment of less than two years is provided, (except for violation of offences under
section 127, 177 and 178 for which the report shall be received by the Central Government).
Section 209 - Search and Seizure
(1) Where, upon information in his possession or otherwise, the Registrar or inspector has
reasonable ground to believe that the books and papers of a company, or relating to the key
managerial personnel or any director or auditor or company secretary in practice if the
company has not appointed a company secretary, are likely to be destroyed, mutilated,
altered, falsified or secreted, he may, after obtaining an order from the Special Court for the
seizure of such books and papers,-
(a) enter, with such assistance as may be required, and search, the place or places where
such books on papers are kept; and
(b) Seize such books and papers as he considers necessary after allowing the company to take
copies extracts from, such books or papers at its cost.
(2) The Registrar or inspector shall return the books and papers seized under sub-section
(1), as soon as may be, and in any case not later than 180 days of seizure to the company
from whose custody or power such books or papers were seized.
Provided that the books and papers may be called for by the Registrar or inspector for a
further period of 180 days by an order in writing if they are needed again.
Provided further that the Registrar or inspector may, before returning such books and papers
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as aforesaid, take copies of, or extracts from them or place identification marks on them or
any part thereof or deal with the same in such other manner as he considers necessary.
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(3) The provisions of the CrPC, 1973 relating to searches or seizures shall apply, mutatis
mutandis, to every search and seizure shall apply, mutatis mutandis, to every search and
seizure made under this section.
Section 210 - Appointment of Investigators by Central Government

(1) Where the Central Government is of the opinion, that it is necessary to investigate into the
affairs of a company,-
(a) on the receipt of a report of the Registrar or inspector under section 208;
(b) on intimation of a special resolution passed by a company that the affairs of the company
ought to be investigated; or
(c) in public interest, it may order an investigation into the affairs of the company.
(2) Where the order is passed by a court or the Tribunal in any proceedings before it that the
affairs of a company to be investigated, the Central Government shall order an investigation
into the affairs of that company.
(3) For the purposes of this section, the Central Government may appoint one or more
persons as inspectors to investigate into the affairs of the company and to report thereon in
such manner as the Central Government may direct.
Section 211 - Establishment of SFIO

(1) The Central Government shall, by notification, establish an office to be called the Serious
Fraud Investigation Office to investigate frauds relating to a company.
(2) The Serious Fraud Investigation Office shall be headed by a Director and consist of such
number experts from the following fields to be appointed by the Central Government from
amongst persons ability, integrity and experience in,—
(i) banking;
(ii) corporate affairs;
(iii) taxation;
(iv) forensic audit;
(v) capital market;
(vi) information technology;
(vii) law; or
(viii such other fields as may be prescribed.
(3) The Central Government shall, by notification, appoint a Director in the Serious Fraud
Investigation Office, who shall be an officer not below the rank of a Joint Secretary to the
Government of India having knowledge and experience in dealing with matters relating to
corporate affairs.
(4) The Central Government may appoint such experts and other officers and employees in
the Serious Fraud Investigation Office as it considers necessary for the efficient discharge of its
functions under this Act.
(5) The terms and conditions of service of Director, experts, and other officers and employees
of the Serious Fraud Investigation Office shall be such as may be prescribed.
Applicable Rules
Companies (Inspection, Investigation and Inquiry) Rules, 2014
Rule 3. Appointment of persons having expertise in various fields —
The Central Government may appoint persons having expertise in the fields of investigations,
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cyber forensics, financial accounting, management accounting, cost accounting and any other
fields as may be necessary for the efficient discharge of Serious Fraud Investigation Office
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(SFIO) functions under the Act.

Rule 4. Terms and Condition of service —

The terms and conditions of service of Director, experts and other officers and employees of
the Serious Fraud Investigation Office under sub-section (5) of section 211 be as under —
(a) the terms and conditions of appointment of Director shall be governed by the deputation
rules under the Central Staffing Scheme of Government of India;
(b) the terms and conditions of service of experts from the Central Government or the State
Government Union territory Government, Public Sector Undertaking, Autonomous Bodies
and such other organizations shall be as per the recruitment rules which may be duly notified
by the Central Government under article 309 of the Constitution of India;
(c) the terms and conditions of service of other officers and employees from the Central
Government or the state Government or Union territory Government, Public Sector
Undertaking, Autonomous Bodies and such other organizations shall be as per the recruitment
rules which may be duly notified by the Central Government under article 309 of the
Constitution of India;
(d) the Central Government may appoint experts or consultants or other professionals or
professional firms on contractual basis as per the scheme of engagement of experts or
consultants which may be duly approved by the Central Government.
Section 212 - Investigation into the Affairs of a Company by SFIO

1) Without Prejudice to the provisions of section 210, where the Central Government is of the
opinion that it is necessary to investigate into the affairs of a company by the Serious Fraud
Investigation Office-
(a) on receipt of a report of the Registrar or inspector under section 208;
(b) on intimation of a special resolution passed by a company that its affairs are required to be
investigated;
(c) in the public interest; or
(d) on request from any Department of the Central Government or a State Government, the
Central Government may, by order, assign the investigation into the affairs of the said
company to the Serious Fraud Investigation Officer and its Director, may designate such
number of inspectors, as he may consider necessary for the purpose of such investigation.
(2) Where any case has been assigned by the Central Government to the Serious Fraud
Investigation office for investigation under this Act, no other investigating agency of Central
Government or any State Government shall proceed with investigation in such case in respect
of any offence under this Act and in case any such investigation has already been initiated, it
shall not be proceeded further with and the concerned agency shall transfer the relevant
documents and records in respect of such offences under this Act to Serious Fraud
investigation office.
(3) Where the investigation into the affairs of a company has been assigned by the Central
Government to Serious Fraud Investigation Office, it shall conduct the investigation in the
manner and follow the procedure provided in this Chapter; and submit its report to the
Central Government within such period as may be specified in the order.
(4) The Director, Serious Fraud Investigation Office shall cause the affairs of the company to
of investigated by an Investigating Officer who shall have the power of the inspector under
section 217.
(5) The company and its officers and employees, who are or have been in employment of the
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company shall be responsible to provide all information, explanation, documents and

assistance to the Investigating Officer as he may require for conduct of the investigation.
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(6) Notwithstanding anything contained in the CrPC, 1973, offence covered under section
447 of this Act shall be cognizable and no person accused of any offence under those sections
shall be released on bail or on his own bond unless:—
(i) the Public Prosecutor has been given an opportunity to oppose the application for such
release; and
(ii) where the Public Prosecutor opposes the application, the court is satisfied that there are
reasonable grounds for believing that he is not guilty of such offence and that he is not likely
to commit any offence while on bail: Provided that a person, who. is under the age of sixteen
years or is a woman or is sick or infirm, may be released on bail, if the Special Court so
directs: Provided further that the Special Court shall not take cognizance of any offence
referred to this sub section except upon complaint in writing made by—
(i) the Director, Serious Fraud Investigation Office; or
(ii) any officer of the Central Government authorised, by a general or special order in
writing in this behalf by that Government.
(7) The Limitation on granting of bail specified in sub-section(6) is in addition to the
limitations under the CrPC, 1973 or any other law for the time being in force on granting of
bail.
(8) If any officer not below the rank of Assistant Director of Serious Frauds Investigation office
authorised in this behalf by the Central Government by general or special order, has on the
basis of material in his possession reason to believe (the reason for such belief to be recorded
in writing) that any person has been guilty or any offence punishable under sections referred
to in sub-section (6), he may arrest such person and shall, as soon as may be, inform him of
the grounds for such arrest.
(9) The officer authorised under sub-section (8) shall immediately after arrest of such person
under sub-section (8), forward a copy of the order, along with the material in his possession,
referred to in that sub-section, to the Serious Fraud investigation office in a sealed envelope,
in such manner as may be prescribed and the Serious Fraud Investigation Office shall keep
such order and material for such period as may be prescribed.
(10) Every person arrested under sub-section (8) shall within twenty-four hours, be taken to a
SPECIAL COURT or judicial Magistrate or a Metropolitan Magistrate, as the case may be,
having jurisdiction; Provided that the period of twenty-four hours shall exclude the time
necessary for the journey from the place of arrest to the Magistrate’s court.
(11) The Central Government if so directs, the Serious Fraud Investigation Office shall submit
an interim to the Central Government.
(12) On completion of the investigation, the Serious Fraud Investigation Office shall submit
the investigation report to the Central Government.
(13) Notwithstanding anything contained in this Act or in any other law for the time being in
force, a copy Of the investigation report may be obtained by any person concerned by
making an application in this regard to the court.
(14) On receipt of the investigation report, the Central Government may, after examination of
the report (and after taking such legal advice, as it may think fit), direct the Serious Fraud
Investigation Office to initiate prosecution against the company and its officers or employees,
who are or have been in employment of the company or any other person directly or
indirectly connected with the affairs of the company.
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(14A) Where the report under sub-section (11) or sub-section (12) states that fraud has taken
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place in a company and due to such fraud any director, key managerial personnel, other
officer of the company or any other person or entity, has taken undue advantage or benefit,
whether in the form of any asset, property or cash or in any other manner, the Central
Government may file an application before the Tribunal for appropriate orders with regard to
disgorgement of such asset, property or cash and also for holding such director, key
managerial personnel, other officer or any other person liable personally without any
limitation of liability.
(15) Notwithstanding anything contained in this Act or in any other law for the time being in
force, the investigation report filed with the Special Court for framing of charges shall be
deemed to be a report filed by a police officer under section 173 of the CrPC, 1973.
(16) Notwithstanding anything contained in this Act, any investigation or other action taken
or initiated by Serous Fraud Investigation Office under the provisions of the Companies Act,
1956 shall continue to be proceeded with under that Act as if this Act had not been passed.
(17) (a) In case Serious Fraud Investigation Office has been investigating any offence under this
Act, any other investigating agency, State Government, police authority, income-tax
authorities having any information or documents in respect of such offence shall provide all
such information or documents available with it to the Serious Fraud Investigation Office;
(b) The Serious Fraud Investigation Office shall share any information or documents available
with it, with any investigating agency, State Government, police authority or income-tax
authorities, which may be relevant or useful for such investigating agency. State Government,
police authority or income-tax authorities in respect of any offence or matter being
investigated or examined by it under any other law.
Applicable Rules
Companies (Arrests in connection with Investigation by Serious Fraud Investigation office)
Rules, 2017
Rule 2 - (1) Where the Director, Additional Director or Assistant Director of the SFIO
investigating into the affairs of a company other than a Government company or foreign
company has, on the basis of material in his possession, reason to believe (the reason for such
belief to be recorded in writing) that any person has been guilty of any offence punishable
under section 212 of the Act, he may arrest such person;
Provided that in case of an a arrest being made by Additional Director or Assistant Director,
the prior written approval of the Director SFIO shall be obtained.
(2) The Director SFIO shall be the competent authority for all decisions pertaining to arrest.
Rule 3 - Where an arrest of a person is to be made in connection with a Government
company or a foreign company under investigation, such arrest shall be made with prior
written approval of the Central Government.
Provided that the intimation of such arrest shall also be given to the Managing Director or the
person in charge of the affairs of the Government Company and where the person arrested is
the Managing Director or person in-charge of the Government Company, to the Secretary
of the administrative ministry concerned, by the arresting officer.
Rule 4 - The Director, Additional Director or Assistant Director, while exercising powers under
sub-section (8) of section 212 of the Act, shall sign the arrest order together with personal
search memo in the Form appended to these rules and shall serve it on the arrestee and
obtain written acknowledgement of service.
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Rule 5 - The Director, Additional Director or Assistant Director shall forward a copy of the
arrest order along with the material in his possession and all the other documents including
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personal search memo to the office of Director, SFIO in a sealed envelope with a forwarding
letter after signing on each page of these documents, so as to reach the office of the Director,
SFIO within twenty four hours through the quickest possible means.
Rule 6 - An arrest register shall be maintained in the office of Director, SFIO and the Director
or any officer nominated by Director shall ensure that entries with regard to particulars of the
arrestee, date and time of arrest and other relevant information pertaining to the arrest are
made in the arrest register in respect of all arrests made by the arresting officers.
Rule 7 - The entry regarding arrest of the person and information given to such person shall
be made in the arrest register immediately on receipt of the documents as specified under rule
5 in the arrest register maintained by the SFIO office.
Rule 8 - The office of Director, SFIO shall preserve the copy of arrest order together with
supporting materials for a period of five years.
a) from the date of judgment or final order of the Trial Court, in cases where the said
judgment has not been impugned in the appellate court; or
b) from the date of disposal of the matter before the final appellate court, in cases where the
said judgment or final order has been impugned, whichever is later.
Rule 9 - The provisions of the CrPC, 1973 (2 of 1974), relating to arrest shall applied mutatis
mutandis to every arrest made under this Act.
Section 214 - Security for payment of costs and expenses of investigation
Where an investigation is ordered by the Central Government in pursuance of section

210(1)(b), or in pursuance of an order made by the Tribunal under section 213, the CG may
before appointing an inspector under section 210(3) or section 213, require the applicant to
give such security not exceeding Rs. 25,000 or as it may think fit, for payment of the costs and
expenses of the investigation and such security shall be refunded to the applicant if the
investigation results in prosecution.
Applicable Rules - Companies (Inspection, Investigation and Inquiry) Rules, 2014
Rule 5. Security
(1) The Central Government may before appointing an inspector under sub- section (3J of
section 210, require the applicant to give a security not exceeding Rs. 25000 for payment of
the costs and expenses of investigation as per the criteria given below-
S. No. T/o as per previous year balance sheet (Rs.) Amount of Security (Rs.)
1. Turnover upto Rs. 50 Cr. Rs. 10,000
2. T/o more than Rs. 50 Cr. and upto Rs.200 Cr. Rs. 15,000
3. Turnover more than Rs. 200 crore Rs. 25,000
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- The security shall be refunded to the applicant if the investigation results in prosecution.
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Power of Inspector – Section 217
(1) It shall be the duty of all officers and other employees and agents including the former
officers, employees and agents of a company which is under investigation in accordance with
the provisions contained in this Chapter, and where the affairs of any other body corporate or
a person are investigated under section 219, of all officers and other employees and agents
including former officers, employees and agents of such body corporate or a person —
(a) to preserve and to produce to an inspector or any person authorised by him in this behalf
all books and papers of, or relating to, the company or, as the case may be, relating to the
other body corporate or the person, which are in their custody or power; and
(b) otherwise to give to the inspector all assistance in connection with the investigation which
they are reasonably able to give.
(2) The inspector may require any body corporate, other than a body corporate referred to in
sub-section (1), to furnish such information to, or produce such books and papers before him
or any person authorised by him in this behalf as he may consider necessary, if the furnishing
of such information or the production of such books and papers is relevant or necessary for
the purposes of his investigation.
(3) The inspector shall not keep in his custody any books and papers produced under
subsection
(1) or sub-section (2) for more than one hundred and eighty days and return the same to the
company, body corporate, firm or individual by whom or on whose behalf the books and
papers were produced: Provided that the books and papers may be called for by the inspector
if they are needed again for a further period of one hundred and eighty days by an order in
writing.
(4) An inspector may examine on oath —
(a) any of the persons referred to in sub-section (1); and
with the prior approval of the Central Government, any other person,
in relation to the affairs of the company, or other body corporate or person, as the case may
be, and for that purpose may require any of those persons to appear before him personally:
Provided that in case of an investigation under section 212, the prior approval of Director,
Serious Fraud Investigation Office shall ta sufficient under clause .
(5) Notwithstanding anything contained in any other law for the time being in force or in any
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contract to the contrary, the inspector, being an officer of the Central Government, making an
investigation under this Chapter shall have all the powers as are vested in a civil court under
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the Code of Civil Procedure, 1908 (5 of 1908), while trying a suit in respect of the following
matters, namely:—
(a) the discovery and production of books of account and other documents, at such place and
time as may specified by such person;
(b) summoning and enforcing the attendance of persons and examining them on oath; and
(c) inspection of any books, registers and other documents of the company at any place.
(6) (i) If any director or officer of the company disobeys the direction issued by the Registrar
or the inspector under this section, the director or the officer shall be punishable with
imprisonment which may extend to one year and with fine which shall not be less than
twenty-five thousand rupees but which, may extend to one lakh rupees.
(ii) If a director or an officer of the company has been convicted been convicted of an offence
under this section the director or the officer shall, on and from the date on which he is so
convicted, be deemed to have vacated his office as such and on such vacation of office, shall
be disqualified from holding an office in any company.
(7) The notes of any examination under sub-section (4) shall be taken down in writing and
shall be read over to , or by, and signed by, the person examined, and may thereafter be used
in evidence against him.
(8) If any person fails without reasonable cause or refuses—
(a) to produce to an inspector or any person authorised by him in this behalf any book or
paper which is his duty under sub-section (1) or sub-section (2) to produce;
(b) to furnish any information which is his duty under sub-section (2) to furnish;
(c) to appear before the inspector personally when required to do so under sub-section (4) or
to answer any question which is put to him by the inspector in pursuance of that subsection;
or
(d) to sign the notes of any examination referred to in sub-section (7), he shall be punishable
with imprisonment for a term which may extend to six months and with fine which shall not
be less than twenty-five thousand rupees but which may extend to one lakh rupees, and also
with a further fine which may extend to two thousand rupees for every day after the first
during which the failure or refusal continues.
(9) The officers of the Central Government, State Government, police or statutory authority
shall provide assistance to the inspector for the purpose of inspection, inquiry or investigation,
which the inspector may, with the prior approval of the Central Government, require.
(10) The Central Government may enter into an agreement with the Government of a foreign
State for reciprocal arrangements to assist in any inspection, inquiry or investigation under this
Act or under the corresponding law in force in that State and may, by notification, render the
application of this Chapter in relation to a foreign State with which reciprocal arrangements
have been made subject to such modifications, exceptions, conditions and qualifications as
may be deemed expedient for implementing the agreement with that State.
(11) Notwithstanding anything contained in this Act or in the CrPC, 1973 if, in the course of
an investigation into the affairs of the company, an application is made to the competent
court in India by the inspector stating that evidence is, or may be, available in a country or
place outside India, such court may issue a letter of request to a court or an authority in such
country or place, competent to deal with such request, to examine orally, or otherwise, any
person, supposed to be acquainted with the facts and circumstances of the case, to record his
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statement made in the course of such examination and also to require such person or any
other person to produce any document or thing, which may be in his possession pertaining to
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the case, and to forward all the evidence so taken or collected or the authenticated copies
thereof or the things so collected to the court in India which had issued such letter of request:
Provided that the letter of request shall be transmitted in such manner as the Central
Government may specify in this behalf.
Provided further that every statement recorded or document or thing received under this sub-
section shall be deemed to be the evidence collected during course of investigation.
(12) Upon receipt of a letter of request from a court or an authority in a country or place
outside India competent to issue such letter in that country or place for the examination of
any person or production of any document or thing in relation to affairs of a company under
investigation in that country or place, the Central Government may, if it thinks fit, forward
such letter of request to the court concerned which shall thereupon summon the person
before it and record his statement or cause any document or thing to be produced, or send
the letter to any inspector for investigation, who shall thereupon investigate into the affairs of
company m he same manner as the affairs of a company are investigated under this Act and
the inspector shall submit the report to such court within thirty days or such extended time as
the court may allow for further action:
Provided that the evidence taken or collected under this sub-section or authenticated copies
thereof or the things so collected shall be forwarded by the court, to the Central Government
for transmission, in such manner as the Central Government may deem fit, to the court or the
authority in country or place outside India which had issued the letter of request.
Section 219 - Power of Inspector to Conduct Investigation into affairs of Related

Companies, etc
If an inspector appointed under section 210 or section 212 or section 213 to investigate into
the affairs of a company considers it necessary for the purposes of the investigation, to
investigate also the affairs of—
(a) any other body corporate which is, or has at any relevant time been the company's
subsidiary company or holding company, or a subsidiary company of its holding company;
(b) any other body corporate which is, or has at any relevant time been managed by any
person as managing director or as manager, who is, or was, at the relevant time, the
managing director or the manager of the company;
(c) any other body corporate whose Board of Directors comprises nominees of the company
or is accustomed to act in accordance with the directions or instructions of the company or
any of its directors; or
(d) any person who is or has at any relevant time been the company's managing director or
manager or employee, he shall, subject to the prior approval of the Central Government,
investigate into and report on the affairs of the other body corporate or of the managing
director or manager, in so far as he considers the results of his investigation are relevant than
the investigation of the affairs of the company for which he is appointed.
Section 220 - Seizure of documents by the Inspector

(1) Where in the course of an investigation under this Chapter, the inspector has reasonable
grounds to believe that the books and papers of, or relating to, any company or other body
corporate or managing director or manager of such company are likely to be destroyed,
mutilated, altered, falsified or secreted, the inspector may
(a) enter, with such assistance as may be required, the place or places where such books and
papers are kept in such manner as may be required; and
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(b) seize books and papers as he considers necessary after allowing the company to take
copies of, or extract from, such books and papers at its cost for the purposes of his
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investigation.
(2) The inspector shall keep in his custody the books and papers seized under this section for
such as period not later than -the conclusion of the investigation as he considers necessary and
thereafter shall return the same to the company or the other body corporate, or, as the case
may be, to the managing director or the manager or any other person from whose custody or
power they were seized:
Provided that the inspector may, before returning such books and papers as aforesaid, take
copies of, or extracts from them or place identification marks on them or any part thereof or
deal with the same in such manner as he considers necessary.
(3) The provisions of the CrPC, 1973 (2 of 1974), relating to searches or seizure shall apply
mutatis mutandis to every search or seizure made under this section.
Section 223 - Inspector's Report

(1) An inspector appointed under this Chapter may, and if so directed by the Central
Government shall, submit interim reports to that Government, and on the conclusion of the
investigation, shall submit a final report to the Central Government.
(2) Every report made under sub-section (1) shall be in writing or printed as the Central
Government may direct.
(3) A copy of the report made under sub-section (1) may be obtained [by members, creditors
or any other person whose interest is likely to be affected] by making an application in this
regard to the Central Government.
(4) The report of any inspector appointed under this Chapter shall be authenticated either—
(a) by the seal if any of the company whose affairs have been investigated; or
(b) by a certificate of a public officer having the custody of the report, as provided under
section 76 of the Indian Evidence Act, 1872 and such report shall be admissible in any legal
proceeding as in evidence in relation to any matter contained in the report.
(5) Nothing in this section shall apply to the report referred to in section 212.
Section 224 - Actions in pursuance of Inspector’s report

(1) If, from an inspector's report, made under section 223, it appears to the Central
Government that any person has, in relation to the company or in relation to any other body
corporate or other person whose affairs have been investigated under this Chapter been guilty
of any offence for which he is criminally liable, the Central Government may prosecute such
person for the offence and it shall be the duty of all Officers and other employees of the
company or body corporate to give the Central Government the necessary assistance in
connection with the prosecution.
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(2) If any company or other body corporate is liable to be wound up under this Act [or under
the Insolvency and Bankruptcy Code, 2016] and it appears to the Central Government from
any such report made under section 223 that it is expedient so to do by reason of any such
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circumstances as are referred to in section 213, the Central Government may, unless the
company or body corporate is already being wound up by the Tribunal, cause to be
presented to the Tribunal by any person authorised by the Central Government in this behalf.
(a) a petition for the winding up of the company or body corporate on the ground that it
is just and equitable that it should be wound up ;
(b) an application under section 241 ; or
(c) both
(3) If from any such report as aforesaid, it appears to the Central Government that
proceedings ought, in the public interest, to be brought by the company or any body
corporate whose affairs have been investigated under this Chapter-
(a) for the recovery of damages in respect of any fraud, misfeasance or other misconduct in
connection with the promotion or formation, or the management of the affairs, of such
company or body corporate ; or
(b) for the recovery of any property of such company or body corporate which has been
misapplied or wrongly retained.
the Central Government may itself bring proceedings for winding up in the name of such
company or body corporate.
(4) The Central Government, shall be indemnified by such company or body corporate
against any costs or expenses incurred by it in, or in connection with, any proceedings brought
by virtue of sub-section (3).
(5) Where the report made by an inspector states that fraud has taken place in a company
and due to such fraud any director, key managerial personnel, other officer of the company
or any other person or entity, has taken undue advantage or benefit, whether in the form of
any asset, property or cash or in any other manner, the Central Government may file an
application before the Tribunal for appropriate orders with regard to disgorgement of such
asset, property or cash, as the case may be and also for holding such director, key managerial
personnel, officer or other person liable personally without any limitation of liability.
Section 225 - Expenses of Investigation

(1) The expenses of, and incidental to, an investigation by an inspector appointed by the
Central Government under this Chapter other than expenses of inspection under section 214
shall be defrayed in the first instance by the Central Government, but shall be reimbursed by
the following persons to the extent mentioned below, namely : -
(a) any person who is convicted on a prosecution instituted, or who is ordered to pay
damages or restore any property in proceedings brought, under section 224, to the extent
that he may in the same proceedings be ordered to pay the said expenses as may be specified
by the court convicting such person, or ordering him to pay such damages or restore such
property, as the case may be;
(b) any company or body corporate in whose name proceedings are brought as aforesaid,
to the extent of the amount or value of any sums or property recovered by it as a result of
such proceedings;
(c) unless, as a result of the investigation, a prosecution is instituted under section 224, -
(i) any company, body corporate, managing director or manager dealt with by the report
of the inspector; and
(ii) the applicants for the investigation, where the inspector was appointed under section
213, to such extent as the Central Government may direct.
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(2) Any amount for which a company or body corporate is liable under clause (b) of
subsection (1) shall be a first charge on the sums or property mentioned in that clause.
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Section 228 - Investigation of foreign companies

The provisions of this chapter shall apply mutatis mutandis to inspection, inquiry or
investigation in relation to foreign companies.
Section 229 -Penalty for furnishing false statement, Mutilation, destruction of documents
Where a person who is required to provide an explanation or make a statement during the
course of inspection, inquiry or investigation, or an officer or other employee of a company
or other body corporate which is also under investigation-
(a) destroys, mutilates or falsifies, or conceals or tampers or unauthorisedly removes, or is a
party to the destruction, mutilation or falsification or concealment or tampering or
unauthorised removal of, documents relating to the property, assets or affairs of the company
or the body corporate;
(b) makes, or is a party to the making of, a false entry in any document concerning the
company or body corporate; or
(c) provides an explanation which is false or which he knows to be false, he shall be
KINDS OF INVESTIGATION
The Companies Act, 2013 provides for carrying out the following kinds of investigation:
1. Investigation of the affairs of the company if it is necessary to investigate into the affair
company in public interest [Section 210);
2. Investigation of the affairs of related companies [Section 219);
3. Investigation about the ownership of a Company (Section 216)
4. Investigation of foreign companies [Section 228)
5. Investigation by Serious Fraud Investigation Office directed by Central government
under (section 212) .
6. Investigation on the order of Tribunal. (Section 213).
PROTECTION OF EMPLOYEES DURING INVESTIGATION (SECTION 218)

Section 218 provide protection to employees during
investigation. During the course of any investigation and
during pendency of any proceeding against any person
concerned in the conduct and management of the affairs of a
company, Such Company, Other body corporate or person
shall not discharge or suspend or punish any employee
without approval of the tribunal. This protection is available
to employees during the investigation of the affairs or other
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matters of or relating to a company, other body corporate

or person or of the membership, ownership of shares or
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debentures.
Following action are not permitted without approval of the Tribunal-

(a) To discharge or suspend any employee:
(b) To punish any employee, whether by dismisal, removal, reduction in rank or otherwise:
or
(c) To change the terms of employment to his disadvantage.
It the applicant does not receive within thirty days of making of application the approval of
the tribunal only then application concerned may proceed to take against the employee the
action proposed. If the receipt of the notice of the objection, prefer an appeal to appellate
tribunal. The decision of the appellate Tribunal on such appeal shall be final and binding on
the Parties concerned.
SECTION 221 - FREEZING OF ASSETS OF COMPANY ON INQUIRY AND

INVESTIGATION
The Tribunal,
• on a reference made to it by the Central Government;
• in connection with any inquiry or investigation into affairs of a company;
• on any complaint made by members under Section 244;
• a creditor having one lakh amount outstanding against the company; or
• any other person having a reasonable ground to believe;
it may by order direct that such transfer, removal or disposal shall not take place during a
specified period not exceeding three years or may take place subject to such conditions and
restrictions as it may deem fit.
The tribunal may make such order, where it appears to the tribunal that the removal, transfer
or disposal of funds, assets, properties of the company is likely to take place prejudicial to the
interests of the company or its shareholders or creditors or in public interest.
In case of contravention of this order, the company shall be punishable with fi ne which shall
not be less than one lakh rupees but which may extend to twenty-five lakh rupees and every
officer of the company who is in default shall be punishable with imprisonment for a term
which may extend to three years or with fine which shall not be less than fifty thousand
rupees but which may extend to five lakh rupees, or with both.
SECTION 222- IMPOSITION OF RESTRICTIONS UPON SECURITIES

The Tribunal may, by order, direct that the securities shall be subject to such restrictions as it
may deem fit for such period not exceeding three years as may be specified in the order.
The Tribunal may pass such order where it appears to the Tribunal, in connection with any
investigation or on a complaint made by any person in this behalf, that there is good reason
to find out the relevant facts about any securities issued or to be issued by a company and the
Tribunal is of the opinion that such facts cannot be found out unless certain restrictions, as it
may deem fit, are imposed.
In case of contravention of this order, the company shall be punishable with fine which shall
not be less than Rs. 100,000 but which may extend to Rs. 25,00,000 and every officer of the
company who is in default shall be punishable with imprisonment for a term which may
extend to 3 years or with fine which shall not be less than Rs. 50,000 but which may extend
to Rs. 500,000 or with both.
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FOLLOW UP ACTIONS ON REPORT (SECTION 224)

Criminal Prosecution
The Central Government may prosecute any person appears to be guilty based on the report
made by inspector under Section 223. It shall be duty of all officers and other employees of
the company or body corporate to give the Central Government the necessary assistance in
connection with the prosecution.
Winding up
On the basis of the report, the Central Government may cause to be present to the Tribunal -
a. a petition for winding up of the company; or body corporate on the ground that it is
just and equitable that it should be wound up; or
b. under Section 241; or
c. both.
Winding up proceeding for Recovery
The Central government may itself bring proceeding for winding up in the name of such
company or body corporate
(a) for the recovery of damages in respect of any fraud, misfeasance or other misconduct in
connection with the promotion or formation or the management of the affairs of such
(b) for the recovery of any property of the company or body corporate which has been
misapplied or wrongfully retained.
The Central Government may itself bring proceeding for winding up in the name of such
company or body corporate.
The Central Government shall be indemnified by such company or body corporate against
any cost or expenses incurred by it in or in connection with any proceedings of winding up.
Disgorgement
In case of fraud, undue advantage or benefit, the Central government may file an application
before the Tribunal for appropriate orders with regard to disgorgement of such assets,
property or cash. The Central Government may also file and application before the Tribunal
for holding directors, key managerial personnel, officers or other person personally liable
without any limitation of liability. Disgorgement is the act of giving up something such as the
profits obtained by illegal or unethical acts on demand or by legal compulsion. Court can
order wrongdoers to pay back to prevent unjust enrichment. Disgorgement is a civil remedy
and not a punishment or punitive civil action. The purpose of such a remedy, as in securities
cases, is to deprive the wrongdoer of his or her ill-gotten gains and to deter violations of the
law.
VOLUNTARY WINDING UP OF COMPANY NOT TO STOP INVESTIGATION

(SECTION 226)
An investigation may be initiated and no investigation shall be
stopped or suspended by reason only of, the fact that -
(aJ an application has been made under section 241;
(b) the company has passed a special resolution for voluntary
winding up;
(c) any other proceeding for the winding up of the company is
bending before the Tribunal.
Where a winding up order is passed by the Tribunal, the inspector
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shall inform the Tribunal about the pendency of the investigation

proceeding before him and the Tribunal shall pass such order as it
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may deem fit.

Nothing in the winding up order shall absolve any director or other employee of the company from
participating in the proceedings before the inspector or any liability as a result of the finding by the
inspector.
LEGAL ADVISERS AND BANKERS NOT TO DISCLOSE (SECTION 227)

The Tribunal or Central Government or Registrar or inspector shall not require any disclosure -
(a) by a legal advisors of any privileged communication except the name and address of his client; or
(b) by the bankers.
PENALTY FOR FALSE STATEMENT ETC (SECTION 229)

Where a person who is required to provide an explanation or make a statement during the
course of Inspection, inquiry or investigation, or an officer or other employee of a company
or other body corporate which is also under investigation,
(a) destroys, mutilates or falsifies, or conceals or tampers or unauthorized removes, or is a
party to the destruction, mutilation or falsification or concealment or tampering or
unauthorized removal of, documents relating to the property, assets or affairs of the company
or the body corporate;
(b) Makes, or is a party to the making of, a false entry in any document concerning the
(c) Provides an explanation which is false or which he knows to be false, he shall be
PREPARATION BY A COMPANY SECRETARY TO FACE INVESTIGATION

Before an inspector commences investigation into the affairs of a company, it is advisable for
the Secretary to prepare a report touching upon various aspects of the activities of his
company particularly those transactions in respect of which fraud or misfeasance or
mismanagement is alleged. This exercise will enable the secretary to handle the investigation
into the affairs of his company with courage and confidence.
The aspects which should be considered by the secretary include:
1. Basic information about the company - Name of the company; date of incorporation;
location of the registered office, branches, factories and other offices; status of the company-
public or private; objects of the company - capital structure; voting rights attached to the
shares; pattern of the company.
2. Business activities - Nature of existing business, licensed and installed capacities, expansion
programme and sources of finance, whether the company belongs to particular group; if so
the Names of other companies falling within the same group.
3. Debentures, bank finance and deposits.
4. Foreign collaboration agreements.
5. Management — Brief history of past management set up; existing management set up;
composition of Board of Directors; whether the terms and conditions of the appointment of
managerial personnel are being adhered to; details regarding appointment of directors and
their relatives to an office or place of profit.
6. Whether all the statutory registers including minute's books are being maintained up-to-
date?
7. Whether the internal checks and internal control system is being properly followed?
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8. Working results and financial position - General assessment of working of the company,
evaluation of the level of performance and efficiency of the management, a review of the
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profits of the company, performance data, financial position of the company in the context of
its working results for the last three years.
9. Compliance by the company and its officers with the provisions of the Companies Act,
1956/2013.
10. Compliance with the provisions of other Acts applicable to the company.
11. Whether the loans taken and loans advanced to Directors, the fi rms in which they are
partners or companies in which they are Directors are in accordance with the provisions of the
Act.
12. The investments made by the company.
13. Sole selling agency agreement.
14. Instance of mismanagement and other irregularities.
15. Acquisition/disposal of substantial assets.
16. A scrutiny of abnormal/heavy expenditure items.
17. Complaints, if any, against the company and its management and steps taken to redress
them
18. Brief particulars of the litigations against the company and the reasons thereof.
19. Management's relations with the employees and labour.
20. Shareholders—Instance of oppression of minority shareholders, allegations of non-receipt
dividend, notices of meetings, accounts, share certificates, etc.; illegal forfeiture of shares, etc
and steps taken to redress Investors, complaints.
21. Auditors— Name and address of Statutory auditors, Secretarial Auditor and Cost Auditor
compliance as per the provisions of Companies Act, 2013.
WHO CANNOT BE INSPECTOR [SECTION 215]

No firm, body corporate or other association shall be appointed as an inspector.
Notes for Practice -
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ADJUDICATION AND SPECIAL COURTS

An offence is a commission of an act which is contrary to any law or forbidden by the law.
JURISDICTION OF COURT FOR TRIAL OF OFFENCES

High Court:
Having jurisdiction in relation to the place at which the registered office of the company
concerned is situated, except to the extent to which jurisdiction has been conferred on any
district court or district courts subordinate to that High Court.
District Court:
In cases where the Central Government has, by notification, empowered any district court to
exercise all or any of the jurisdictions conferred upon the High Court, within the scope of its
jurisdiction in respect of a company whose registered office is situate in the district.
Session Court:
Having jurisdiction to try any offence under this Act or under any previous company law.
Special Court:
The Central Government may, provide for speedy trial of offences punishable under this Act
with imprisonment of two years or more by notification, establish or designate as many
Special Courts as may be necessary.
ESTABLISHMENT OF SPECIAL COURT [SECTION 435]

1) The Central Government may, for the purpose of providing speedy trial of offences under
this Act, except under section 452, by notification establish or designate as many **Special
Courts as may be necessary.
(2) A **Special Court shall consist of—
(a) a single judge holding office as Session Judge or Additional Session Judge, in case of
offences punishable under this Act with imprisonment of two years or more; and
(b) a Metropolitan Magistrate or a Judicial Magistrate of the First Class, in the case of other
offences,
who shall be appointed by the Central Government with the concurrence of the Chief Justice
of the High Court within whose jurisdiction the judge to be appointed is working.
OFFENCES TRIABLE BY SPECIAL COURTS [SECTION 436]

Special Courts - Offences punishable under this Act with imprisonment of two years or more
A Metropolitan Magistrate or a Judicial Magistrate of the First Class- All other offences under
this Act or under any previous company law.
In case of more than one Special Courts - Where there are more Special Courts than one for
such area, by such one of them as may be specified in this behalf by the High Court
concerned.
Where a person accused of, or suspected of the commission of, an offence under this Act –
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Such person is forwarded to a Magistrate under section 167 of the CrPC, 1973.
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(i) such Magistrate may authorise the detention of such person in such custody as he thinks fit
(Maximum 15 Days) where such Magistrate is a Judicial Magistrate,
(ii) and Maximum 7 Days where such Magistrate is an Executive Magistrate.
Cognizance of offence by special court: A Special Court may, upon perusal of the police
report or upon a complaint in that behalf, take cognizance of that offence without the
accused being committed to it for trial.
Special Court to try an offence other than an offence under this Act:
When trying an offence under this Act, a Special Court may also try an offence other than an
offence under this Act with which the accused may, under the CrPC, 1973 be charged at the
same trial.
Concept of Summary trial:

The special court MAY conduct a summary trial for any offence punishable with
Imprisonment for Not more than 3 years if: -
i) In the case of conviction in a summary trial no sentence of imprisonment for a term
exceeding one year shall be passed
ii) When at the commencement of, or in the course of, a summary trial, it appears to the
Special Court that –
• the nature of the case is such that the sentence of imprisonment for a term exceeding one
year may have to be passed, or
• that it is, for any other reason, undesirable to try the case summarily, the Special Court
shall, after hearing the parties, record an order to that effect and thereafter recall any
witnesses who may have been examined and proceed to hear or rehear the case in
accordance with the procedure for the regular trial.
APPLICATION OF CODE TO PROCEEDINGS BEFORE SPECIAL COURT

[SECTION 438]
The provisions of the CrPC, 1973 shall apply to the proceedings before a Special Court and
the Special Court shall be deemed to be a Court of Session or the court of Metropolitan
Magistrate or a Judicial Magistrate of the First Class and the person conducting a prosecution
before a Special Court shall be deemed to be a Public Prosecutor.
OFFENCES TO BE NON-COGNIZABLE [SECTION 439]

Every offence under the Companies Act, 2013 except the offences referred to section 212(6)
which specifies that every offense u/s 447 shall be considered as Non Cognizable.
Also No Court shall take cognizance of any offence committed under the Companies Act
which is alleged to have been committed by any company or any officer thereof unless the
written complaint of the Registrar, a shareholder / Member of the company, or of a person
authorised by the Central Government is filed.
Court may take Cognizance of offences relating to issue, transfer of securities and non-
payment of dividend on a complaint in writing, by a person authorised by SEBI.
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Note: Exceptions -
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1) Nothing in this provison shall apply to a prosecution by a company of any of its officers.
2) Where the complainant is the Registrar or a person authorised by the Central Government
-
The presence of such officer before the Court trying the offences shall not be necessary unless
the court requires his personal attendance at the trial.
3) In case of a government companies, court shall take cognizance of an offence under this
Act which is alleged to have been committed by any company or any officer thereof on the
complaint in writing of a person authorized by the Central Government only.
This exception is applicable to the government Companies which has not committed any
default in filing of any annual returns or financial statements as per the provisions of this act.
TRANSITIONAL PROVISIONS [SECTION 440]

Until a Special Court is established – Any offence committed under this Act, which is triable
by a Special Court shall, until a Special Court is established, be tried by a Court of Session or
the Court of Metropolitan Magistrate or a Judicial Magistrate of the First Class, as the case
may be exercising jurisdiction over the area, notwithstanding anything contained in the Code
of Criminal Procedure, 1973:
Provided that nothing contained in this section shall affect the powers of the High Court
under section 407 of the Code to transfer any case or class of cases taken cognizance by a
Court of Session or the Court of Metropolitan Magistrate or a Judicial Magistrate of the First
Class, as the case may be under this section.
Section 441 – Compounding of Offences

(1)Notwithstanding anything contained in the CrPC, 1973, any offence punishable under this
Act (whether committed by a company or any officer thereof) not being an offence
punishable with imprisonment only, or punishable with imprisonment and also with fine,
may, either before or after the institution of any prosecution, be compounded by—
(a) the Tribunal; or
(b) where the maximum amount of fine which may be imposed for such offence does not
exceed Rs. 25,00,000, by the Regional Director or any officer authorised by the Central
Government,
on payment or credit, by the company or, as the case may be, the officer, to the Central
Government of such sum as that Tribunal or the Regional Director or any officer authorised
by the Central Government, as the case may be, may specify:
Provided that the sum so specified shall not, in any case, exceed the maximum amount of the
fine which may be imposed for the offence so compounded:
Provided further that in specifying the sum required to be paid or credited for the
compounding of an offence under this sub-section, the sum, if any, paid by way of additional
fee under sub-section (2) of section 403 shall be taken into account:
Provided also that any offence covered under this sub-section by any company or its officer
shall not be compounded if the investigation against such company has been initiated or is
pending under this Act.
(2) Nothing in sub-section (1) shall apply to an offence committed by a company or its officer
within a period of three years from the date on which a similar offence committed by it or
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him was compounded under this section.

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Explanation.—For the purposes of this section,—

(a) any second or subsequent offence committed after the expiry of a period of three years
from the date on which the offence was previously compounded, shall be deemed to be a
first offence;
(b) “Regional Director” means a person appointed by the Central Government as a Regional
Director for the purposes of this Act.
(3) (a) Every application for the compounding of an offence shall be made to the Registrar
who shall forward the same, together with his comments thereon, to the Tribunal or the
Regional Director or any officer authorised by the Central Government, as the case may be.
(b) Where any offence is compounded under this section, whether before or after the
institution of any prosecution, an intimation thereof shall be given by the company to the
Registrar within seven days from the date on which the offence is so compounded.
(c) Where any offence is compounded before the institution of any prosecution, no
prosecution shall be instituted in relation to such offence, either by the Registrar or by any
shareholder of the company or by any person authorised by the Central Government against
the offender in relation to whom the offence is so compounded.
(d) Where the compounding of any offence is made after the institution of any prosecution,
such compounding shall be brought by the Registrar in writing, to the notice of the court in
which the prosecution is pending and on such notice of the compounding of the offence
being given, the company or its officer in relation to whom the offence is so compounded
shall be discharged.
(4) The Tribunal or the Regional Director or any officer authorised by the Central
Government, as the case may be, while dealing with a proposal for the compounding of an
offence for a default in compliance with any provision of this Act which requires a company
or its officer to file or register with, or deliver or send to, the Registrar any return, account or
other document, may direct, by an order, if it or he thinks fit to do so, any officer or other
employee of the company to file or register with, or on payment of the fee, and the
additional fee, required to be paid under section 403, such return, account or other
document within such time as may be specified in the order.
(5) If any officer or other employee of the company who fails to comply with any order
made by the Tribunal or the Regional Director or any officer authorised by the Central
Government under sub-section (4), the maximum amount of fine for the offence proposed to
be compounded under this section shall be twice the amount provided in the corresponding
section in which punishment for such offence is provided.
(6) Notwithstanding anything contained in the CrPC, 1973, any offence which is punishable
under this Act with imprisonment only or with imprisonment and also with fine shall not be
compoundable.
(7) No offence specified in this section shall be compounded except under and in accordance
with the provisions of this section.
MEDIATION AND CONCILIATION PANEL [SECTION 442]

Maintenance of panel of experts: By The Central Government
Referring of matters by any parties to the proceedings to Mediation and
Conciliation Panel:
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I) Suo Moto by the CG / Tribunal / Appellate Tribunal

II) On the basis of an Application by the parties at any time during the proceedings before the
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Central Government or the Tribunal or the Appellate Tribunal.

Procedure and disposal of matter:

The Mediation and Conciliation Panel shall follow the procedure as may be prescribed in
Special Courts (Companies Mediation and Conciliation) Rules, 2016, and dispose of the
matter within a period of 3 months from the date of such reference and forward its
recommendations to the Central Government or the Tribunal or the Appellate Tribunal, as
the case may be.
Objection to the recommendation of the Mediation and Conciliation Panel:

Any party aggrieved by order = file objections to the Central Government or the Tribunal or
the Appellate Tribunal, as the case may be.
Section 443 - Power of Central Government to Appoint Company Prosecutors

Notwithstanding anything contained in the Code of Criminal Procedure, 1973, the Central
Government may appoint generally, or for any case, or in any case, or for any specified class
of cases in any local area, one or more persons, as company prosecutors for the conduct of
prosecutions arising out of this Act and the persons so appointed as company prosecutors
shall have all the powers and privileges conferred by the Code on Public Prosecutors
appointed under section 24 of the Code.
Section 444 - Appeal against Acquittal

Notwithstanding anything contained in the Code of Criminal Procedure, 1973, the Central
Government may, in any case arising under this Act, direct any company prosecutor or
authorise any other person either by name or by virtue of his office, to present an appeal
from an order of acquittal passed by any court, other than a High Court, and an appeal
presented by such prosecutor or other person shall be deemed to have been validly presented
to the appellate court.
Section 445 - Compensation for Accusation Without Reasonable Cause.

The provisions of section 250 of the Code of Criminal Procedure, 1973 shall apply mutatis
mutandis to compensation for accusation without reasonable cause before the Special Court
or the Court of Session.
Section 446 – Application of Fines

The court imposing any fine under this Act may direct that the whole or any part thereof shall
be applied in or towards payment of the costs of the proceedings, or in or towards the
payment of a reward to the person on whose information the proceedings were instituted.
Sec 446A - Factors for determining level of punishment

The court or the Special Court, while deciding the amount of fine or imprisonment under this
Act, shall have due regard to the following factors, namely:—
(a) size of the company;
(b) nature of business carried on by the company;
(c) injury to public interest;
(d) nature of the default; and
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(e) repetition of the default.

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Sec 446B - Lesser penalties for One Person Companies or small companies
- Notwithstanding anything contained in this Act, if penalty is payable for non-compliance of
any of the provisions of this Act by a One Person Company, small company, start-up company
or Producer Company, or by any of its officer in default, or any other person in respect of such
company, then such company, its officer in default or any other person, as the case may be,
shall be liable to a penalty which shall not be more than one-half of the penalty specified in
such provisions subject to a maximum of two lakh rupees in case of a company and one lakh
rupees in case of an officer who is in default or any other person, as the case may be.
Explanation.—For the purposes of this section-
(a) "Producer Company" means a company as defined in clause (l) of section 378A;
(b) "start-up company" means a private company incorporated under this Act or under the
Companies Act, 1956 and recognised as start-up in accordance with the notification issued by
the Central Government in the Department for Promotion of Industry and Internal Trade.
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Registered Valuer & Nidhis

Sec. 247: Valuation by Registered Valuers
Sec. 247(1): Introduction
a) Valuation of: (SPAG DaNieLS2)
⎯ Property
⎯ Stocks
⎯ Shares
⎯ Debentures
⎯ Securities
⎯ Goodwill
⎯ Net Worth of Co.
⎯ Liabilities
⎯ Any other assets
b) Valuation by:
⎯ an individual with such qualification & experience
⎯ Registered as a valuer
appointed by Audit Committee or B.O.D. (if no Audit Committee) of that Co.
Sec. 247(2): Functions & Duties of Registered Valuer.

⎯ make impartial, true & fair valuation of assets.
⎯ exercise Due Diligence
⎯ Not undertake valuation of assets if he is/was directly/indirectly interested during a
period of three years prior to his appointment as valuer or three years after the
valuation of assets was conducted by him.
⎯ Follow the following Rules of Valuation:
a) Internationally accepted Valuation Standards.
b) Valuation Standards as accepted by any other Registered Valuers Organisation.
⎯ Take experts (another valuer’s) opinion
⎯ Disclose following in valuation Reports:
a) Background information of asset being valued.
b) Disclosure of Interest or conflict
c) Inspections/Investigation undertaken (if any)
d) Date of appointment, valuation Date, Date of Report
e) Factors undertaken while valuation
f) Purpose of valuation
g) Conclusion
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Sec. 247(3): Penalty for Contravention
Intention to defraud Otherwise

Fine – Min Rs. 1,00,000
Max Rs. 5,00,000 Rs. 50,000
And
Imprisonment upto 1 Yr.
Sec. 247(4): Liability of Valuer

If convicted u/s 247(3):
⎯ Refund any Remuneration recd.
⎯ Pay Co. /any other person for damages due to valuers incorrect/misleading report.
Note: CG has power to delegate all powers u/s 247 to IBBI under IBC, 2016.
Eligibility for registered valuers:

(1) A person shall be eligible to be a registered valuer if he-
(a) Is a valuer member of a registered valuers’ organisation;
(b) Is recommended by the registered valuers organisation of which he is a valuer member for
registration as a valuer;
(c) Has passed the valuation examination within 3 years preceding the date of making an
application for registration
(d) Possesses the qualifications and experience
(e) Is not a minor;
(f) Has not been declared to be of unsound mind;
(g) Is not an undischarged bankrupt, or has not applied to be adjudicated as a bankrupt;
(h) Is a person resident in India;
(i) Has not been convicted by any competent court for an offence punishable with
imprisonment for a term exceeding 6 months or for an offence involving moral turpitude,
and a period of five years has not elapsed from the date of expiry of the sentence: etc.
(If a person has been convicted and sentenced in to imprisonment for a period of 7 years or
more, he shall not be eligible to be registered)
(2) No partnership entity or company shall be eligible to be a registered valuer if-
(a) It has been set up for objects other than for rendering professional or financial services,
including valuation services and that in the case of a company, it is not a subsidiary, joint
venture or associate of another company or body corporate;
(b) It is undergoing an insolvency resolution or is an undischarged bankrupt;
(c) Three or all the partners or directors, whichever is lower, of the partnership entity or
company, as the case may be, are not registered valuers; etc.
Qualifications and experience

(a) post-graduate degree or post-graduate diploma, in the specified discipline, from a
University or Institute established, and at least 3 years of experience thereafter; or
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(b) a Bachelor's degree or equivalent from a University or Institute established, recognised or

incorporated by law in India and at least 5 years of experience or
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(c) membership of a professional institute established by an Act of Parliament with at least 3

years' experience after such membership and having qualification mentioned at clause (a) or
(b).
Extra Notes:
Application for certificate of registration
(1) Make an application to the authority along with a non-refundable application fee of Rs.
5000 in favour of the authority.
(2) A partnership entity or company eligible for registration as a registered valuer along with
a non-refundable application fee of Rs.10,000 in favour of the authority.
(3) The authority shall examine the application, submit additional documents or clarification
and may grant 21 days to the applicant to remove the deficiencies, if any, in the application.
(4) The authority may require the applicant to appear, within 21 days, before the authority in
person, or through its authorised representative for explanation or clarifications required for
processing the application.
(5) If the authority is satisfied, after such scrutiny, inspection or inquiry as it deems necessary,
it may grant a certificate of registration to the applicant within 60 days of receipt of the
application, excluding the time given by the authority for presenting additional documents,
information or clarification, or appearing in person, as the case may be.
(6) If, after considering an application made under this rule, the authority is of the prima facie
opinion that the registration ought not be granted, it shall communicate the reasons for
forming such an opinion within forty-five days of receipt of the application, excluding the
time given by it for removing the deficiencies, presenting additional documents or
clarifications, or appearing in person, as the case may be.
(7) The applicant shall submit an explanation as to why his/its application should be accepted
within 15 days of the receipt of the communication to enable the authority to form a final
opinion.
(9) After considering the explanation, if any, given by the applicant, the authority shall either
(a) accept the application and grant the certificate of registration; or
(b) reject the application by an order, giving reasons thereof.
(10) The authority shall communicate its decision to the applicant within 30 days of receipt of
explanation.
Conditions of Registration
The registration granted shall be subject to the conditions that the valuer shall -
(a) at all times possess the eligibility and qualification and experience criteria as specified;
(b) at all times comply with the provisions of the Act, these rules and the Bye-laws or internal
regulations, as the case may be, of the respective registered valuers organisation;
(c) in his capacity as a registered valuer, not conduct valuation of the assets or class(es) of
assets other than for which he/it has been registered by the authority;
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(d) take prior permission of the authority for shifting his/ its membership from one registered
valuers organisation to another;
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(e) take adequate steps for redressal of grievances;

(f) maintain records of each assignment undertaken by him for at least three years from the
completion of such assignment;
(g) comply with the Code of Conduct of the registered valuers organisation of which he is a
member;
(h) in case a partnership entity or company is the registered valuer, allow only the partner or
director who is a registered valuer for the asset class(es) that is being valued to sign and act on
behalf of it;
(i) in case a partnership entity or company is the registered valuer, it shall disclose to the
company concerned, the extent of capital employed or contributed in the partnership entity
or the company by the partner or director, as the case may be, who would sign and act in
respect of relevant valuation assignment for the company;
(j) in case a partnership entity is the registered valuer, be liable jointly and severally along
with the partner who signs and acts in respect of a valuation assignment on behalf of the
partnership entity;
(k) in case a company is the registered valuer, be liable alongwith director who signs and acts
in respect of a valuation assignment on behalf of the company;
(l) in case a partnership entity or company is the registered valuer, immediately inform the
authority on the removal of a partner or director, as the case may be, who is a registered
valuer along with detailed reasons for such removal; and
(m) comply with such other conditions as may be imposed by the authority.
Conduct of Valuation
(1) The registered valuer shall, while conducting a valuation, comply with the valuation
standards as notified or modified:
Provided that until the valuation standards are notified or modified by the Central
Government, a valuer shall make valuations as per-
(a) internationally accepted valuation standards;
(b) valuation standards adopted by any registered valuers organisation.
(2) The registered valuer may obtain inputs for his valuation report or get a separate
valuation for an asset class conducted from another registered valuer, in which case he shall
fully disclose the details of the inputs and the particulars etc. of the other registered valuer in
his report and the liabilities against the resultant valuation, irrespective of the nature of inputs
or valuation by the other registered valuer, shall remain of the first mentioned registered
valuer.
(3) The valuer shall, in his report, state the following:-

(a) background information of the asset being valued;
(b) purpose of valuation and appointing authority;
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(c) identity of the valuer and any other experts involved in the valuation;
(d) disclosure of valuer interest or conflict, if any;
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(e) date of appointment, valuation date and date of report;

(f) inspections and/or investigations undertaken;
(g) nature and sources of the information used or relied upon;
(h) procedures adopted in carrying out the valuation and valuation standards followed;
(i) restrictions on use of the report, if any;
(j) major factors that were taken into account during the valuation;
(k) conclusion;
Cancellation or suspension of certificate of registration or recognition

The authority may cancel or suspend the registration of a valuer or recognition of a registered
valuers organisation for violation of the provisions of the Act, any other law allowing him to
perform valuation, these rules or any condition of registration or recognition, as the case may
be in the manner specified
Complaint against a registered valuer or registered valuers organisation

A complaint may be filed against a registered valuer or registered valuers organisation before
the authority in person or by post or courier along with a non-refundable fees of rupees one
thousand in favour of the authority and the authority shall examine the complaint and take
such necessary action as it deems fit:
Provided that in case of a complaint against a registered valuer, who is a partner of a
partnership entity or director of a company, the authority may refer the complaint to the
relevant registered valuers organisation and such organisation shall handle the complaint in
accordance with its bye laws.
Punishment for contravention

Without prejudice to any other liabilities where a person contravenes any of the provision of
these rules he shall be punishable as per Sec 469(3) i.e. Upto Rs.5000 + Rs. 500/day until
default continues.
Punishment for false statement

If in any report, certificate or other document required by, or for, the purposes of any of the
provisions of the Act or the rules made thereunder or these rules, any person makes a
statement,—
(a) which is false in any material particulars, knowing it to be false; or
(b) which omits any material fact, knowing it to be material, he shall be liable under section
448 of the Act which states that penalty u/s 447 shall be leviable.
Sec. 406 – Nidhis

(1) In this section, "Nidhi" or "Mutual Benefit Society" means a company which the Central
Government may, by notification in the Official Gazette, declare to be a Nidhi or Mutual
Benefit Society, as the case may be.
(2) The Central Government may, by notification in the Official Gazette, direct that any of
the provisions of this Act specified in the notification—
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(a) shall not apply to any Nidhi or Mutual Benefit Society; or

(b) shall apply to any Nidhi or Mutual Benefit Society with such exceptions, modifications
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and adaptations as may be specified in the notification.

(3) A copy of every notification proposed to be issued under sub-section (2), shall be laid in
draft before each House of Parliament, while it is in session, for a total period of thirty days,
and if, both Houses agree in disapproving the issue of notification or both Houses agree in
making any modification in the notification, the notification shall not be issued or, as the case
may be, shall be issued only in such modified form as may be agreed upon by both the
Houses
(4) In reckoning any such period of thirty days as is referred to in sub-section (3), no account
shall be taken of any period during which the House referred to in sub-section (3) is
prorogued or adjourned for more than four consecutive days
(5) The copies of every notification issued under this section shall, as soon as may be after it
has been issued, be laid before each House of Parliament.
Few important points w.r.t. NIDHI’s : (Important Rules)

1) Declaration of Nidhis -
The Central Goverment, on receipt of application (in Form NDH-4 along with fee thereon)
of a public company for declaring it as Nidhi and on being satisfied that the company meets
the requirements under these rules, shall notify the company as a Nidhi in the official Gazette.
- Nidhi incorporated under the Act shall file Form NDH-4 within 60 days from the date of
expiry of :-
(a) one year from the date of its incorporation or
(b) the period up to which extension of time has been granted by the RD
- Nidhi can also file Form NDH-4 before the period referred therein. In case a company does
not comply with the requirements of this rule, it shall not be allowed to file Form No. SH-7
(Notice to Registrar of any alteration of share capital) and Form PAS-3 (Return of Allotment).
2) Nidhi shall be a public company and shall have a minimum PUSC `500,000 & Every
company shall have the last words ‘Nidhi Limited’ as part of its name.
3) Every Nidhi shall, within a period of one year from the date of its incorporation, ensure
that it has-
(a) not less than two hundred members;
(b) Net Owned Funds of `10,00,000 or more;
(c) unencumbered term deposits of not less than 10% of the outstanding deposits and
(d) ratio of Net Owned Funds to deposits of not more than 1:20.
Within ninety days from the close of the first financial year after its incorporation and where
applicable, the second financial year, Nidhi shall file a return of statutory compliances in
Form NDH-1 along with such fee as prescribed with the Registrar duly certified by a PCA /
PCS / PCMA.
If a Nidhi is not complying with clauses (a) or (d) of above, it shall within 30 days from the
close of the first financial year, apply to the Regional Director in Form NDH-2 along with fee
specified for extension of time and the Regional Director may consider the application and
pass orders within 30 days of receipt of the application.
Provided that the Regional Director may extend the period upto one year from the date of
receipt of application.
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If the failure to comply with sub-rule (1) of this rule extends beyond the second financial year,
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Nidhi shall not accept any further deposits from the commencement of the second financial
year till it complies with the provisions & gets itself registered u/s 406(1) and instead shall be
liable for penal consequences as provided in the Act.
4) In case of non- payment of the deposit or part thereof as per the terms and conditions of
such deposit, the depositor may approach the Bench of the National Company law Tribunal
having jurisdiction over Nidhi.
5) In respect of any Nidhi which has violated these rules or has failed to function in terms of
the Memorandum and Articles of Association, the Central Government may appoint a Special
Officer to take over the management of Nidhi and such Special Officer shall function as per
the guidelines given by Central Government.
Provided that an opportunity of being heard shall be given to the concerned Nidhi by the
Central Government before appointing any Special Officer.
6) In the said rules, after rule 23, the following rules shall be inserted, namely:- 23A.
Compliance with rule 3A by certain Nidhis:-
Every Nidhi / Mutual Benefit Society pending notification/approval and every Nidhi
incorporated under the Act, before the commencement of Nidhi (Amendment) Rules, 2019,
shall also get itself declared as such in accordance with rule 3A within a period of 1 year from
the date of its incorporation or within a period of six months from the date of
commencement of Nidhi (Amendment) Rules, 2019, whichever is later:
Provided that in case a company does not comply with the requirements of this rule, it shall
not be allowed to file Form No. SH-7 (Notice to Registrar of any alteration of share capital)
and Form PAS-3 (Return of Allotment).
23B. Companies declared as Nidhis under previous company law to file Form NDH-4:-
Every company referred in clause (a) of rule 2 shall file Form NDH-4 alongwith fees as per
the Companies (Registration Offices and Fees) Rules, 2014 for updating its status:
Provided that no fees shall be charged under this rule for filing Form NDH-4, in case it is filed
within six month of the commencement of Nidhi (Amendment) Rules, 2019:
Provided further that, in case a company does not comply with the requirements of this rule,
it shall not be allowed to file Form No. SH-7 (Notice to Registrar of any alteration of share
capital) and Form PAS-3 (Return of Allotment).
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Corporate Secretarial Practice –

Drafting of Resolution, Minutes, Notices and Reports
1. Notice of Board meeting
Notice of Board meeting is required pursuant to Section 173(3) of the Companies Act, 2013.
According to this section, a meeting of the Board shall be called by giving not less than seven
days notice in writing to every director at his address registered with the Company and such
notice shall be sent by hand delivery or by post or by electronic means.
Further, a meeting of the Board may be called at shorter notice to transact urgent business
subject to the condition that at least one independent director, if any, shall be present at the
meeting.
In case of absence of independent directors from such a meeting of the Board, decisions taken
at such a meeting shall be circulated to all the directors and shall be final on ly on ratification
thereof by at least one independent director, if any.
As per section 173(4) of the Companies Act, 2013, every officer of the Company whose duty
is to give notice under this section and who fails to do so shall be liable to a penalty of Rs.
25,000.
2. Agenda
The various items of business to be transacted constitute the agenda, literally “things to be
done” for the meeting. Though it is common practice to send to directors or members an
agenda or a list of items of business proposed to be transacted at the meeting, the Act does not
lay down any such requirement. The current practice is, to lay down the agenda preferably in
the form of proposed resolutions. It is usually prepared by the secretary but issued however,
after it has been approved by the managing director or an executive of an equal rank.
Preparation of agenda: The preparation of agenda requires considerable care. An ideal agenda
is the onewhich is so worded that only by altering a few words of an item to convert it into
past tense, it would form the minutes. It may be, and is often drawn up on loose sheets of
foolscap Paper. However, it is also preferable to write in bond book specially kept for that
purpose. The order in which various items appear in the agenda is generally the order in which
the business is to be transacted at the meeting. As it is customary to discuss routine matters first
such items as relate to it come first in the agenda. They are followed by important items which,
it is expected would provoke discussion among members. At the end, the item which requires
only to be noted by the members listed. Such an order generally has the merit of dividing
equitably the time of the meeting among various items according to their importance. It must
be added, however, that the chairman has the discretion to take up item for consideration by
the meeting in the order he considers convenient for the disposal of the business. The various
items listed on the agenda are numbered serially for convenience of recording minute and for
future reference.
3. Resolutions
A meeting is an important instrument in the corporate decision -making process. The business
at a meeting is preceded by a notice containing the agenda. The resolution is the event that
takes place in the meeting. Dictionary meaning of the word “resolution” is “a formal
proposal put before a public assembly or the formal determination of such proposal on any
matter.” Derived from this meaning, a resolution is a formal agreement as to adoption of
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proposal put before an assembly of persons or meeting. In the context of Company

management, it is either a Board meeting or a General meeting of the members. The passing
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of a resolution should be construed as the manner in which a meeting formally acts expressing
the intent and purpose of the meeting and if it is a meeting of members, it means the will of
the Company, and if it is a meeting of the Board of directors, it means the exposition of the
intent of the executive action initiated or to b e initiated subject to the limiting and regulatory
force of the different statute.
Hints on drafting of resolution
While framing resolution, it is to be ensured that:
* They should be expressed clearly and in precise terms, and not vaguely, whether they
embody the decisions of the directors or are those passed at general meeting.
* All identification of instruments, persons, etc., referred to in the resolution are properly
made.
* If the resolution is being passed in pursuance to the provisions of the Act, it refers to
relevant section or sections.
* If the resolution is such as requires the approval of the CG/Company Law Board or
confirmation of the Court, it states that effect.
* If the resolution is to be effective immediately, it is drawn to show that effect.
* The resolution is confined to one subject matter.
* Wherever possible, lengthy resolutions should be divided into paragraphs and arranged in
their logical order having regard to the subject matter of the resolution.
Members’ resolution
Resolutions that may be passed by a Company are of two kinds:
(i) Ordinary resolution and
(ii) Special resolution.
4. Minutes
The minute in a literal sense means a note to preserve the memory of anything. The minutes
of a meeting are a written record of the business transacted; decisions and resolutions arrived
at the meeting. Section 118 of the Companies Act, 2013 imposes a statutory obligation on every
Company to cause minutes of all proceedings of general meetings, board meetings and other
meeting and resolution passed by postal ballot. Section 119 of the Companies Act, 2013
provides for inspection of minutes-books of general meeting. The statutory requirements
relating to keeping of the minutes of meeting are:
* Preparation of the minutes of the proceedings of meetings: Every Company shall
cause minutes of the proceedings of every general meeting of any class of shareholders or
creditors, and every resolution passed by postal ballot and every meeting of its Board of
Directors or of every committee of the Board, to be prepared and signed in such manner as
may be prescribed and kept within 30 days of the conclusion of every such meeting
concerned, or passing of resolution by postal ballot in books kept for that purpose with
their pages consecutively numbered.
* Contain fair and correct summary: The minutes of each meeting shall contain a fair
and correct summary of the proceedings thereat.
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* Appointments to be included in the minutes: All appointments made at any of the

meetings aforesaid shall be included in the minutes of the meeting.
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* Other details: In the case of a meeting of the Board of Directors or of a committee of the
(a) the names of the directors present at the meeting; and
(b) in the case of each resolution passed at the meeting, the names of the directors, if
any, dissenting from, or not concurring with the resolution.
* Exemptions to matters from inclusion in the minutes: There shall not be included in
the minutes, any matter which, in the opinion of the Chairman of the meeting,—
• is or could reasonably be regarded as defamatory of any person; or
• is irrelevant or immaterial to the proceedings; or
• is detrimental to the interests of the Company.
* Absolute discretion of chairman: The Chairman shall exercise absolute discretion in
regard to the inclusion or non-inclusion of any matter in the minutes on the grounds
specified in sub-section (5).
* Considered as evidence of the proceedings: The minutes kept in accordance with the
provisions of this section shall be evidence of the proceedings recorded therein.
* Minutes signifies the validity of the procedure: Where the minutes have been kept in
accordance with sub-section (1) then, until the contrary is proved, the meeting shall be
deemed to have been duly called and held, and all proceedings thereat to have duly taken
place, and the resolutions passed by postal ballot to have been duly passed and in
particular, all appointments of directors, key managerial personnel, auditors or Company
secretary in practice, shall be deemed to be valid.
* Matter contained in the minutes shall be circulated: No document purporting to be
a report of the proceedings of any general meeting of a Company shall be circulated or
advertised at the expense of the Company, unless it includes the matters required by this
section to be contained in the minutes of the proceedings of such meeting.
* Adherence of secretarial standards by Company: Every Company shall observe
secretarial standards with respect to general and Board meetings specified by the Institute of
Company Secretaries of India constituted under section 3 of the Company Secretaries Act,
1980, and approved as such by the CG.
* Default in compliance: If any default is made in complying with the provisions of this
section in respect of any meeting, the Company shall be liable to a penalty of twenty-five
thousand Rs. and every officer of the Company who is in default shall be liable to a penalty
of five thousand Rs.
* Tampering with the minutes: If a person is found guilty of tampering with the minutes
of the proceedings of meeting, he shall be punishable with imprisonment for a term which
may extend to two years and with fine which shall not be less than twenty-five thousand
Rs. but which may extend to one lakh Rs.
Drafting of minutes: The minutes may be drafted in a tabular form or they may be drafted
in the form of aseries of paragraphs, numbered consecutively and with relevant headings.
However, all minutes whether of general meetings, or board meetings, should contain the
following particulars:
Particulars of the Meeting
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* Name of the meeting.

* Place, date and time of meeting.
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* How the meeting was constituted:

- Constitution of the Meeting:

• Name of person in the Chair.
• Names of directors and Secretary.
• Names of persons in attendance……. Solicitor……….auditor (in a board meeting).
• together with number of members (in general meeting).
Contents of minutes
* Serial number of the minute.
* Brief subject heading or index of each minute.
* Full terms of resolutions adopted.
* All statistical figures, amounts, dates, rate of interest, Nos. of Shares, etc.
* Specific business upon which decisions were taken.
* All appointments of officers, salaries, etc.
* Financial and contractual transactions considered by the meeting.
* In the case of special resolution number of votes for and against.
* Objections and protests raised by members together with the Chairman’s rulings when
members insist on their recording in the minutes, e.g., Mr. A objected to the proposed
motion on the ground that it was ultra vires, the Chairman ruled that the motion was in
order.
* Names of directors dissenting or not concurring with any resolution passed at a Board
Meeting.
* Reference about interested directors abstaining from voting is necessary.
* The Chairman’s signature and date of verification of minutes as correct.
140
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Removal off Names of Co. from ROC Register

(Sec. 248 – Sec. 252)
Sec 248: Power of Registrar to Remove the NAME of Co. from Register
of Companies
(1) Where Registrar has Reasonable Cause to believe that:
(a) Co. → failed to commence Buss. → 1 Yr. of Incorporation
(b) Co. → Not carrying Buss. → 2 Preceding FY
+
Not obtained the status of Dormant Co.
then
ROC shall send Notice to such Co. / Director (Show Cause) to make their representations
within 30 Days.
(c) the subscribers to the memorandum have not paid the subscription which they had
undertaken to pay within a period of 180 days from the date of incorporation of a
company and a declaration to this effect has not been filed within 180 days of its
incorporation;
(d) the company is not carrying on any business after conduction physical verification of regd.
office as per Sec. 12.
(2) Co. may → Itself → file Application to ROC →
Subject to SR → Showing its intention to Winding up (except Sec. 8 Co.)
+
If Satisfied, ROC may Require a Public Notice to be Issued
+
Publish in Official Gazette
(3) If Co. fails to show cause within time Prescribed → ROC may → CANCEL the Name of
Co.  Co. Dissolved
(4) ROC shall ensure that all assets are realised + all Liabilities are paid off BUT if any Liability
of any Dir. / Member is not paid → it can be enforced as if Co. is not Dissolved.
(5) None of the Provisions of this Sec. may affect the Powers of – Tribunal to Windup a Co.
i.e. already Dissolved.
Sec.249  Restriction on making application U/s 248

(1) A Co. shall not be allowed to make any Application U/s 248 if the Co. has, in any
Preceding 3 months
1) Changed its name or shifted its registered office (Inter-State)
2) Has Disposed any Property / Rights for purpose of making Profits in ordinary
Course of Buss.
3) Has engaged in any activity EXCEPT the one which is necessary or expedient for
141
making application under that Section

4) Has made an Application for the tribunal for C&A u/s 230
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5) Co. is already wound up under this Act or under IBC, 2016.

(2) If Co. files any application U/s 248(2) in violation of (1) :-

Penalty  Fine upto Rs. 1 Lakh
+
(3) Such application shall be withdrawn by Co. / Rejected by ROC.
Sec.250 : Effect of Co. Notified as Dissolved

Where a company stands dissolved under section 248, it shall on and from the date mentioned
in the notice under sub-section (5) of that section cease to operate as a company and the
Certificate of Incorporation issued to it shall be deemed to have been cancelled from such date
except for the purpose of realising the amount due to the company and for the payment or
discharge of the liabilities or obligations of the company.
Sec. 251 FRADULENT Application for Removal of Name

- Application was made by Co. U/s 248
- With object of Tax Evasion, Deceive / Defraud Creditors or Other Persons
THEN
The person in charge of the management shall be (even if Co. is declared as Dissolved)
Jointly & Severally Liable to any person who suffered any loss or damage because of Co. getting
Dissolved.
- Penalty U/s 447: Imp. 6m – 10 yrs. + Fine – Min =Amt. of Fraud and Max = upto 3 times
Amt. of Fraud
- Addition to Above: Registrar may also order Prosecution for people who filed application u/s
248.
Sec. 252 Appeal to Tribunal

(1) Any person aggrieved by an order of the Registrar, notifying a company as dissolved
under section 248, may file an appeal to the Tribunal within a period of three years from the
date of the order of the Registrar and if the Tribunal is of the opinion that the removal of the
name of the company from the register of companies is not justified in view of the absence of
any of the grounds on which the order was passed by the Registrar, it may order restoration
of the name of the company in the register of companies:
Provided that before passing any order under this section, the Tribunal shall give a reasonable
opportunity of making representations and of being heard to the Registrar, the company and
all the persons concerned :
Provided further that if the Registrar is satisfied, that the name of the company has been
struck off from the register of companies either inadvertently or on the basis of incorrect
information furnished by the company or its directors, which requires restoration in the
register of companies, he may within a period of three years from the date of passing of the
order dissolving the company under section 248, file an application before the Tribunal
seeking restoration of name of such company.
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(2) A copy of the order passed by the Tribunal shall be filed by the company with the
Registrar within thirty days from the date of receipt of the order, the Registrar shall cause the
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name of the company to be restored in the register of companies and shall issue a fresh
certificate of incorporation.
(3) If a company, or any member or creditor or workman thereof feels aggrieved by the
company having its name struck off from the register of companies, the Tribunal on an
application made by the company, member, creditor or workman before the expiry of
twenty years from the publication in the Official Gazette of the notice under sub-section (5)
of section 248 may, if satisfied that the company was, at the time of its name being struck off,
carrying on business or in operation or otherwise it is just that the name of the company be
restored to the register of companies, order the name of the company to be restored to the
register of companies, and the Tribunal may, by the order, give such other directions and
make such provisions as deemed just for placing the company and all other persons in the
same position as nearly as may be as if the name of the company had not been struck off
from the register of companies.
143
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MISCELLANEOUS PROVISIONS
Sec. 447 - Punishment for Fraud.
Without prejudice to any liability including repayment of any debt under this Act or any
other law for the time being in force, any person who is found to be guilty of fraud involving
an amount of at least ten lakh rupees or one per cent. of the turnover of the company,
whichever is lower shall be punishable with imprisonment for a term which shall not be less
than six months but which may extend to ten years and shall also be liable to fine which shall
not be less than the amount involved in the fraud, but which may extend to three times the
amount involved in the fraud:
Provided that where the fraud in question involves public interest, the term of imprisonment
shall not be less than three years.
Provided further that where the fraud involves an amount less than ten lakh rupees or one
per cent. of the turnover of the company, whichever is lower, and does not involve public
interest, any person guilty of such fraud shall be punishable with imprisonment for a term
which may extend to five years or with fine which may extend to Rs. 50,00,000 or with
both.
Sec. 448 - Punishment for False Statement.
If in any return, report, certificate, financial statement, prospectus, statement or other
document required by, or for, the purposes of any of the provisions of this Act or the rules
made thereunder, any person makes a statement,—
(a) which is false in any material particulars, knowing it to be false; or
(b) which omits any material fact, knowing it to be material,
he shall be liable under section 447.
Sec. 449 – Punishment for False Evidence.
If any person intentionally gives false evidence—
(a) upon any examination on oath or solemn affirmation, authorized under this Act; or
(b)in any affidavit, deposition or solemn affirmation, in or about the winding up of any
company under this Act, or otherwise in or about any matter arising under this Act,
he shall be punishable with imprisonment for a term which shall be Min. 3 years to Max. 7
years and fine Upto Rs. 10,00,000.
Sec. 450 - Punishment Where No Specific Penalty or Punishment is Provided.
If a company or any officer of a company or any other person contravenes any of the
provisions of this Act or the rules made thereunder, or any condition, limitation or restriction
subject to which any approval, sanction, consent, confirmation, recognition, direction or
exemption in relation to any matter has been accorded, given or granted, and for which no
penalty or punishment is provided elsewhere in this Act, the company and every officer of
the company who is in default or such other person shall be liable to a penalty of Rs. 10,000
and in case of continuing contravention, with a further penalty of Rs. 1000 for each day after
the first during which the contravention continues, subject to a maximum of Rs. 200,000 in
case of a company and Rs. 50,000 in case of an officer who is in default or any other person
Sec. 451 - Punishment in Case of Repeated Default.
144
If a company or an officer of a company commits an offence punishable either with fine or

with imprisonment and where the same offence is committed for the second or subsequent
Page
occasions within a period of three years, then, that company and every officer thereof who is
in default shall be punishable with twice the amount of fine for such offence in addition to
any imprisonment provided for that offence.
Sec. 452 - Punishment for Wrongful Withholding of Property.
(1) If any officer or employee of a company—
(a) wrongfully obtains possession of any property, including cash of the company; or
(b) having any such property including cash in his possession, wrongfully withholds it or
knowingly applies it for the purposes other than those expressed or directed in the articles
and authorised by this Act,
he shall, on the complaint of the company or of any member or creditor or contributory
thereof, be punishable with fine which shall not be less than one lakh rupees but which may
extend to five lakh rupees.
(2) The Court trying an offence under sub-section (1) may also order such officer or employee
to deliver up or refund, within a time to be fixed by it, any such property or cash wrongfully
obtained or wrongfully withheld or knowingly misapplied, the benefits that have been
derived from such property or cash or in default, to undergo imprisonment for a term which
may extend to two years.
Provided that the imprisonment of such officer or employee, as the case may be, shall not be
ordered for wrongful possession or withholding of a dwelling unit, if the court is satisfied that
the company has not paid to that officer or employee, as the case may be, any amount
relating to-
(a) provident fund, pension fund, gratuity fund or any other fund for the welfare of its
officers or employees, maintained by the company;
(b) compensation or liability for compensation under the Workmen's Compensation Act,
1923 in respect of death or disablement.
Sec. 453 - Punishment for Improper Use of “Limited” or “Private Limited”
If any person or persons trade or carry on business under any name or title, of which the
word “Limited” or the words “Private Limited” or any contraction or imitation thereof is or
are the last word or words, that person or each of those persons shall, unless duly
incorporated with limited liability, or unless duly incorporated as a private company with
limited liability, as the case may be, punishable with fine which shall not be less than five
hundred rupees but may extend to two thousand rupees for every day for which that name
or title has been used.
Sec. 454 - Adjudication of Penalties
(1) The Central Government may, by an order published in the Official Gazette, appoint as
many officers of the Central Government, not below the rank of Registrar, as adjudicating
officers for adjudging penalty under the provisions of this Act in the manner as may be
prescribed.
(2) The Central Government shall while appointing adjudicating officers, specify their
jurisdiction in the order under sub-section (1).
(3) The adjudicating officer may, by an order-
(a) impose the penalty on the company, the officer who is in default, or any other person, as
the case may be, stating therein any non-compliance or default under the relevant provisions
145
of this Act; and

(b) direct such company, or officer who is in default, or any other person, as the case may be,
Page
to rectify the default, wherever he considers fit.

Provided that in case the default relates to non-compliance of sub-section (4) of section 92 or
sub-section (1) or sub-section (2) of section 137 and such default has been rectified either prior
to, or within thirty days of, the issue of the notice by the adjudicating officer, no penalty shall
be imposed in this regard and all proceedings under this section in respect of such default shall
be deemed to be concluded.
(4) The adjudicating officer shall, before imposing any penalty, give a reasonable opportunity
of being heard to such company, the officer who is in default or any other person
(5) Any person aggrieved by an order made by the adjudicating officer under sub-section (3)
may prefer an appeal to the Regional Director having jurisdiction in the matter.
(6) Every appeal under sub-section (5)shall be filed within sixty days from the date on which
the copy of the order made by the adjudicating officer is received by the aggrieved person and
shall be in such form, manner and be accompanied by such fees as may be prescribed.
(7) The Regional Director may, after giving the parties to the appeal an opportunity of being
heard, pass such order as he thinks fit, confirming, modifying or setting aside the order appealed
against.
(8)(i) Where company fails to comply with the order made under sub-section (3) or sub-section
(7), as the case may be,within a period of ninety days from the date of the receipt of the copy
of the order, the company shall be punishable with fine which shall not be less than twentyfive
thousand rupees but which may extend to five lakh rupees.
(ii) Where an officer of a company or any other person who is in default fails to comply with
the order made under sub-section (3) or sub-section (7), as the case may be within a period of
ninety days from the date of the receipt of the copy of the order, such officer shall be punishable
with imprisonment which may extend to six months or with fine which shall not be less than
twenty-five thousand rupees but which may extend to one lakh rupees, or with both.
454A - Penalty for repeated default.

Where a company or an officer of a company or any other person having already been
subjected to penalty for default under any provisions of this Act, again commits such default
within a period of three years from the date of order imposing such penalty passed by the
adjudicating officer or the Regional Director, as the case may be, it or he shall be liable for
the second or subsequent defaults for an amount equal to twice the amount of penalty
provided for such default under the relevant provisions of this Act.
Sec. 455 - Dormant Company

(1) Where a company is formed and registered under this Act for a future project or to hold
an asset or intellectual property and has no significant accounting transaction, such a
company or an inactive company may make an application to the Registrar in such manner as
may be prescribed for obtaining the status of a dormant company.
Sec. 456 - Protection of Action Taken in Good Faith

No suit, prosecution or other legal proceeding shall lie against the Government or any officer
of the Government or any other person in respect of anything which is in good faith done or
intended to be done in pursuance of this Act or of any rules or orders made thereunder, or in
respect of the publication by or under the authority of the Government or such officer, of
any report, paper or proceedings.
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Sec. 457 - Nondisclosure of Information in Certain Cases.

Notwithstanding anything contained in any other law for the time being in force, the
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Registrar, any officer of the Government or any other person shall not be compelled to
disclose to any court, Tribunal or other authority, the source from where he got any
information which—
(a) has led the Central Government to order an investigation under section 210; or
(b) is or has been material or relevant in connection with such investigation.
Sec. 458 - Delegation by Central Governemnt of its Powers and Functions.

(1) The Central Government may, by notification, and subject to such conditions, limitations
and restrictions as may be specified therein, delegate any of its powers or functions under this
Act other than the power to make rules to such authority or officer as may be specified in the
notification:
1.[Omitted]
(2) A copy of every notification issued under sub-section (1) shall, as soon as may be after it is
issued, be laid before each House of Parliament.
Sec. 459 - Powers of Central Government or Tribunal to Accord Approval, etc.,

Subject to Conditions and to Prescribe Fees on Applications.
(1) Where the Central Government or the Tribunal is required or authorised by many
provision of this Act—
(a) to accord approval, sanction, consent, confirmation or recognition to, or in relation to,
any matter; or
(b) to give any direction in relation to any matter; or
(c) to grant any exemption in relation to any matter,
then, the Central Government or the Tribunal may in the absence of anything to the contrary
contained in that provision or any other provision of this Act, accord, give or grant such
approval, sanction, consent, confirmation, recognition, direction or exemption, subject to
such conditions, limitations or restrictions as it may think fit to impose and may, in the case of
a contravention of any such condition, limitation or restriction, rescind or withdraw such
approval, sanction, consent, confirmation, recognition, direction or exemption.
(2) Save as otherwise provided in this Act, every application which may be, or is required to
be, made to the Central Government or the Tribunal under any provision of this Act—
(a) in respect of any approval, sanction, consent, confirmation or recognition to be accorded
by that Government or the Tribunal to, or in relation to, any matter; or
(b) in respect of any direction or exemption to be given or granted by that Government or
the Tribunal in relation to any matter; or
(c) in respect of any other matter,
shall be accompanied by such fees as may be prescribed:
Provided that different fees may be prescribed for applications in respect of different matters
or in case of applications by different classes of companies.
Sec. 460 - Condonation of Delay in Certain Cases.

Notwithstanding anything contained in this Act,—
(a) where any application required to be made to the Central Government under any
provision of this Act in respect of any matter is not made within the time specified therein,
that Government may, for reasons to be recorded in writing, condone the delay; and
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(b) where any document required to be filed with the Registrar under any provision of this
Act is not filed within the time specified therein, the Central Government may, for reasons to
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be recorded in writing, condone the delay.

Sec. 461 - Annual Report by Central Government.

The Central Government shall cause a general annual report on the working and
administration of this Act to be prepared and laid before each House of Parliament within
one year of the close of the year to which the report relates.
Sec. 462 - Power to Exempt Class or Classes of Companies from Provisions of this
Act.
(1) The Central Government may in the public interest, by notification direct that any of the
provisions of this Act,—
(a) shall not apply to such class or classes of companies; or
(b) shall apply to the class or classes of companies with such exceptions, modifications and
adaptations as may be specified in the notification.
(2) A copy of every notification proposed to be issued under sub-section (1), shall be laid in
draft before each House of Parliament, while it is in session, for a total period of thirty days,
and if, both Houses agree in disapproving the issue of notification or both Houses agree in
making any modification in the notification, the notification shall not be issued or, as the case
may be, shall be issued only in such modified form as may be agreed upon by both the
Houses.
(3) In reckoning any such period of 30 days as is referred to in sub-section (2), no account
shall be taken of any period during which the House referred to in subsection (2) is
prorogued or adjourned for more than four consecutive days.
(4) The copies of every notification issued under this section shall, as soon as may be after it
has been issued, be laid before each House of Parliament.
Sec. 463 - Power of Court to Grant Relief in Certain Cases.

(1) If in any proceeding for negligence, default, breach of duty, misfeasance or breach of trust
against an officer of a company, it appears to the court hearing the case that he is or may be
liable in respect of the negligence, default, breach of duty, misfeasance or breach of trust, but
that he has acted honestly and reasonably, and that having regard to all the circumstances of
the case, including those connected with his appointment, he ought fairly to be excused, the
court may relieve him, either wholly or partly, from his liability on such term, as it may think
fit:
Provided that in a criminal proceeding under this sub-section, the court shall have no power
to grant relief from any civil liability which may attach to an officer in respect of such
negligence, default, breach of duty, misfeasance or breach of trust.
(2) Where any such officer has reason to apprehend that any proceeding will or might be
brought against him in respect of any negligence, default, breach of duty, misfeasance or
breach of trust, he may apply to the High Court for relief and the High Court on such
application shall have the same power to relieve him as it would have had if it had been a
court before which a proceedings against that officer for negligence, default, breach of duty,
misfeasance or breach of trust had been brought under sub-section (1).
(3) No court shall grant any relief to any officer under sub-section (1) or sub-section (2) unless
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it has, by notice served in the manner specified by it, required the Registrar and such other
person, if any, as it thinks necessary, to show cause why such relief should not be granted.
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Sec. 464 - Prohibition of Association or Partnership of Persons Exceeding Certain

Number
(1) No association or partnership consisting of more than such number of persons as may be
prescribed shall be formed for the purpose of carrying on any business that has for its object
the acquisition of gain by the association or partnership or by the individual members
thereof, unless it is registered as a company under this Act or is formed under any other law
for the time being in force:
Provided that the number of persons which may be prescribed under this sub-section shall not
exceed one hundred.
(2) Nothing in sub-section (1)shall apply to—
(a) a Hindu undivided family carrying on any business; or
(b) an association or partnership, if it is formed by professionals who are governed by special
Acts.
(3) Every member of an association or partnership carrying on business in contravention of
sub-section (1)shall be punishable with fine which may extend to one lakh rupees and shall
also be personally liable for all liabilities incurred in such business.
Sec. 465 - Repeal of Certain Enactments and Savings.

(1) The Companies Act, 1956 and the Registration of Companies (Sikkim) Act, 1961 (hereafter
in this section referred to as the repealed enactments) shall stand repealed:
Provided that until a date is notified by the Central Government under subsection (1) of
Section 434 for transfer of all matters, proceedings or cases to the Tribunal, the provisions of
the Companies Act, 1956 in regard to the jurisdiction, powers, authority and functions of the
Board of Company Law Administration and court shall continue to apply as if the Companies
Act, 1956 has not been repealed.
Provided further that also that provisions of the Companies Act, 1956 referred in the
notification issued under section 67 of the Limited Liability Partnership Act, 2008 shall, until
the relevant notification under such section applying relevant corresponding provisions of this
Act to limited liability partnerships is issued, continue to apply as if the Companies Act, 1956
has not been repealed.
(2) Notwithstanding the repeal under sub-section (1) of the repealed enactments,—
(a) anything done or any action taken or purported to have been done or taken, including
any rule, notification, inspection, order or notice made or issued or any appointment or
declaration made or any operation undertaken or any direction given or any proceeding
taken or any penalty, punishment, forfeiture or fine imposed under the repealed enactments
shall, insofar as it is not inconsistent with the provisions of this Act, be deemed to have been
done or taken under the corresponding provisions of this Act;
(b) subject to the provisions of clause (a), any order, rule, notification, regulation,
appointment, conveyance, mortgage, deed, document or agreement made, fee directed,
resolution passed, direction given, proceeding taken, instrument executed or issued, or thing
done under or in pursuance of any repealed enactment shall, if in force at the
commencement of this Act, continue to be in force, and shall have effect as if made, directed,
passed, given, taken, executed, issued or done under or in pursuance of this Act;
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(c) any principle or rule of law, or established jurisdiction, form or course of pleading,
practice or procedure or existing usage, custom, privilege, restriction or exemption shall not
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be affected, notwithstanding that the same respectively may have been in any manner
affirmed or recognised or derived by, in, or from, the repealed enactments;
(d) any person appointed to any office under or by virtue of any repealed enactment shall be
deemed to have been appointed to that office under or by virtue of this Act;
(e) any jurisdiction, custom, liability, right, title, privilege, restriction, exemption, usage,
practice, procedure or other matter or thing not in existence or in force shall not be revised
or restored;
(f) the offices existing on the commencement of this Act for the registration of companies
shall continue as if they have been established under the provisions of this Act;
(g) the incorporation of companies registered under the repealed enactments shall continue
to be valid and the provisions of this Act shall apply to such companies as if they were
registered under this Act;
(h) all registers and all funds constituted and established under the repealed enactments shall
be deemed to be registers and funds constituted or established under the corresponding
provisions of this Act;
(i) any prosecution instituted under the repealed enactments and pending immediately before
the commencement of this Act before any Court shall, subject to the provisions of this Act,
continue to be heard and disposed of by the said Court;
(j) any inspection, investigation or inquiry ordered to be done under the Companies Act,
1956 shall continue to be proceeded with as if such inspection, investigation or inquiry has
been ordered under the corresponding provisions of this Act; and
(k) any matter filed with the Registrar, Regional Director or the Central Government under
the Companies Act, 1956 before the commencement of this Act and not fully addressed at
that time shall be concluded by the Registrar, Regional Director or the Central Government,
as the case may be, in terms of that Act, despite its repeal.
(3) The mention of particular matters in sub-section (2)shall not be held to prejudice the
general application of section 6 of the General Clauses Act, 1897 with regard to the effect of
repeal of the repealed enactments as if the Registration of Companies (Sikkim) Act, 1961 were
also a Central Act.
Sec. 466 - Dissolution of Company Law Board and Consequential Provisions

(1) Notwithstanding anything contained in section 465, the Board of Company Law
Administration constituted under the Companies Act, 1956 (hereafter in this section referred
to as the Company Law Board) shall stand dissolved on the constitution of the Tribunal and
the Appellate Tribunal:
Provided that until the Tribunal and the Appellate Tribunal is constituted, the Chairman, Vice-
Chairman and Members of the Company Law Board immediately before the constitution of
the Tribunal and the Appellate Tribunal, who fulfil the qualifications and requirements
provided under this Act regarding appointment as President or Chairperson or Member of the
Tribunal or the Appellate Tribunal, shall function as President, Chairperson or Member of the
Tribunal or the Appellate Tribunal:
Provided further that every officer or other employee, who had been appointed on
deputation basis to the Company Law Board, shall, on such dissolution,—
(i) become officer or employee of the Tribunal or the Appellate Tribunal, if he fulfils the
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qualifications and requirements under this Act; and

(ii) stand reverted to his parent cadre, Ministry or Department, in any other case
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Provided also that every officer and the other employee of the Company Law Board,
employed on regular basis by that Board, shall become, on and from such dissolution the
officer and other employee, respectively, of the Tribunal or the Appellate Tribunal with the
same rights and privileges as to pension, gratuity and other like benefits as would have been
admissible to him if he had continued to serve that Board and shall continue to do so unless
and until his employment in the Tribunal or the Appellate Tribunal is duly terminated or until
his remuneration, terms and conditions of employment are duly altered by the Tribunal or
the Appellate Tribunal, as the case may be:
Provided also that notwithstanding anything contained in the Industrial Disputes Act, 1947 or
in any other law for the time being in force, any officer or other employee who becomes an
officer or other employee of the Tribunal or the Appellate Tribunal under the preceding
proviso shall not be entitled to any compensation under this Act or under any other law for
the time being in force and no such claim shall be entertained by any court, tribunal or other
authority:
Provided also that where the Company Law Board has etablished a provident fund,
superannuation fund, welfare fund or other fund for the benefit of the officers and other
employees employed in that Board, the monies relatable to the officers and other employees
who have become officers or employees of the Tribunal or the Appellate Tribunal shall, out
of the monies standing to the credit of such provident fund, superannuation fund, welfare
fund or other fund, stand transferred to, and vest in, the Tribunal or the Appellate Tribunal,
as the case may be, and such monies which stand so transferred shall be dealt with by the
Tribunal or the Appellate Tribunal in such manner as may be prescribed.
(2) The persons holding the offices of Chairman, Vice-Chairman and Members, and officers
and other employees of the Company Law Board immediately before the constitution of the
Tribunal and the Appellate Tribunal who are not covered under proviso to sub-section (1)
shall vacate their respective offices on such constitution and no such Chairman, Vice-Chairman
and Members and officers or other employees shall be entitled to claim any compensation for
the premature termination of the term of his office or of any contract of service, if any
Sec. 467 - Power of Central Government to Amend Schedules.

(1) Subject to the provisions of this section, the Central Government may, by notification,
alter any of the regulations, rules, Tables, forms and other provisions contained in any of the
Schedules to this Act.
(2) Any alteration notified under sub-section (1) shall have effect as if enacted in this Act and
shall come into force on the date of the notification, unless the notification otherwise directs:
Provided that no such alteration in Table F of Schedule I shall apply to any company
registered before the date of such alteration.
(3) Every alteration made by the Central Government under sub-section (1) shall be laid as
soon as may be after it is made before each House of Parliament while it is in session for a
total period of thirty days which may be comprised in one session or in two or more
successive sessions, and if, before the expiry of the session immediately following the session
or the successive sessions aforesaid, both Houses agree in making any modification in the
alteration, or both Houses agree that the alteration should not be made, the alteration shall
thereafter have effect only in such modified form or be of no effect, as the case may be; so,
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however, that any such modification or annulment shall be without prejudice to the validity
of anything previously done in pursuance of that alteration.
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Sec. 468 - Powers of Central Government to Make Rules Relating to Winding Up.
(1) The Central Government shall, make rules consistent with the Code of Civil Procedure,
1908 providing for all matters relating to the winding up of companies, which by this Act, are
to be prescribed, and may make rules providing for all such matters, as may be prescribed.
(2) In particular, and without prejudice to the generality of the foregoing power, such rules
may provide for all or any of the following matters, namely:—
(i) as to the mode of proceedings to be held for winding up of a company by the Tribunal
under this Act;
(ii) for the holding of meetings of creditors and members in connection with proceedings
under section 230;
(iii) for giving effect to the provisions of this Act as to the reduction of the capital;
(iv) generally for all applications to be made to the Tribunal under the provisions of this Act;
(v) the holding and conducting of meetings to ascertain the wishes of creditors and
contributories;
(vi) the settling of lists of contributories and the rectifying of the register of members where
required, and collecting and applying the assets;
(vii) the payment, delivery, conveyance, surrender or transfer of money, property, books or
papers to the liquidator;
(viii) the making of calls; and
(ix) the fixing of a time within which debts and claims shall be proved.".
(3) All rules made by the Supreme Court on the matters referred to in this section as it stood
immediately before the commencement of this Act and in force at such commencement, shall
continue to be in force, till such time the rules are made by the Central Government and any
reference to the High Court in relation to winding up of a company in such rules shall be
construed as a reference to the Tribunal.
Sec. 469 - Power of Central Government to Make Rules.

(1)The Central Government may, by notification, make rules for carrying out the provisions
of this Act.
(2) Without prejudice to the generality of the provisions of sub-section (1), the Central
Government may make rules for all or any of the matters which by this Act are required to
be, or may be, prescribed or in respect of which provision is to be or may be made by rules.
(3) Any rule made under sub-section (1) may provide that a contravention thereof shall be
punishable with fine which may extend to five thousand rupees and where the contravention
is a continuing one, with a further fine which may extend to five hundred rupees for every
day after the first during which such contravention continues.
(4) Every rule made under this section and every regulation made by Securities and Exchange
Board under this Act, shall be laid, as soon as may be after it is made, before each House of
Parliament, while it is in session, for a total period of thirty days which may be comprised in
one session or in two or more successive sessions, and if, before the expiry of the session
immediately following the session or the successive sessions aforesaid, both Houses agree in
making any modification in the rule or regulation or both Houses agree that the rule or
regulation should not be made, the rule or regulation shall thereafter have effect only in such
modified form or be of no effect, as the case may be; so, however, that any such
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modification or annulment shall be without prejudice to the validity of anything previously

done under that rule or regulation.
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Sec. 470 - Power to Remove Difficulties.

(1) If any difficulty arises in giving effect to the provisions of this Act, the Central Government
may, by order published in the Official Gazette, make such provisions, not inconsistent with
the provisions of this Act, as appear to it to be necessary or expedient for removing the
difficulty:
Provided that no such order shall be made after the expiry of a period of five years from the
date of commencement of section 1 of this Act.
(2) Every order made under this section shall, as soon as may be after it is made, be laid
before each House of Parliament.
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THE ARBITRATION AND CONCILIATION ACT, 1996

1. INTRODUCTION:
Arbitration :
The settling of disputes between two parties by an impartial third party, whose decision the contending
parties agree to accept.
International Commercial Arbitration:

International commercial arbitration is the process of resolving business disputes between or among
transnational parties through the use of one or more arbitrators rather than through the courts.
It requires the agreement of the parties, which is usually given via an arbitration.
Enforcement of Foreign Arbitral Awards:

Recognizing the growing importance of international arbitration as a means of settling international
commercial disputes, the Convention on the Recognition and Enforcement of Foreign Arbitral Awards
(the Convention) seeks to provide common legislative standards for the recognitionof arbitration
agreements and court.
The Arbitration and Conciliation Act, 1996 is an Act enacted to consolidate and amend the law relating
to domestic arbitration, international commercial arbitration and enforcement of foreign arbitral awards
as also to define the law relating to conciliation and for matters connected therewith or incidental thereto.
Need for the establishment of a unified legal framework:

According to the Preamble of the Act the General Assembly of the United Nations has recommended
that all countries shall give due consideration to the UNCITRAL * Model Law on International
Commercial Arbitration, and the UNCITRAL Conciliation Rules in 1980; in view of the desirability of
uniformity of the law of arbitral procedures and the specific needs of international commercial arbitration
practice.
*
UNCITRAL : United Nations Commission on International Trade Law
Structure of the Act:

Part I contains ten chapters which deals with the Arbitration,
Part II contains two chapters which deals with the enforcement of certain foreign awards,
Part III deals with the conciliation AND
Part IV deals with the Supplementary provisions.
The Arbitration and Conciliation Act is divided into 4 Parts -

- Containing 88 Sections
- 7 schedules
As follows :-
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Containing 86
Sections
7 schedules
Part I Part II Part III Part IV
10 chapters that 2 chapters that

deals with deals with that deals with that deals with
Enforcement
Supplementary
Arbitration of certain conciliation
provisions
foreign awards
2. ARBITRATION – GENERAL PROVISIONS

Alternate methods of Dispute Resolution (ADR) were evolved to address some of major shortcomings
of the court based adjudication system. One of the more utilised methods of ADR is arbitration.
Alternate methods of dispute resolution

(i) Alternate methods of dispute resolution (ADR) are used to resolve disputes outside the ordinary
court system.
(ii) In other words, these methods are an alternative to litigation.
(iii)Two of the most common methods of ADR are arbitration and mediation.
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(iv)Other methods include conciliation, negotiation, case evaluation, neutral fact finding,
ombudsperson, etc.
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(v)All the methods differ from each other.

Advantages of ADR:
• Lower costs
• Greater flexibility of process,
• Higher confidentiality,
• Greater likelihood of settlement,
• Choice of forum,
• Choice of solutions.
Disadvantages of ADR:
• Requirement of cooperative behaviour of both parties,
• Power imbalance between parties,
• Lacks the possibility of interim measures,
• Difficulty in enforcement of final outcome
Primary legislation dealing with alternate methods of dispute resolution:
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Arbitration
One of the popular methods of alternate dispute resolution is arbitration.
It could be understood as a method of dispute resolution involving one or more neutral third person
selected by the disputing parties and whose decision is binding.
Thus arbitration has few defining features:
(a) It is a method of adjudication of disputes;
(b) by a neutral third person(s) selected by the parties; and
(c) who renders a final and binding decision.
Relevant terms (Section 2)

“Arbitration” defined by the Arbitration and Conciliation Act, 1996 in section 2.
According to which “arbitration” means any arbitration whether or not administered by permanent
arbitral institution.
“Arbitral tribunal” means a sole arbitrator or a panel of arbitrators;
“Arbitral award” includes an interim award;
“International commercial arbitration”means an arbitration relating to disputes arising out of
legalrelationships, whether contractual or not, considered as commercial under the law in force in
India and where at least one of the parties is—
• an individual who is a national of, or habitually resident in, any country other than India; or
• a body corporate which is incorporated in any country other than India; or
• an association or a body of individuals whose central management and control is exercised in any
country other than India; or
• the Government of a foreign country
“Party” means a party to an arbitration agreement.
Basic Features of Arbitration

(a) Arbitration agreement –
• No arbitration can happen without the consent of the parties.
• The consent is contained within an arbitration agreement.
• This agreement clearly specifies the desire of the parties to arbitrate their dispute.
• In other words they clearly note that in the event of a dispute between them they would not go to
the court, instead they will proceed to arbitrate their dispute.
• This agreement takes the form of a binding contract.
(b) Arbitrator –
• Also known as the arbitral tribunal is similar to a judge of the court.
• The arbitrator decides the disputes between the parties.
• Just like the judge an arbitrator is also required to be completely neutral, impartial and not favour
any party. Because the parties can choose the arbitrators, it inspires confidence in the arbitrators, the
process and the decisions taken by the arbitrators.
• If however the arbitrators who are not independent then they could be removed by the court.
(c) Seat of arbitration –

• Means the legal system which would supervise the arbitration to ensure that mandatory legal
requirements are complied with.
• The courts of the seat would provide assistance through supportive measures.
• For example, if India is the seat then Indian laws would apply and Indian courts would have
theauthority to provide supportive assistance such as issuance of interim measures, etc. It would also
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be the court which would hear challenges against the arbitral award.
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(d) Party autonomy and procedure –

• Arbitration also gives the parties the choice of applicable law especially if the arbitration is an international
commercial arbitration.
• Additionally there is enormous flexibility to choose the type and kind of procedure that the parties want to
adopt for the arbitration.
• These rules will deal with many things including what kind of hearing should be there for instance only
written statements or oral arguments, etc.
(e) Finality of outcome –

• Usually there is no appeal against an arbitral award.
• An arbitral award can only be set aside on very few grounds such as invalid arbitration agreement, parties
incapacity, independence and impartiality of an arbitrator, unfair procedure, etc.
(f) Confidentiality –
• An important feature of arbitration is that whatever that happens in arbitration remains private.
• It is only known to the parties and the arbitrators.
• All of them are prohibited with sharing with third parties who are not involved in arbitration, any document
or information that is received during the course of arbitration.
• This is done to ensure that parties feel free to share all information during arbitration so that a proper
solution can be arrived at.
(g) Arbitral Awards –
• an award is a decision by the arbitrator on the dispute that was submitted to it for adjudication.
(h) Enforcement of arbitral awards –
• It is much simpler to enforce an arbitral award in foreign nations than a judgment rendered by a court.
• Such enforcement happens under an international treaty.
Distinction between Arbitration and Litigation

Litigation Arbitration
Takes place in court The place of arbitration is chosen by the parties.
A judge is assigned by the court. The litigants The arbitrator(s) is selected by the parties.
have no say on who will judge their disputes. Parties therefore are able to choose people with
the appropriate expertise, educational
qualifications, trade experience, etc., as
arbitrators.
The procedure followed by the court is fixed and The parties have adequate flexibility to choose
determined by the Rules of the court. In India it the procedures that would apply to their
would be governed by the Code of Civil arbitration. They could either construct such
procedure and rules applicable to the particular procedures or adopt procedures of an arbitral
court. institution.
The proceedings are generally open to public. Confidentiality is one of the most important
In other words there is very little privacy and characteristic of arbitration. In other words
confidentiality. apart from the parties (including their lawyers) no
other person is permitted to participate in the
arbitral proceedings.
Court decisions are subject to numerous appeals. Arbitral awards can be challenged on very limited
grounds.
It is often difficult to enforce judgments of Enforcing an arbitral award in foreign nations is
court of one country in a foreign country. much easier and is governed by international
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treaties such as The Recognition and

Enforcement of Foreign Arbitral Awards, 1958.
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Authorities under Act :-
The Arbitration and Conciliation

Judicial Authority
Court
Supreme Court/High Court
Or any Designated person

/Institution
Act, 1996
(a) Judicial authority –

The term judicial authority is not defined in Act.
Therefore it is a concept wider than courts as ordinarily understood and would include special tribunals
and quasi judicial authorities.
The functions performed would include reference to arbitration.
Every court would be a judicial authority, but every judicial authority would not be a court.
(b) Court [Section 2(1)(e)] –

There are two understandings of Court – Pre amendment and post 2015 amendment. Prior to the
amendment, the term was held to be District Court and High Court exercising original jurisdiction
andnot other courts.
Post Amendment the understanding is now dependent on the type of arbitration – forinternational
commercial arbitration the court would only be the High Court, and for all other arbitration it would be
the District Court and High Court exercising original jurisdiction.
(c) Supreme or High Court or any person or institution designated by such court (Section 11) –
Supreme Court and High court are entrusted with a specific task that of appointment of arbitrators upon
request of a party. The Supreme Court would be the authority for appointing an arbitrator in case of
international commercial arbitration, while High Court would be the authority for appointing an
arbitrator in case of domestic arbitrator. The Act also authorizes any person or institution so designated
by the Supreme and High Court to appoint the arbitrators.
Arbitration agreement: Definition and General Principles Definition

Arbitration is a private method of dispute resolution.
Under the Indian law every individual has the right to approach the court for resolution of his/her
dispute that may involve infringement of right(s) vested upon that individual. This protection is so
stringent that it cannot be contracted away.
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Arbitration cannot happen without the parties consenting to submit their dispute to arbitration.
Consent of the parties therefore is the most fundamental requirement for an arbitration to happen.
The document which notes this consent is referred to as the arbitration agreement.
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In other words an arbitration agreement records the consent of the parties that in the event of a dispute
between them that matter instead of being taken to court, will be submitted for resolution to arbitration.
Arbitration agreement therefore is necessary to start arbitration.
Basic Understanding of an Arbitration Agreement:

1. “Arbitration Agreement” means an agreement by the parties to submit to arbitration all or certain
disputes which have arisen or which may arise between them in respect of a defined legal relationship,
whether contractual or not.
2. An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a
separate agreement.
3.An arbitration agreement shall be in writing.
4. An arbitration agreement is in writing if it is contained in –
a) a document signed by the parties;
b)An exchange of letters, telegrams or other means of telecommunication including communication
through electronic means which provide a record of the agreement; or
5.The reference in a contract to a document containing an arbitration clause constitutes an arbitration
agreement if the contract is in writing and the reference is such as to make thatarbitration clause part of
the contract.
The purpose of an arbitration agreement is to submit disputes to arbitration and the law defines an
arbitration agreement on the basis of whether existing or future disputes would be submitted to
arbitration.
Thus the two basic types of arbitration agreement are:
(a) Arbitration clause- a clause contained within a principal contract. The parties undertake to submit
disputes in relation to or in connection with the principal contract that may arise in future to arbitration.
(b) Submission agreement- an agreement to refer disputes that already exist to arbitration. Such an
agreement is entered into after the disputes have arisen.
2 basic types of
se Arbitration agreement
agreement
Arbitration Submission
clause agreement
Example: In 2014, Company A, an automobile manufacturer entered into a joint venture agreement
(JVA) with Company B the largest manufacturer of tyres for supply of all terrain tyres for its latest car.
Both the companies are registered under the Companies Act, 2013.
Scenario I - The JVA carries the following clause:
“All disputes shall be arbitrated in Mumbai.” This would be an arbitration clause. It is contained in the
principal contract and no disputes have arisen till yet. It concerns future disputes that may arise.
Scenario II -The JVA does not have any clause relating to arbitration. Disputes arose betweenthe parties
concerning quality of tires in 2016. To resolve this dispute, parties entered into an agreement that noted
“That all disputes including quality of tires supplied by Company B to Company A shall be submitted
to arbitration. The parties hereby agree to abide by the decision of the arbitrator.
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“Such an agreement that is made after the disputes have arisen would be called a Submission
Agreement.”
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Requirements of a valid arbitration agreement

Requirements of an arbitration agreement can be gathered from two sources:
• statutory provisions, and
• decide case law.
1. Writing -
Unlike the possibility of an oral contract, arbitration agreement are required to bemandatorily in writing.
Example 1:
• Motilal owns a shop in Mulund dealing in readymade clothes.
• Ram is a supplier of clothes to Motilal.
• They have been doing business for many years.
• No separate written contract exists between them.
• However for each consignment Ram issues an individual invoice to Motilal on the basis of
whichpayment is made.
• Each invoice contains the following note “All disputes pertaining to this transaction if any will be
subject to the Arbitration Rules & Regulations of Bharat Merchant Chamber".
• This is an arbitration agreement in writing.
Example 2:
• Vikram wants to start a Sweet and Confectionary Shop and contacts Ahuja Confectioners & Bakers
for supply of cakes.
• The entire communication between the parties took place over email.
• One of the emails received by Vikram from Ahuja Bakers had, among other terms of service, the
following condition “any disputes regarding quality or delivery shall be submitted to arbitration
conducted under the aegis of Indian Confectionary Manufacturers Association.
• Please place your order if the above terms and conditions are agreeable to you.”
• Vikram placed an order.
• The contract stood affirmed by reason of their conduct.
• This would be an arbitration agreement in writing contained in correspondence between the parties.
2. Clarity of consent:
The intention to go to arbitration must be clear in other words there must be consensus ad idem.
Utilization of vague words cannot be considered to be adequate.
The intention has to be gathered from the wordings of the agreement.
The words used should disclose a determination and obligation on the part of parties to go to arbitration
and not merely contemplate the possibility of going for arbitration.
If it is only a possibility then it is not an arbitration agreement.
Example:
“The parties had a contract that if during the continuance of the partnership or at any time afterwards
any dispute touching the partnership arises between the partners, the same shall be mutually decided by
the partners or shall be referred for arbitration if the parties so determine."
This would not be an arbitration agreement, because of the need for parties to further agree whether or
not to go for arbitration.
3. Defined Legal relationship –

This term has been borrowed from the UNCITRAL Model Law.
The statute does not define this term. The important idea here is that any dispute that arises from a legal
relationship can be submitted to arbitration unless it is expressly or impliedly barred by a Statute. Thus
disputes concerning illegal activities cannot be submitted to arbitration.
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4. Final and binding award –

Parties to the arbitration agreement must agree that the determination of their substantive rights by a
neutral third person acting as the arbitral tribunal would be final and binding upon them.
Example:‘Any other questions, claim right, matter, thing, whatsoever, in any way arising out of orrelating
to the contract designs, drawings, specifications estimates, instructions, or orders, or those conditions or
failure to execute the same whether arising during the progress of the work, or after the completion,
termination or abandonment thereof, the dispute shall, in the first place, be referred to the Chief
Engineer who has jurisdiction over the work specified in the contract.
The Chief Engineer shall within a period of ninety days from the date of being requested by the
Contractor to do so, given written notice of his decision to the contractor.
Chief Engineer's decision final.’ Is this a valid arbitration agreement?
Answer: Since in the given case Chief Engineer is not a neutral party and hasa Control over thework
specified in
the contract, so this is not a valid arbitration agreement.
5. Specific words:
The mere use of words like ‘arbitration’ or ‘arbitrator’ in a clause will not make it an arbitration
agreement. Usage of such words is not a necessary requirement.
6. Dispute:
There must be a present or a future dispute/difference in connection with some contemplated affairs
that is proposed to be submitted to arbitration.
7. Arbitrability:
The disputes submitted/ proposed to be submitted to arbitration must be arbitrable.
In other words that law must permit arbitration in that matter.
There are certain disputes that the law retains exclusively for the court, and the same cannot be
submitted for arbitration.
The rationale is that given the nature of disputes, the courts are the only appropriate forum for
adjudicating the matter.
For example: Criminal offences, matrimonial disputes, guardianship matters, testamentary matters,
mortgage suit for sale of a mortgaged property, etc. cannot be arbitrated.
8. Signature:
Is only required when the arbitration agreement is contained in a contract i.e. in one set of documents.
However no signature is required if the arbitration agreement is contained in correspondence or
exchange of pleadings.
Termination of an arbitration agreement

Just the way parties can enter into an arbitration agreement, they can also terminate an arbitration
agreement. Thus an arbitration agreement could be put to an end by:
1.Mutual consent: Like any contract, the parties involved can jointly agree to put an end to aparticular
arbitration agreement.
2.Termination of principal contract: An arbitration agreement always operates inrelation to a
principal contract.
If the principal contract is terminated through discharge or novation, the arbitration agreement
terminates with the contract.
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However if the principal contract is breached, then the arbitration agreement survives becauseof the
operation of the doctrine of separability.
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Example: Ramesh Air-Conditioning services (RACS) and Voltas Limited entered into a service
agreement whereby RACS would provide annual maintenance services for all voltas commercial air
conditioners in the Mumbai region.
The contract provided that in the event of a dispute between the parties, the matter would be submitted
to arbitration.
Scenario 1: At the end of the third year, the Service Agreement was not renewed. The
contractterminates, and along with it the arbitration agreement.
Scenario 2: At the end of the second year, the two parties enter into a new contract, which replaces the
existing service agreement between the parties.
The new contract does not have an arbitration agreement.
The arbitration agreement contained in the superseded service agreement does not survive.
Scenario 3: Voltas raises a dispute with RACS as regards quality of services provided and terminates the
agreement. Here, owing to separability doctrine, the arbitration agreement survives to allow parties to
arbitrate their dispute.
3. Death of parties:
Under the Indian law, an arbitration agreement is not discharged by the death of any party. It shall be
enforceable by or against the legal representatives of the deceased.
4.Operation of Law:
An arbitration agreement can be extinguished by the operation of law by virtue of which any right of
action is extinguished.
3. ARBITRAL TRIBUNAL
A unique feature of arbitration is the ability to have the dispute adjudicated by a neutral, fair, unbiased
and competent adjudicator.
An arbitrator/arbitral tribunal performs the function of a judge, in other words an arbitrator
adjudicates/judges the dispute between the parties.
A unique feature of arbitration unlike court based adjudication is that the parties get to select their
arbitrators or delegate to an institution (like ICC, FICCI, ICADR, etc.) the power to appoint on their
behalf.
This is considered to be a key advantage as the parties can choose the person who will adjudicate their
dispute as compared a court based system where they have no control over the judge. The point that an
arbitrator adjudicates the matter, is important to understand.
In other words, an arbitrator does not simply express an opinion based on materials given to the
arbitrator.
In fact that would be expert evaluation. Rather the arbitrator works like a judge, before whom the parties
present their dispute, submit evidences, produce witnesses and then the arbitrator applies the law to the
problem and decides in a judicial manner.
Therefore even through a private adjudicator, the function is performed to standards applicable to
public functionaries like judges.
There are other important advantages to the ability of parties to choose their arbitrators.
Parties have more confidence both in the arbitrators and their decisions.
This is very important because unlike a court which has the ability to force parties to comply with its
orders, success of arbitration depends on the cooperation of parties. Therefore the parties musttrust the
arbitrators to remain neutral and fair to all the parties involved in the arbitration.
The quality of arbitrators would ultimately determine not only the overall quality of the arbitration
process but also the outcome in the form of the arbitral awards.
In India, appointment and termination (removal) of arbitral tribunal is regulated by the Arbitration and
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Conciliation Act 1996.

The law prescribes various provisions for different possibilities that might arise in appointing or removal
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of arbitrators.
The different authorities which have the power for appointment and removal are the District Court
(Court), High Court and Supreme Court of India.
Who can be an arbitrator?

Any person capable of contracting, in theory can be an arbitrator.
In our daily lives when we have a dispute with our family members or a neighbour, we take the dispute
to an elder of the house or the society who decides the matter.
The elder essentially acts as an arbitrator, and arbitrates the matter.
Of course, arbitration as understood under law is a little more sophisticated than this setup, but it
provides a basic idea of arbitration.
Since arbitration is a private arrangement, whereby when dispute arise it would be submitted to a private
party instead of courts, the arbitrator can be anyone who is capable of contracting with the parties.
Under the contract, a person agrees to act as arbitrator and adjudicate any disputes between the parties
that is submitted to him by the parties.
Appointment of Arbitral Tribunal

An important principle of arbitration is the principle of party autonomy. Party autonomy means the
‘freedom to choose’ whether it is the procedure, the venue, the seat or the arbitrators.
The parties have the right to choose the persons who would act as arbitrators in their dispute. However
this right to choose is not absolute but instead is subject to certain limits that are provided under the
applicable law.
There are two aspects to appointment, namely number of arbitrators, and the actual procedure of
appointment.
Number of Arbitrators
The parties tend to have high level of freedom when deciding on the number of persons that can be
chosen as arbitrators.
There are many things that should be kept in mind at the time of appointment of arbitrators, for
instance the fees of the arbitrators, complexity of the matter, timerequired for meetings, duration of
sessions when oral
arguments would be made, etc.
A specific problem that arises when there is more than one arbitrator is the difficulty faced when
coordinating the timings among the arbitrators.
It becomes even more problematic as the number of arbitrators increase.
At the same time there are advantages to having more than one arbitrator.
More arbitrators results in greater discussions which can improve the quality of awards.
It also brings greater expertise as arbitrators may be from different speciality and background.
Example: Party A and Party B entered into a contract for construction of apartments. The
contractcontained an arbitration agreement, whereby all disputes between the parties would be
submitted for arbitration by an arbitral tribunal having three arbitrators.
In such a situation, the arbitrators could all be from different discipline and having varying expertise.
For example the arbitrators could be a lawyer, architect, interior designer, civil engineer, academic,
government servant, etc.
The parties therefore can choose almost anyone as arbitrator.
It is important to remember that even though a private process, arbitration and its outcome (arbitral
award) require State support at different juncture but most importantly for enforcement.
However the State will only extend its support for legal outcomes.
Therefore it is important that the arbitrators are familiar with legal requirement especially under the
Arbitration and Conciliation Act 1996 so as to ensure that the entire process and the outcome complies
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with all mandatory legal requirements.

The 1996 Act clearly provides that there can be any number of arbitrators so long as it is not even in
number.
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In other words, parties can decide on any number of arbitrators so long as there are odd number of
arbitrators.
Ordinarily parties select one, but however if more than one is selected, it is usually three.
The reason is obvious so that there can be a decision by majority.
If there is even number of arbitrators, then there is a possibility that there might be a tie.
Example: If there are two arbitrators then it is possible that the two arbitrators may not agree, in which
case there would be no decision.
Procedure for appointment

Appointment procedure is also subject to party autonomy (freedom from external control) .
In other words parties are given the freedom to make any procedure for appointing the arbitrators i.e.
the parties can decide upon any procedure for choosing the arbitrators. It can be as simple as a toss of
coin, or as complicated as they want.
The most common procedures are:

(a) The parties will jointly appoint.
(b) Each party will appoint one and the two arbitrators would appoint the rest.
(c) Appointment would be made by an unrelated person or institution, e.g. President of ICAI, President
FICCI, etc.
(d) There may however be times when:
(i) Scenario I - parties may not have decided upon an appointment procedure; or
(ii) Scenario II -parties may have decided upon a procedure and such a procedure requires further
action, but a party / arbitrator / institution fails to act as required under the procedure.
To deal with both the scenarios the law, namely Section 11 of the Arbitration and Conciliation Act
1996,provides alternate procedures.
When an appointment is made jointly by both parties, both parties have to agree upon who the arbitrator
would be.
Usually one party writes to other party forwarding a list of names of potential arbitrators.
If the other party approves one name from the list, then that individual would be the arbitrator. If
not then the other party would propose new names to the first party. This would go on till both parties
agree upon one name.
Example: When a joint appointment was required, Party 1 sent the following names to Party 2 -S, P,
M, I, and A.
None of them was acceptable to Party 2, which sent the following names to Party 1 –Ak, Sh, Se, Aa, De.
From this list, Party 1 was agreeable for Sh and informed Party 2.
In this case Sh would be the arbitrator and would be considered to be jointly appointed.
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Example: When three arbitrators were to be appointed, Party 1 selected Monil as their arbitrator, while
Party 2 selected Iqbal as their arbitrator. The two arbitrators then jointly discussed the following names
Sh, P and M out of which they selected M as the third (presiding) arbitrator.
Similarly where 5 arbitrators are to be appointed, every party will appoint two arbitrators and the four
arbitrators will together appoint the presiding arbitrator.
Parties fail to appoint arbitrator in accordance with agreed

Step I procedure OR Parties had not decided on a procedure to
appoint an arbitrator
Step II Parties are required to proceed in accordance with default

procedure noted in the Act
Step III If any party fails to follow the default procedure, then other
party can approach the court.
The court may require the parties to act in accordance with
StepIV their agreement OR may itself appoint the arbitrator. While

appointing an arbitrator the court must take into account the
qualifications that the parties had agreed upon.
Requirements of an arbitral tribunal

An arbitrator has to meet the following requirements:
(a) The arbitrator could be of any nationality –
The arbitrator could be of any nationality. There is no requirement that the arbitrator should be of the
nationality of one of the parties. This is relevant in international commercial arbitration, when the parties
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are from different countries. In such a situation an arbitrator who belongs to the nationality of one of
the parties may be considered as biased. At the same time merely because the arbitrator is of the
nationality of one of the parties, it would not automatically amount to presence of bias.
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(b) Capable of contracting –

The arbitrator should be capable of contracting.
This is because arbitration is a private arrangement and requires consent of all involved i.e. parties and
arbitrators.
There is a contractual relation between the arbitrator and the parties, whereby the arbitrator renders a
service of adjudication to parties for remuneration. Therefore all requirements of a contract as noted in
the Indian Contract Act 1872 required to be fulfilled.
(c) Lack of Bias –

An arbitrator should remain neutral, unbiased and should not favour any party in arbitration.
In other words an arbitral tribunal should not be biased instead should remain at all times remain
independent and impartial.
Duties and liabilities of arbitrator

An arbitrator once appointed is subject to certain duties. These duties emerge from combined reading
of statute law and case laws.
a. Conduct the arbitral proceedings without delay –
It is necessary that the arbitrator conducts the proceeding as expeditiously as possible.
One of the advantages of arbitration is that there is a dedicated arbitrator to decide the matter.
Longer proceedings would mean more cost to parties and delay in resolution.
This does not mean that arbitrator should conduct the proceedings arbitrarily just to finish faster.
He has to ensure that all legal requirements are met, and unnecessary delay is avoided.
b. Remain at all times impartial i.e. treat both parties equally –

As noted above this is a crucial requirement. Impartiality maintains the sanctity and integrity of the
process and the outcome.
A biased outcome is no outcome, and would not be acceptable under law (Section 18).
c. Keep all matters concerning arbitration confidential –

A highlight of arbitration is that whatever happens in arbitration remains in arbitration. Confidentiality
allows the parties to fully explore all aspects of the dispute so as to arrive at a more acceptable solution.
This requirement of confidentiality extends to all including the arbitral tribunal, who is under a duty to
not divulge any information that comes to their knowledge during the process the arbitration.
d. Deliberation –
Arbitral tribunal should properly discuss all issues before issuing a decision oraward. The award should
be a reasoned award (Section 31). In other words, the arbitrators should discuss the matter with each
other thoroughly and through a majority render the award. (Section 29)
e. Avoid unilateral communication with one party –

This is necessary to ensure that no allegation of bias can be made against the arbitrator.
f. Ensure all documents and communication received from one party is communicated to
the other party –
The arbitral tribunal should ensure that all parties have copies of all communication and documents
received from any party.
This will ensure that all parties have the maximum opportunity to present its case.
g. Ensure that the award and all other decisions comply with legal requirements–
Unless the award complies with all the legal requirements the award would not be enforced.
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This would render the entire process futile.

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h. Ensure that he/she himself at all times comply with legal requirements associated with
arbitrator:
This is of utmost importance, since non-compliance would mean that continuance of a person as
arbitrator is liable to be challenged.
One such requirement is that of duty to disclose grounds which may lead to an apprehension of bias.
Termination, Removal and substitution of arbitral tribunal:

There is a possibility that the arbitrator that has been chosen by the parties or appointment made by the
court may for different reasons become unsuitable.
In such instances an arbitrator has to be removed and replaced by another arbitrator.
There are clear processes for doing so.
Removal of arbitrator may come about in four instances.
a. When the arbitrator leaves voluntarily

It is possible that the arbitrator for reasons which he may or may not disclose to the parties, decides to
no longer act as the arbitrator.
It is important to remember that being a private consent based arrangement an individual cannot be
forced against their will to act or continue acting as an arbitrator.
b. When all parties involved in the arbitration agree that the arbitratorshould be
removed-
At times all the parties involved may decide to no longer continue with a particular arbitrator.
This could be for many reasons including that the parties realise that the arbitrator does not have the
particular expertise they had desired. For example a person was appointed as arbitrator for his expertise
as a civil engineer.
However the parties during the arbitration found out that his experience was inadequate in construction
projects involving large dams.
The parties could through a unanimous decision, decide to have another person as arbitrator.
c. Operation of law-
Arbitrator unable to continue- assume for an instance where the arbitrator falls ill and is unable to, for
a very long period of time, conduct any proceedings.
Similarly there could be other issues, the arbitrator became busy with other matters, his own business
or simply lost interest in the matter.
These are factual inability.
There may also be a possibility that law no longer permits the person to remain as an arbitrator.
If any of the above happens, it would lead to long delays in arbitration which in turn would increase the
expenses related to arbitration.
Therefore in such situations, the law steps in and automatically terminates the arbitrators.
If confusion remains as to whether arbitrator has indeed been terminated, then any party could proceed
to the court which finally decides on the question of termination (Section 14).
When the arbitration process ends.

The mandate of the arbitrator ends when the arbitration process ends. The process can end in multiple
ways, for instance when final award has been made (Section 32), failure to make the award within 12
months (Section 29A) or when the parties decide to no longer continue with arbitration (Section 25).
d. When the court decides that the arbitrator should be removed.

In addition to all of the above, there may be a possibility, where none of the above is present. For
example, the arbitrator is working without delay, parties are satisfied with their performance, etc.,but still
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a party feels that the arbitrator should not continue, then it could, for reasons of bias approach the court
to remove the arbitrator (Sections 12 and 13).
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Before whom is the challenge to be raised?

It must be clearly understood that the first challenge must be raised before the arbitral tribunal itself.
Only after that could the challenge be raised in front of the District Court (for domestic arbitration) and
High Court (for international commercial arbitration).
This is a very similar setup when compared to judiciary, where challenge against the judge is in the first
instance heard by the judge himself and later by a higher court.
Once an arbitrator has been terminated, then what?

In such instances the law provides that a new arbitrator could be appointed keeping in mind the original
method of appointment.
If however that fails, then the parties are free to approach the Supreme Court of India (in international
commercial arbitration) or High Court (for domestic arbitration) for appointment.
ARBITRAL AWARD
An award is a conclusive determination as to the questions, issues or disputes that are put forward before
the arbitral tribunal.
The arbitral tribunal is constituted to hear the complete dispute between the parties, give reasonable
opportunity to all parties to present their case and then based on the evidence submitted and applicable
law deliver a final decision on the matter.
Definition
An arbitral award is similar to a judgment given by a court of law.
In other words, an arbitral award is given by the arbitral tribunal as a decision on various issues in a
matter which the parties had placed before the arbitral tribunal. The Arbitration and Conciliation Act
1996, does not clearly define the idea of an arbitral award.
However the concept of an award could also be understood as a final determination of a particular issue
or claim that had been submitted for arbitration.
It represents a resolution of dispute between the parties.
General Principles
(a) Who can challenge –
Only a party to the arbitration agreement can challenge an arbitral award.
A person who is not a party to the arbitration cannot raise a challenge against an arbitral award.
(b) Authority –
An award can only be challenged before a court, which would include a districtcourt and a High Court
exercising original jurisdiction (for awards from domestic arbitration) and High Court (for awards from
international commercial arbitration).
(c) Timeline –
Timeline refers to by when a challenge against arbitral award can be raised. The law notes an initial time
period of three months from when the award is received by party, with a maximum extension of thirty
more days by the court.
Example: The award was rendered on 1st January 2017. Therefore the award can be challenged by 31st
March. This date could be extended by another 30 days on application to the court i.e. till 30th April
2017. There can be no further extensions.
(d)Automatic stay –
According to the Act, there is no automatic stay on the enforcement.
A party has to specifically request for a stay, and the court at the time of granting stay can impose
conditions. (Section 36(2)&(3))
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Types of arbitral award
Under the law there four types of award, namely:

Final Award –
An award that is made in accordance with the requirements of the law (including signature, reason
and delivery), and finally adjudicates on the issues submitted to arbitration, would be a final award.
Interim Award–
There can be two types of interim awards, one which remains in force till the final award is
rendered, and another is final as regards the matters it deals with. The latter is referred to as
interim, because when it was rendered there were still other pending issues.
Settlement Award –
During the arbitration process, the parties may choose to settle the matter instead of having it
adjudicated by the arbitrator.
In such a situation the arbitrator could assist the parties in arriving at the settlement.
If a settlement is arrived at, and the arbitrator has no objection with it, then terms of the settlement
could be made part of an award.
This is referred to as a settlement award. (Section 30)
Additional Award –
When a final award has been rendered, but it is later found out that certainclaims that had been
submitted to the arbitral tribunal were not resolved/adjudicated, the parties can request the arbitral
tribunal to make an additional award covering the issues that had been left out.
Such as request must be made within 30 days from the date of receipt of the final award.
[Section33(4)]
Example from Module: Nagpur Metro Rail Corporation (NMRC) entered into a long term
concession agreement with Nagpur Airport Metro Express Private Limited (NAMEPL) a
subsidiary of Reliance Infrastructure to develop and operate the airport express metro project
which included brining in rolling stock.
NAMEPL was to run the metro services for 30 years. This agreement was enteredinto in 2008
and was terminated in 2012.
The main disagreements were –
a) failure to fix civil structure defects,
b) misrepresentation as to viability of the project including expected passenger,
c) failure to transfer outstanding amounts, and
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d) failure to acquire land hampering development of further lines.

All these according to NAMEPL led to delays in turn contributing to cost escalations.
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The matter was submitted to a three member arbitral tribunal for adjudication.
Scenario I –The arbitral tribunal gives an award dealing with all the four disagreements.
It is one comprehensive award with reasons for all conclusions. This would be a final award as it
conclusively deals with all the questions submitted to arbitration. There is nothing further left to
be adjudicated.
Scenario II –The arbitral tribunal renders an award (Award no.1) which deals only
withdisagreements (a), (b) and (c). The arbitrators inform the parties that they will render another
award dealing with disagreement (d). Award no.1 is an interim award.
Scenario III –The arbitral tribunal gave an award and informed the parties that this was the
finalaward. However when the parties examined it they realised that the award only dealt with
disagreement (a), (c) and (d). They bring it to the notice of the arbitral tribunal which gives another
award dealing with disagreement (b). This latter award is an additional award.
Scenario IV –While the arbitral proceedings were going on the lawyers of both parties met for
longdiscussions. They later informed the arbitral tribunal that the parties had settled the matter on
all disagreements. They submitted the settlement agreement to the arbitral tribunal with the
request that it be incorporated into an arbitral award. The arbitral tribunal after scrutinizing the
agreement gave an award in which they included all the terms of the agreement. This would be a
settlement award.
Requirements of an arbitral award

The Arbitration and Conciliation Act, 1996 prescribes certain requirements for an arbitral
award. They can be categorized as necessary which means that the failure to adhere to these
requirement would affect the validity of the award and others which means failure to adhere to
other requirements would have no effect on the validity of the award.
The necessary requirements are:
(a) Must be a decision by the majority –
All decisions, including an award, must be made through majority.
An award must also be complete concerning all issues that are submitted to the arbitral tribunal
for adjudication.
(b) Must be made in writing, signed and dated –

Section 31(1)(a) requires an award to be in writing and having the signature of majority of the
members of the arbitral tribunal.
It is not an award unless these two conditions are fulfilled.
It is quite possible that a particular arbitrator may not agree with the contents of the award.
Therefore the law only requires majority of the arbitrators to sign.
The law however requires the award to note why the signature of an arbitrator was missing of
equal importance is the date of the award which helps determining various timelines, for instance
within how much time can an award be challenged before the court, etc.
(c) Must be reasoned –

A mandatory requirement for an award is that it should be reasoned.
Failure to state reasons would make the award invalid.
The arbitral tribunal is required to reach a decision; it also has to show why it reached a particular
decision.
Presence of reason would show that the arbitrator had applied their minds to the matter, taken
into consideration all materials put before them and only then arrived at a decision.
In other words, the decision would not be an arbitrary decision.
The only exception is when the parties have agreed that no reasons need be given for the award.
(d) Must not be vague –

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The arbitral award should be both certain and clearly note which party has to do what. In other
words it must be clear about decision on each issue, what liabilities each party has and finally what
relief has been awarded to parties. In other words it should not seem like a recommendation, must
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Scenario III –Monil should pay Mukesh 2 crores, within 2 weeks from the date of the award alongwith
10% interest. Failure to do so will attract additional 2% per day interest on the outstanding amount till
the amount is finally paid. Payment should be done either through RTGS or through a demand draft.
In this instance only Scenario III is clear enough. Even Scenario II though seemingly clear, doesnot
clearly specify by when it should be paid. Every award should clearly specify all these details.
(e) Should be capable of being performed –
The award should be capable of being performed.
The award must be realistic in what it suggests, and should not ask parties to do something that is not
possible or illegal. An unenforceable award would be set aside.
(f) Must not be illegal (against public policy) –
Under the law a particular award that is in violation of the public policy would be set aside. Public
policy represents some of the most cherished and important principles and policies of the State. An
award would be in violation of public policy if it is contrary to substantive provisions of law.
Other requirements:
Delivery –An award is ready to be delivered as soon as it is signed. An award that is signed should be
delivered to the parties.
Challenging an Award
An arbitral award can be challenged on specific grounds only.
These grounds are clearly noted in law.
It is important to remember that a review is different from an appeal.
In an appeal both questions relating to law and fact can be raised.
However review can happen only on specific grounds and is not the same as an appeal.
The grounds are noted under three different provisions of law:
A. under Section 13 – challenge of bias against the arbitral tribunal
The parties can challenge an arbitral tribunal on the ground that the arbitral tribunal is favouring or is
biased in favour of one of the parties. Such a challenge should be first raised before the arbitraltribunal
under Section 13. If the challenge is not accepted by the arbitral tribunal then the award rendered by
that arbitral tribunal can be challenged.
B. under Section 16 – overstepping of jurisdiction by the arbitral tribunal

If during the arbitral tribunal one of the parties challenges the arbitral tribunal stating that the arbitral
tribunal does not jurisdiction.
The arbitral tribunal will decide on this challenge.
If however the arbitral tribunal does not agree with the parties, the arbitral tribunal will render the award.
That award can later be challenged by the parties for review.
C. under Section 34 – specific grounds for reviewing an award
There are seven grounds which can be divided into two categories – those that have to be specifically
raised by a party and those which the court can look at its own motion.
The first set of grounds includes:

a. Party is under some incapacity –
Such an incapacity can be both contractual and personal incapacity, example that one of the party was
a minor.
b. Invalid arbitration agreement –

If the arbitration agreement is invalid then there can be no arbitration.
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This is because arbitration agreement forms the basis for any arbitration as it contain the consent of the
parties that in the event there is dispute between them, the parties would not go to the court instead
would submit it to arbitration.
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c. Party is not given proper notice about appointment of arbitrator/arbitral proceedings-

Notice is crucial because it informs the parties as to the nature of the proceedings, and what is expected
of each party.
For example if the party is required to answer all allegations against it, then it should know that by the
next date of hearing it is required to submit its response. Failure to provide adequate notice will have an
adverse impact on the parties’ ability to present its case.
d. The award deals with disputes not submitted to arbitration –

It is possible that the parties do not submit all questions that is in dispute between them to arbitration.
The arbitral tribunal derives its authority from the agreement between the parties. So if the parties have
not agreed, an arbitral tribunal does not have any authority to adjudicate a particular dispute between
the parties.
e. Arbitral tribunal or procedure was not in accordance with necessary requirements under
the law:
The law prescribes certain basic minimum requirements that all dispute resolution procedures must
adhere to.
One of the simplest example would be to treat both parties equally. An award that does adhere to such
minimum requirement would be set aside.
Second set of grounds which the court can look at its own motion, includes:
(a) the subject matter of the dispute is not capable of settlement by arbitration (arbitrability).
(b)the award is in contravention of the public policy of India.
Consequence of challenge
There are four major outcomes when an award is challenged before the court.
(a) Set aside –the court reviewing the award could set aside an award on grounds noted above. Once
an award has been set aside that award has no legal consequence. It is no longer an award and has no
legal sanctity. It is nothing more than a document and has no legal value.
(b) Confirm –the reviewing court also confirm the complete award. Confirming an award means that
the court is of the opinion that there is nothing legally wrong with the award i.e. it fulfils all the
requirements noted in law.
(c) Modify – the court the power to modify the award so that it may not be set aside.
(d) Remit back to the arbitral tribunal - the court may instead of setting aside the award, send the
matter back to the arbitral tribunal to rectify some defect, which if not corrected would lead to setting
aside of the award.
Enforcement
Where the time for making an application to set aside an award has expired, or when such application
was made but it was rejected then the award can be enforced. Enforcement of an arbitral award shall
happen under the Code of Civil Procedure 1908 in the same manner as if it were a decree of the court.
The award can be put for enforcement right after it has been rendered without waiting for challenge
proceedings to conclude.
CONCILIATION
Arbitration is one of the many ADR methods utilised to resolve dispute outside of the court system.
However Arbitration remains adversarial in nature.
It mimics the court system, and therefore like a court adjudicates a matter.
This however means that the parties remain as adversaries, with one party having won and the other
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losing the contest.

This win-loss creates a feeling of bitterness, and often tends to destroy relations.
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In order to avoid these consequences of arbitration, other methods of ADR are adopted.
Conciliation
Definition &
Characteristics of
Conciliation
Role of Conciliators
Enforcement of settlement
Agreement
Definition
There is no single definition of Conciliation.
It is an alternative method of dispute resolution. It can be understood as a process of getting the parties
to come to an agreement about a common problem / dispute through confidential discussion and
dialogue. In its operation it is very similar to mediation and like mediation it is voluntary, flexible and
completely at parties initiative.
Characteristics
(a)Voluntary– The process of conciliation is voluntary which implies that all parties have toagree to
have their disputes conciliated. Unless all the parties involved in the dispute agree, the matter cannot be
conciliated. No party can be forced to conciliate matter or attend conciliation proceedings. If a party is
forced, then the outcome of such conciliation would not be binding on that party. Thus party autonomy
and consent are an important aspect of conciliation.
(b) Non Adversarial– Unlike arbitration or court based adjudication the parties don’t compete against
each other to prove themselves as correct and others as wrong. Parties don’t behave as adversaries, who
can only win by defeating the other party. Instead of focusing on win-lose, the attempt is to find a solution
to the problem that best suits all the parties involved, in such a manner that no party is made worse off.
(c) Assisted procedure– The conciliation proceedings can be crafted in a manner which most suits
the parties’ convenience. At all times to assist the parties in arriving at a solution the conciliator(s) are
present. They, along with the parties, craft a procedure for sharing of information among the parties so
as to reach an amicable settlement.
(d) Finality of settlement – The outcome i.e. settlement as an end result of the conciliation process
is final and binding between the parties.
(e) Confidentiality– All aspects of the conciliation process are confidential. In other words,the
conciliator(s) and the parties cannot disclose to persons not party to conciliation, any matter relating to
the conciliation proceedings.
Thus confidentiality primarily operates to cover the process and its participants. It prevents leak of
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information. However within the process information received by the conciliator from one party must
be disclosed to the other party, unless the party giving the information has specifically requested that it
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be kept confidential.
Even the agreement arrived at by the parties is covered under the broad spectrum ofconfidentiality. This
is important because it assures the parties that any information they share would remain private and
would not be used against them in an adversarial process.
Conciliation in India
In India conciliation is governed by the Arbitration and Conciliation Act, 1996 and by Section 89 of the
Code of Civil Procedure 1908.
Any dispute arising out of a legal relationship, whether from being conciliated can be submitted to
conciliation.
The law provides for number of conciliators, and provides for a process using which conciliation
would be conducted.
a. Number of Conciliator – The number of conciliators depends upon the parties, but with a
maximum of three conciliators. In other words, number of conciliators can range from one to three.
(Section 63)
b. Appointment of Conciliators – Conciliator appointments are subject to party consent, in other

words, the conciliators are appointed by the parties. The law also permits parties to request an
institution or some other person to recommend a conciliator.
This allows parties to approach institutions that provide professional conciliation services, such as the
ICADR.
While appointment it must be ensured that independent and impartial conciliators are selected. (Section
64)
c. Procedure of Conciliation- Once the conciliators have been appointed both parties are required
to submit their statements in writing, supply documents and other evidence to the conciliator.
The conciliator then provides a copy of the statements, documents and otherevidence of one party to
the other party. The conciliator is then required to encourage and assist parties to engage in discussions
based on the information to arrive at a settlement. (Section 65)
d. Bar on judicial or arbitral proceedings –When the conciliation proceedings are ongoing parties
cannot start arbitration proceedings or approach a court regarding the same dispute which is part of
conciliation proceedings.
The exception to this rule is that when it concerns preserving its right, the party can approach a court or
initiate arbitration. (Section 77)
Example: Kurla and Thane are business partners.

Their partnership firm (Fruits & Flowers) are dealers in fresh fruits and exotic flowers. Their clientele
include various high end hotels, marriage venues and other institutions in and around Delhi. They have
standing orders from many for dailysupply of flowers, both exotic and otherwise. One of their regular
clients is Orion Decorators in Gurgaon, which specialises in flower decorations. Over the years it has
built a name for itself in the business of flower decorations at marriage venues. Fruits & Flowers and
Orion Decorators have had business dealings for many years.
In 2016 Fruits & Flowers was sold by Kurla and Thane to Surat.
One of the first things that Sura did after taking over was to drastically increase price for exotic flowers.
One of the clients that was most hit was Orion Decorators, because they had already taken several orders
based on previous pricings of Fruits & Flowers. The increased pricing meant that Orion Decorators
would incur substantial loss. Being the peak of marriage season, Orion Decorators requested Fruits &
Flowers to honour their long standing business relation and provide flowers at earlier prices.
Surat refused outright but agreed to have the matter conciliated. The conciliation proceedings started
next day. Surat however refused to provide flowers unless the higher rate was paid.
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In this scenario what could Orion Decorators have done to ensure they continued to receive exotic
flowers required by them to fulfil their orders?
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Under Section 77 of the Arbitration and Conciliation Act 1996, even though approach to court is
prohibited during the conciliation proceedings, as an exception a party could approach the court to
protect its rights. Orion Decorators could approach the court for interim measures, whereby till the
conclusion of conciliation proceedings it could request the court to direct Surat to continue
providingflowers at the lower rate. The court would have the power to grant the requested measure of
protection on such conditions as it deems appropriate.
Differentiation between Mediation & Conciliation
Mediation Conciliation
Mediator plays a facilitative role and attempts to The Council plays a more proactive role. He acts
guide the parties towards a solution. Thus the a facilitator, evaluator and intervener. In other
solution should come from the parties words, he can also along with the parties suggest
themselves. solutions.
The outcome is an agreement between the The outcome is a settlement agreement.
parties.
The agreement reached by the parties is a The settlement agreement reached between the
contract enforceable by law. parties has the same status as an arbitral award
on agreed terms. In other words it is executable
as a decree of the civil court.
Mediation is governed by Section 89 of the Code Conciliation is governed by Part III of the
of Civil Procedure, 1908. Arbitration and Conciliation Act, 1996.
Mediation is governed by confidentiality. Conciliation is bound by confidentially. Extent of
However confidentiality in mediation is often confidentiality is defined by the law. Breach of
based on trust. confidentially could be fatal to the entire process.
If the agreement is breached, the parties would The settlement agreement is enforced as an
have to proceed in the usual process adopted for arbitral award. Breach of the settlement
breach of contract. agreement, would be the same as breach of an
arbitral award. The Arbitration and Conciliation
Act, 1996 provides mechanisms for enforcing
arbitral award and recourse in instances the
award is not followed.
Settlement Agreement
a. Initial steps –
Attempt of conciliation is to resolve the dispute and arrive at a settlement. This settlement could be
based on suggestions made by the Conciliator(s) [Section 67(4)], or the parties [Section 72].
When it appears to the conciliator that a settlement is possible, he should identify possible terms of
settlement and submit them to the parties for their observations and suggestions. The parties may also
make suggestions as to contents of the agreement.
b. Agreement –
If the parties reach a settlement, then it has to be written down as an agreement. This agreement is
known as settlement agreement (at times it is also referred to as Memorandum of Conciliation). It can
be made by the parties or by the Conciliator on behalf of the parties. However the conciliator is required
to authenticate the agreement without which the agreement would have no legal sanctity.
c. Enforcement –
The settlement agreement has the same status as that of an arbitralaward. An arbitral award is final and
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binding on the parties and persons claiming under them. The award can be challenged before a court,
and once the time for challenge has lapsed, or if the challengehad been made but was unsuccessful, then
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it could be enforced under the Code of Civil Procedure 1908.

d. Confidentiality –
The conciliation proceedings and its outcome are subject to stringent confidentiality requirements.
a. Both the conciliator and the parties are required to keep all matter relating to the proceedings and
the settlement agreement confidential. The only exception is when disclosure becomes necessary for
purposes of implementation and enforcement of the settlement agreement.
b. The Conciliator cannot act as an arbitrator or representative of any of the party in arbitral or judicial
proceedings in respect of the dispute that was subject of conciliation proceedings.
c. None of the views expressed, suggestions made, admissions by parties, or proposals made could be
relied upon or introduced as evidence in arbitral or judicial proceedings, irrespective of whether or not
those proceedings relate to dispute that was the subject of arbitral or judicialproceedings.
Breach of confidentiality would vitiate the arbitral or judicial proceedings they are attempted to be
utilised in.

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THE FOREIGN CONTRIBUTION (REGULATION) ACT, 2010

INTRODUCTION
The Foreign Contribution (Regulation) Act, 2010, is an Act to consolidate the law to regulate the
acceptance and utilisation of foreign contribution or foreign hospitality by certain individuals or
associations or companies and to prohibit acceptance and utilisation of foreign contribution or foreign
hospitality for any activities detrimental to the national interest and for matters connected therewith or
incidental thereto.
The flow of foreign contribution to India is regulated under Foreign Contribution (Regulation) Act,
2010, Foreign Contribution (Regulation) Rules, 2011 and other notification / orders etc., issued
thereunder from time to time.
Extent, application and commencement of FCRA (Section 1)

As per Section 1(2) of FCRA, 2010, the provisions of the act shall apply to:
• Whole of India
• Citizens of India outside India; and
• Associate Branches or subsidiaries, outside India, ofcompanies or bodies corporate, registered or
incorporated in India.
IMPORTANT DEFINITIONS [SECTION 2]

In this Act, unless the context otherwise requires,—
“foreign company” means any company or association or body of individuals incorporated outside India
and includes :—
(i) a foreign company within the meaning of section 591 of the Companies Act, 1956 (Section 379 of
the Companies Act, 2013)
(ii) Company which is a subsidiary of a foreign company;
(iii) the registered office or principal place of business of a foreign company referred to in sub-clause (i)
or company referred to in sub-clause (ii);
(iv) a multi-national corporation.
Explanation— For the purposes of this sub-clause, a corporation incorporated in a foreign country or
territory shall be deemed to be a multi-national corporation if such corporation,—
(a) has a subsidiary or a branch or a place of business in two or more countries or territories; or
(b) carries on business, or otherwise operates, in two or more countries or territories;[Section 2(g)]
“foreign contribution” means the donation, delivery or transfer made by any foreign source,—
(i) of any article, not being an article given to a person as a gift for his personal use, if the market value,
in India, of such article, on the date of such gift, is not more than such sum as may be specified from
time to time, by the Central Government by the rules made by it in this behalf; (This sum has been
specified as Rs. 25,000/- currently)
(ii) any currency, whether Indian or foreign;
(iii) of any security as defined in the Securities Contracts (Regulation) Act, 1956 and includes any foreign
security as defined in the Foreign Exchange Management Act, 1999 .
Explanation 1—A donation, delivery or transfer of any article, currency or foreign security referred to in
this clause by any person who has received it from any foreign source, either directly or through one or
more persons, shall also be deemed to be foreign contribution within the meaning of this clause.
Explanation 2—The interest accrued on the foreign contribution deposited in any bank referred to in
section 17(1) or any other income derived from the foreign contribution or interest thereon shall also
be deemed to be foreign contribution within the meaning of this clause.
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Explanation 3—Any amount received, by any person from any foreign source in India, by way of fee
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(including fees charged by an educational institution in India from foreign student) or towards cost in
lieu of goods or services rendered by such person in the ordinary course of his business, trade or
commerce whether within India or outside India or any contribution received from an agent of a foreign
source towards such fee or cost shall be excluded from the definition of foreign contribution within the
meaning of this clause; [Section 2(h)]
In terms of FCRA, 2010 "person" includes:
(i) an individual;
(ii) a Hindu undivided family;
(iii) an association;
(iv) a company registered under section 25 of the Companies Act, 1956 (now Section 8 of Companies
Act, 2013). [Section 2(m)]
“foreign hospitality” means any offer, not being a purely casual one, made in cash or kind by a foreign
source for providing a person with the costs of travel to any foreign country or territory or with free
boarding, lodging, transport or medical treatment; [Section 2(i)]
“foreign source” includes,—

(i) the Government of any foreign country or territory and any agency of such Government;
(ii) any international agency, not being the United Nations or any of its specialized agencies, the World
Bank, International Monetary Fund or such other agency as the Central Government may, by
notification, specify in this behalf;
(iii) a foreign company;
(iv) a corporation, not being a foreign company, incorporated in a foreign country or territory;
(v) a multi-national corporation referred to in Section 2(g) sub-clause (iv) of FCRA, 2010;
(vi) a company within the meaning of the Companies Act, 1956, and more than one-half of the nominal
value of its share capital is held, either singly or in the aggregate, by one or more ofthe following, namely:-
A. the Government of a foreign country or territory;
B. the citizens of a foreign country or territory;
C. corporations incorporated in a foreign country or territory;
D. trusts, societies or other associations of individuals (whether incorporated or not), formed or
registered in a foreign country or territory;
E. Foreign company;
Provided that where the nominal value of share capital is within the limits specified for foreign
investment under the Foreign Exchange Management Act, 1999, or the rules or regulations made
thereunder, then, notwithstanding the nominal value of share capital of a company being more than
one-half of such value at the time of making the contribution, such company shall not be a foreign
source.
(vii) a trade union in any foreign country or territory, whether or not registered in such foreign country
or territory;
(viii) a foreign trust or a foreign foundation, by whatever name called, or such trust or foundation mainly
financed by a foreign country or territory;
(ix) a society, club or other association or individuals formed or registered outside India;
(x) a citizen of a foreign country;”
A few bodies/ organisations of the United Nations, World Bank and some other International agencies
or multilateral organisations are exempted from this definition, and are not treated as foreign source.
Hence, the funds received from them are not considered as foreign contribution.
[Section 2(j)]
“political party” means—
(i) an association or body of individual citizens of India—
(A) to be registered with the Election Commission of India as a political party under section 29A of
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the Representation of the People Act, 1951, or

(B) which has set up candidates for election to any Legislature, but is not so registered or deemed to
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be registered under the Election Symbols (Reservation and Allotment) Order, 1968;
(ii) a political party mentioned in column 2 of Table 1 and Table 2 to the notification of the Election
Commission of India No. 56/J&K/02, dated the 8th August, 2002, as in force for the time being;[ Section
2(n)]
“relative” has the meaning assigned to it in section 2(41) of the Companies Act, 1956 (Now section 2(77)
of the Companies Act, 2013) [Section 2(r)]
REGULATION OF FOREIGN CONTRIBUTION AND FOREIGN

HOSPITALITY
The provision related to the regulation of foreign contribution and foreign hospitality is given in chapter
II of the Act. It covers section 3 to 10 of the Act. The chapter broadly focuses on whose foreign
contribution can be accepted, on whom the provision contained under this chapter shall be applicable,
restriction on acceptance of foreign hospitality and certain prohibitions.
(I) Prohibition to accept foreign contribution (Section 3)

(1)As per the section following persons are prohibited to accept foreign contribution:
(Key :- Chal Chal Jab Milenge , Audio Party karenge with Cartoonist and Central Government)
(a) Candidate for election;
(b) Correspondent, columnist, cartoonist, editor, owner, printer or publisher of a registered newspaper;
(c) Public Servant, Judge, Government servant or employee of any corporation or any other body
controlled or owned by the Government;
(d) Member of any Legislature;
(e) association or company engaged in the production or broadcast of Audio news or audio visual news
or current affairs programmes through any electronic mode, or any other electronic form as defined in
the Information Technology Act, 2000 or any other mode of mass communication;
(f) political party or office-bearer thereof;
(g) correspondent or columnist, cartoonist, editor, owner of the association or company referred to in
Point (e).
(h) organisation of a political nature as may be specified under section 5(1) by the CG;
Explanation 1.—For the purpose of clause (c), "public servant" means a public servant as defined in
section 21 of the Indian Penal Code.
(2) Further following other persons are also prohibited from accepting foreign contribution:
(a) Person, resident in India, and citizen of India resident outside India- shall not accept any foreign
contribution, or acquire or agree to acquire any currency from a foreign source, on behalf of any political
party, or any person referred to in sub-section (1), or both.
(b) Person, resident in India- shall not deliver any currency, whether Indian or foreign, which has been
accepted from any foreign source, to any person if he knows or has reasonable cause to believe that
such other person intends, or is likely, to deliver such currency to any political party or any person
referred to in sub-section (1), or both.
(c) Citizen of India resident outside India- shall not deliver any currency, whether Indian or foreign,
which has been accepted from any foreign source, to—
(i) any political party or any person referred to in sub-section (1), or both; or
(ii) any other person, if he knows or has reasonable cause to believe that such other person intends, or
is likely, to deliver such currency to a political party or to any person referred to in sub-section (1), or
both.
(3) Person receiving any currency, whether Indian or foreign, from a foreign source on behalf of any
person or class of persons (referred to in section 9) shall not deliver such currency—
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(a) to any person other than a person for which it was received, or
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(b) to any other person, if he knows or has reasonable cause to believe that such other person intends,
or is likely, to deliver such currency to a person other than the person for which such currency was
received.
(II) Persons to whom section 3 shall not apply (Section 4)

Nothing contained in section 3 shall apply to the acceptance, by any person specified in that section, of
any foreign contribution where such contribution is accepted by him, subject to the provisions of section
10, —
(a) by way of salary, wages or other remuneration due to him or to any group of persons working under
him, from any foreign source or by way of payment in the ordinary course of business transacted in
India by such foreign source; or
(b) by way of payment, in the course of international trade or commerce, or in the ordinary course of
business transacted by him outside India; or
(c) as an agent of a foreign source in relation to any transaction made by such foreign source with the
Central Government or State Government; or
(d) by way of a gift or presentation made to him as a member of any Indian delegation, provided that
such gift or present was accepted in accordance with the rules made by the Central Government with
regard to the
acceptance or retention of such gift or presentation; or
(e) from his relative;(upto Max 1 lakh per year.Excess = CG Approval within 30 days) or
(f) by way of remittance received, in the ordinary course of business through any official channel, post
office, or any authorised person in foreign exchange under the Foreign Exchange Management Act,
1999; or
(g) by way of any scholarship, stipend or any payment of like nature .
Example from Module:
Whether foreign remittances received from a relative are to be treated as foreign contribution as per
FCRA, 2010?
Answer: No. As per Section 4(e) of FCRA, 2010 and Rule 6 of FCRR, 2011, even the persons prohibited
under section 3, i.e., persons not permitted to accept foreign contribution, are allowed to accept foreign
contribution from their relatives. However, in terms of Rule 6 of FCRR, 2011, any person receiving
foreign contribution in excess of Rs.1 Lakh for equivalent thereto in a financial year from any of his
relatives shall inform the Central Government in prescribed form within 30 days from the date of receipt
of such contribution.
(III) Restriction on acceptance of foreign hospitality (Section 6)

As per Section 6 of the Act , following categories of persons require prior approval from Ministry of
Home Affairs before accepting Foreign Hospitality:-
(a) Members of a Legislature
(b) Office bearers of political parties
(c) Judges
(d) Government servants
(e) Employees of any corporation or any other body owned or controlled by the Government.
Explanation — In the expression "corporation" means a corporation owned or controlled by the
Government and includes a Government company as defined section 2(45) of the Companies Act,
2013.'
Exception :
No Permission required for any Emergency treatment for any Medical illness in abroad provided such
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person gives an Intimation to CG of such hospitality received within 1 month from the date of receipt.
As per Rule 7 of FCR, 2011 foreign hospitality may be received by specified categories of persons in the
following manner:
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(1) Any person belonging to any of the categories specified in section 6 above, who if wishes to avail of
foreign hospitality, shall apply to the Central Government in prescribed Form for prior permission to
accept such foreign hospitality.
(2) Every application for acceptance of foreign hospitality shall be accompanied by an invitation letter
from the host or the host country and administrative clearance of the Ministry or department concerned
in case of visits sponsored by a Ministry or department of the Government.
(3) The application for grant of permission to accept foreign hospitality must reach the appropriate
authority ordinarily two weeks before the proposed date of onward journey.
(4) In case of emergent medical aid needed on account of sudden illness during a visit abroad, the
acceptance of foreign hospitality shall be required to be intimated to the Central Government within 1
month of such receipt giving full details including the source, approximate value in Indian Rupees, and
the purpose for which and the manner in which it was utilised.
However, no such intimation is required if the value of such hospitality in emergent medical aid is upto
one lakh rupees or equivalent thereto.
(IV) Prohibition to transfer foreign contribution to other person (Section 7)

No person who—
(a) is registered and granted a certificate or has obtained prior permission under this Act; and
(b) receives any foreign contribution,
shall transfer such foreign contribution to any other person.
Rule 24 of FCRR, 2011, (READ WITH RED COLOUR AMENDMENT GIVEN BELOW)
prescribes the procedure for transferring foreign contribution to any unregistered person as under-
(1) A person who has been granted a certificate of registration or prior permission may transfer part of
the foreign contribution received by him to a person who has not been granted a certificate of registration
or prior permission, to an extent not exceeding 10% of the total value thereof and for this purpose, make
an application to the CG in prescribed Form.
(2) Every application made under sub-rule (1) above shall be accompanied by a declaration to theeffect
that-
(a) the amount proposed to be transferred during the financial year is less than 10% of the total value
of the foreign contribution received by him during the financial year;
(b) the transferor shall not transfer any amount of foreign contribution until the Central Government
approves such transfer.
(3) A person who has been granted a certificate of registration or prior permission under section 11 shall
not be required to seek the prior approval of the Central Government for transferring the foreign
contribution received by him to another person who has been granted a certificate of registration or
prior permission under the Act provided that the recipient has not been proceeded against under any
of the provisions of the Act.
(4) Both the transferor and the recipient shall be responsible for ensuring proper utilisation of the foreign
contribution so transferred and such transfer of foreign contribution shall be reflected in the returns in
Form FC-4 to be submitted by both the transferor and the recipient.
Important Amendment – Awaiting clarification :

Earlier, foreign contribution accepted withthe permission of the Central Government could be
transferred to any other person who is registered under FCRA, 2010 or has obtained prior
permission.
It can be seen that the legislature has placed a blanket prohibitionon transfer offoreign
contribution received by any person to any other person.
The intention is to prevent recipientsof foreign contribution acting as mere conduits or
facilitating agents for obtaining foreign contributions.
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The relevance of Rule 24 (Which specifies where transfer to unregistered person is allowed
upto 10% with CG Approval) in the lightof the blanket prohibition is debatable.
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Central Government may refuse to grant permission citingsection 7 as amended.

Nevertheless, an amendment to the rules or a clarificatory circular would enable better
compliance on this matter.)
(V) Restriction to utilize foreign contribution

for administrative purpose (Section 8)
(1) Every person, who is registered and granted a
certificate or given priorpermission under this Act and
receives any foreign contribution, shall—
(i) utilise such contribution for the purposes for which
the contributionhas been received:
Any foreign contribution or any income arising out of
it shall not be used for speculative business;
The Central Government shall, by rules, specify the activities or business which shall be
construed as speculative business for the purpose of this section;
Speculative activities have been defined in Rule 4 of FCR, Rule 2011 as under:-
(i) any activity or investment that has an element of risk of appreciation ordepreciation of the
original investment, linked to market forces, includinginvestment in mutual funds or in shares;
(ii) participation in any scheme that promises high returns like investment inchits or land or
similar assets not directly linked to the declared aims andobjectives of the organization or
association.
Note: A debt-based secure investment shall not be treated as speculative investment.
(ii) not defray as far as possiblesuch sum, not exceeding 20% of such contribution, received in a
financial year, to meet administrative expenses:
Administrative expenses exceeding 20% ofsuch contribution may be defrayed with prior
approval of the Central Government.
The Central Government may prescribe the elements which shall be included in the
administrative expenses and the manner in which the administrative expenses shall be
calculated.
(VI) Power of Central Government to prohibit receipt of foreign contribution,

etc., in certain cases. (Section 9)
The Central Government may—
(a) prohibit any person or organisation (not specified in section 3), from accepting any foreign
contribution;
(b) require any person or class of persons,(not specified in section 6), to obtain prior permission of the
Central Government before accepting any foreign hospitality;
(c) require any person or class of persons (not specified in section 11), to furnish intimation as to the
amount of any foreign contribution received by such person or class of persons as the case may be, and
the source from which and the manner in which such contribution was received and the purpose for
which and the manner in which such foreign contribution was utilised;
(d) require any person or class of persons specified in that Section 11(1) to obtain prior permission of
the Central Government before accepting any foreign contribution;
(e) require any person or class of persons, (not specified in section 6), to furnish intimation, as to the
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receipt of any foreign hospitality, the source from which and the manner in which such hospitality was
received.
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Above prohibition or requirement shall not be made unless the Central Government is satisfied that the
acceptance of foreign contribution by such person or class of persons, as the case may be, or the
acceptance of foreign hospitality by such person, is likely to affect prejudicially—
(i) the sovereignty and integrity of India; or
(ii) public interest; or
(iii) freedom or fairness of election to any Legislature; or
(iv) friendly relations with any foreign State; or
(v) harmony between religious, racial, social, linguistic or regional groups, castes or communities.
(VII) Power to prohibit payment of currency received in contravention of the

Act (Section 10)
Where the Central Government is satisfied, after making such inquiry, that any person has in his custody
or control any-
• article or
• currency or
• security,
whether Indian or foreign, which has been accepted by such person in contravention of any of the
provisions of this Act, it may, by order in writing prohibit such person from paying, delivering,
transferring or otherwise dealing with, such article or currency or security.
A copy of such order shall be served upon the person so prohibited in the prescribed manner, and
thereupon the provisions of section 7 of the Unlawful Activities (Prevention) Act, 1967 shall, apply to,
or in relation to, such article or currency or security and references in the said sub-sections to moneys,
securities or credits shall be taken as references to such article or currency or security.
REGISTRATION
The provisions related to registration of persons for acceptance of foreign contribution, grant of
certificate, its suspension, cancellation and renewal are dealt in chapter III of the FCRA.
There are two modes of obtaining permission to accept foreign contribution according to FCRA, 2010-
Registration of certain persons with Central Government (Section 11)

(1) Save as otherwise provided in this Act, no person having a definite cultural, economic, educational,
religious or social programme shall accept foreign contribution unless such person obtains a certificate
of registration from the Central Government:
Provided that any association registered with the Central Government under section 6 or granted prior
permission under that section of the Foreign Contribution (Regulation) Act, 1976, as it stood
immediately before the commencement of this Act, shall be deemed to have been registered or
granted prior permission, as the case may be, under this Act and such registration shall be valid for a
period of five years from the date on which this section comes into force.
(2) Every person referred to in sub-section (1) may, if it is not registered with the Central Government
under that sub-section, accept any foreign contribution only after obtaining the prior permission of the
Central Government and such prior permission shall be valid for the specific purpose for which it is
obtained and from the specific source:
Provided that the Central Government, on the basis of any information or report, and after
holding a summary inquiry, has reason to believe that a person who has been granted prior
permission has contravened any of the provisions of this Act, it may, pending any further
inquiry, direct that such person shall not utilise the unutilised foreign contribution or receive
the remaining portion of foreign contribution which has not been received or, as the case may
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be, any additional foreign contribution, without prior approval of the Central Government:
Provided further that if the person referred to in sub-section (1) or in this sub-section has been
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found guilty".
(3) The Central Government may, by notification in the Official Gazette, specify—
(i) the person or class of persons who shall obtain its prior permission before accepting the foreign
contribution; or
(ii) the area or areas in which the foreign contribution shall be accepted and utilised with the prior
permission of the Central Government; or
(iii) the purpose or purposes for which the foreign contribution shall be utilised with the prior permission
of the Central Government; or
(iv)the source or sources from which the foreign contribution shall be accepted with the prior permission
of the Central Government.
Example from Module: Can a private limited company or a partnership firm get registration or prior
permission under FCRA, 2010?
Answer: Yes, a private limited company too may seek prior permission/registration for receivingforeign
funds in case they wish to do some charitable work at some point of time.
Example from Module: Whether an individual or a Hindu Undivided Family (HUF) can be given
registration or prior permission to accept foreign contribution in terms of section 11 of FCRA, 2010?
Answer: Yes. The definition of the ‘person’ in the Foreign Contribution (Regulation) Act, 2010 includes
any individual and ‘Hindu Undivided Family’ among others. As such an Individual or an HUF is also
eligible to apply for prior permission to accept foreign contribution.
Example from Module: Whether organisations under Central/State Governments are required to obtain
registration or prior permission under FCRA, 2010 for accepting foreign contribution?
Answer: Yes. However, all bodies constituted or established by or under a Central Act or a State Act
requiring to have their accounts compulsorily audited by Comptroller & Auditor General of India are
exempted from the operations of all the provisions of FCRA, 2010.
Grant of certificate of registration (Section 12)

(1) Conditions to be met for the grant of registration and prior permission
In terms of Sec.12 (4) of FCRA, 2010, the following shall be the conditions for the grant of registration
and prior permission:
(a)The 'person' making an application for registration or grant of prior permission-
i. is not fictitious or benami;
ii. has not been prosecuted or convicted for indulging in activities aimed at conversion through
inducement or force, either directly or indirectly, from one religious faith to another;
iii. has not been prosecuted or convicted for creating communal tension or disharmony in any specified
district or any other part of the country;
iv. has not been found guilty of diversion or mis-utilisation of its funds;
v. is not engaged or likely to engage in propagation of sedition or advocate violent methods to achieve
its ends;
vi. is not likely to use the foreign contribution for personal gains or divert it for undesirable purposes;
vii. has not contravened any of the provisions of this Act;
viii. has not been prohibited from accepting foreign contribution;
ix. the person being an individual, such individual has neither been convicted under any law for the time
being in force nor any prosecution for any offence is pending against him.
x. the person being other than an individual, any of its directors or office bearers has neither been
convicted under any law for the time being in force nor any prosecution for any offence is pending
against him.
(b) the acceptance of foreign contribution by the association/ person is not likely to affect prejudicially -
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i.the sovereignty and integrity of India;

ii.the security, strategic, scientific or economic interest of the State;
iii.the public interest;
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iv.freedom or fairness of election to any Legislature;

v.friendly relation with any foreign State;
vi. harmony between religious, racial, social, linguistic, regional groups, castes or communities.
(c) he acceptance of foreign contribution-

i. shall not lead to incitement of an offence;
ii. shall not endanger the life or physical safety of any person.
(1A) Every person who makes an application under sub-section (1) shall be required to open
‘‘FCRA Account’’ in the manner specified in section 17 and mention details of such account in
his application.
(2) Procedure for grant of certificate of Registration
(1) An application by a person, referred to in section 11 for grant of certificate or giving prior permission,
shall be made to the Central Government in such form and manner and along with such fee, as may be
prescribed.
(2) On receipt of an application the Central Government shall, by an order, if the application is not in
the prescribed form or does not contain any of the particulars specified in that form, reject the
application.
(3) If on receipt of an application for grant of certificate or giving prior permission and after making such
inquiry as the Central Government deems fit, it is of the opinion that the conditions specified in sub-
section(4)are satisfied, it may, ordinarily within ninety days from the date of receipt of application,
register such person and grant him a certificate or give him prior permission, as the case may be, subject
to such terms and conditions as may be prescribed.
If that in case the Central Government does not grant, within the said period of ninety days, a
certificate or give prior permission, it shall communicate the reasons therefor to the applicant.
And that a person shall not be eligible for grant of certificate or giving prior permission, if his certificate
has been suspended and such suspension of certificate continues on the date of making application.
(4) Where the Central Government refuses the grant of certificate or does not give prior permission, it
shall record in its order the reasons therefor and furnish a copy thereof to the applicant.
However the Central Government may not communicate the reasons for refusal for grant of certificate
or for not giving prior permission to the applicant under this section in cases where is no obligation to
give any information or documents or records or papers under the Right to Information Act, 2005.
(5) The certificate granted shall be valid for a period of five years from the date of its issue and the prior
permission shall be valid for the specific purpose or specific amount of foreign contribution proposed
to be received, as the case may be.
Section 12A - Power of Central Government to require Aadhaar number, etc., as

identification document – (Newly Inserted Section)
Notwithstanding anything contained in this Act, the Central Government may require that any person
who seeks prior permission or prior approval under section 11, or makes an application for grant of
certificate under section 12, or, as the case may be, for renewal of certificate under section 16, shall
provide as identification document, the Aadhaar number of all its office bearers or Directors or other
key functionaries, by whatever name called, issued under the Aadhaar (Targeted Delivery of Financial
and Other Subsidies, Benefits and Services) Act, 2016, or a copy of the Passport or Overseas Citizen
of India Card, in case of a foreigner.
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Suspension of certificate (Section 13)

(1) Where the Central Government, for reasons to be recorded in writing, is satisfied that pending
consideration of the question of cancelling the certificate on any of the grounds mentioned in section
14(1), it is necessary so to do, it may, by order in writing, suspend the certificate for a period of 180 days,
or such further period, not exceeding 180 days, as may be specified in the order.
(2) Effect of suspension: Every person whose certificate has been suspended shall—
(a) not receive any foreign contribution during the period of suspension of certificate.
However, the Central Government, on an application made by such person, if it considers appropriate,
allow receipt of any foreign contribution by such person on such terms andconditions as it may specify;
(b) utilise, in the prescribed manner, the foreign contribution in his custody with the prior approval of
the Central Government.
Rule 14 of FCR, 2011 defines the extent of amount that can be utilised in case of suspension of the
certificate of registration. The unspent amount that can be utilised in case of suspension of a certificate
of registration may be as under:—
(i) In case the certificate of registration is suspended under sub-section (1) of section 13 of the Act, up
to 25% of the unutilised amount may be spent, with the prior approval of the Central Government, for
the declared aims and objects for which the foreign contribution was received.
(ii)The remaining 75% of the unutilised foreign contribution shall be utilised only after revocation
of suspension of the certificate of registration.
Cancellation of certificate (Section 14)

(1) The Central Government may, by an order, cancel the certificate if —
(a) the holder of the certificate has made a statement in, or in relation to, the application for the grant
of registration or renewal thereof, which is incorrect or false; or
(b) the holder of the certificate has violated any of the terms and conditions of the certificate or renewal
thereof; or
(c) in the opinion of the Central Government, it is necessary in the public interest to cancel the certificate;
or
(d) the holder of certificate has violated any of the provisions of this Act or rules or order made
thereunder; or
(e) if the holder of the certificate has not been engaged in any reasonable activity in its chosen field for
the benefit of the society for two consecutive years or has become defunct.
(2) No order of cancellation of certificate under this section shall be made unless the person concerned
has been given a reasonable opportunity of being heard.
(3) Cooling period of 3 years: Any person whose certificate has been cancelled under this section shall
not be eligible for registration or grant of prior permission for a period of three years from the date of
cancellation of such certificate.
Section 14A - Surrender of certificate (Newly Inserted)

On a request being made in this behalf, the Central Government may permit any person to surrender
the certificate granted under this Act, if, after making such inquiry as it deems fit, it is satisfied that
such person has not contravened any of the provisions of this Act, and the management of foreign
contribution and asset, if any, created out of such contribution has been vested in the authority as
provided in section 15(1).
Management of foreign contribution of person whose certificate has been cancelled OR

SURRENDERED (Section 15)
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(1) The foreign contribution and assets created out of the foreign contribution in the custody of every
person whose certificate has been cancelled - shall vest in such authority as may be prescribed.
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(2) Such an authority may, if it considers necessary and in public interest- manage the activities of the
person, as the Central Government may direct and such authority may utilise the foreign contribution
or dispose of the assets created out of it in case adequate funds are not available for running such activity.
(3) The authority shall return the foreign contribution and the assets vested upon it to the person, if such
person is subsequently registered under this Act.
Renewal of certificate (Section 16)

(1) Every person who has been granted a certificate, shall have such certificate renewed within six months
before the expiry of the period of the certificate.
Provided that the Central Government may, before renewing the certificate, make such inquiry, as it
deems fit, to satisfy itself that such person has fulfilled all conditions specified in sub-section of section
12(4).
(2) The application for renewal of the certificate shall be made to the Central Government in such form
and manner with such fee as may be prescribed.
(3) The Central Government shall renew the certificate, ordinarily within ninety days from the date of
receipt of application for renewal of certificate subject to such terms and conditions as it may deem fit
and grant a certificate of renewal for a period of five years.
However, in case the Central Government does not renew the certificate within the said period of ninety
days, it shall communicate the reasons therefor to the applicant.
Further that the Central Government may refuse to renew the certificate in case where a person has
violated any of the provisions of this Act or rules made thereunder.
Procedure for renewal of registration certificate –

Rule 12 of FCR, 2011 states that-
(1) Every certificate of registration issued to a person shall beliable to be renewed after the expiry of five
years from the date of its issue on proper application.
(2) Every person shall apply to the Central Government in prescribed form six months before the date
of expiry of the certificate of registration, for its renewal.
(3) An application made for renewal of the certificate of registration shall be accompanied by a fee of
Rs. 500.
(4) The fee for renewal of the certificate of registration shall be remitted by demand draft or banker's
cheque in favour of the "Pay and Accounts Officer, Ministry of Home Affairs", payable at New Delhi or
through online electronic payment gateway as specified by the Central Government.
(5) In case no application for renewal of registration is received or such application is not accompanied
by the requisite fee, the validity of the certificate of registration of such person shall be deemed to have
ceased from the date of completion of the period of five years fromthe date of the grant of registration.
Example: A certificate of registration granted on the 1st January, 2012 shall be valid till the 31st December,
2016. A request for renewal of the registration certificate shall reach the Central Government,
accompanied by the requisite fee, by the 30th June, 2016. If no application is received or is not
accompanied by the renewal fee, the validity of the registration certificate issued on the 1 st January 2012
shall be deemed to have lapsed with effect from the close of the day on 31st December, 2016.
(6) If the validity of the certificate of registration of a person has ceased in accordance with the provisions
of these rules, a fresh request for the grant of a certificate of registration may be made by the person to
the Central Government as per the provisions of rule 9.
(7) In case a person provides sufficient grounds, in writing, explaining the reasons for not submitting the
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certificate of registration for renewal within the stipulated time, his application may be accepted for
consideration along with the requisite fee, but not later than four months after the expiry of the original
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certificate of registration.
ACCOUNTS, INTIMATION, AUDIT AND DISPOSAL OF ASSETS, ETC.

Provisions related to matters incidental to maintenance of accounts are dealt under chapter IV of the
FCRA. It covers section 17 to 22 of the Act.
(I) Foreign contribution through scheduled bank (Section 17)

(1) Every person who has been granted certificate or prior permission under section 12 shallreceive
foreign contribution only in an account designated as "FCRA Account" by the bank, Such “FCRA
Account” shall be opened by him for the purpose of remittances of foreigncontribution in such
branch of the State Bank of India at New Delhi, as the CentralGovernment may, by notification,
specify in this behalf:
Provided that such person may also open another "FCRA Account" in a scheduled bank of hischoice
for the purpose of keeping or utilising the foreign contribution which has beenreceived from his
"FCRA Account" in the specified branch of State Bank of India at NewDelhi:
Provided further that such person may also open one or more accounts in one or morescheduled
banks of his choice to which he may transfer for utilising any foreign contributionreceived by him in
his "FCRA Account" in the specified branch of the State Bank of Indiaat New Delhi or kept by him in
another "FCRA Account" in a scheduled bank of his choice:
Provided also that No funds other than foreign contribution shall be received or deposited in any such
account.
(2) The specified branch of the State Bank of India at New Delhi or the branchof the scheduled bank
where the person referred to in sub-section (1) hasopened his foreign contribution account or the
authorised person in foreignexchange, shall report to such authority as may be specified, -
(a) the prescribed amount of foreign remittance;
(b) the source and manner in which the foreign remittance was received; and
(c) other particulars, in such form and manner as may be prescribed.
(d) in such form and manner as may be prescribed.'
(II) Intimation (Section 18)

Every person who has been granted a certificate or given prior approval shall give an intimation to the
Central Government, and such other authority as may be specified by the Central Government–as to
the amount of each foreign contribution received by it, the source from which and the manner in which
such foreign contribution was received, and the purposes for which, and the manner in which such
foreign contribution was utilised by him.
Every person receiving foreign contribution shall submit a copy of a statement with the particulars of
foreign contribution received duly certified by officer of the bank or authorised person in foreign
exchange and furnish the same to the Central Government along with the intimation.
(III) Maintenance of accounts (Section 19)

Every person who has been granted a certificate or given prior approval under this Act shall maintain,
in such form and manner as may be prescribed,—
(a) an account of any foreign contribution received by him; and
(b) a record as to the manner in which such contribution has been utilised by him.
(IV) Audit of accounts (Section 20)

(1) Where any person who has been granted a certificate or given prior permission, fails to furnish any
intimation under this Act ,or the intimation so furnished is not in accordance with law or if, after
inspection of such intimation, the Central Government has any reasonable cause to believe that any
provision of this Act has been, or is being, contravened, the Central Government may-
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• by general or special order, authorise such Gazetted Officer, holding a Group A post under the
Central Government or any other officer or authority or organisation, as it may think fit
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• to audit any books of account kept or maintained by such person.

(2) Every such officer shall have the right to enter in or upon any premises at any reasonable hour,
before sunset and after sunrise, for the purpose of auditing the said books of account.
(3) Any information obtained from such audit shall be kept confidential and shall not be disclosed
except for the purposes of this Act.
ADJUDICATION
The provisions related to adjudication is given under chapter VI &VII covering sections from 28-31 of
the Act
Confiscation of article or currency or security obtained in contravention of the Act

(Sec.28)
Any article or currency or security which is seized under the Act shall be liable to confiscation if such
article or currency or security has been adjudged under section 29 to have been received or obtained in
contravention of this Act.
Adjudication of confiscation (Section 29)

(1) Any confiscation referred to in section 28 may be adjudged—
(a) without limit, by the Court of Session within the local limits of whose jurisdiction the seizure was
made; and
(b) subject to such limits as may be prescribed, by such officer, not below the rank of an Assistant
Sessions Judge.
As per Rule 19 of FCR, 2011 an officer above in clause(b), may adjudge confiscation in relation to any
article or currency seized under section 25, if the value of such article or the amount of such currency
seized does not exceed Rs. 10,00,000 (Ten lakh only).
(2) When an adjudication is concluded by the Court of Session or Assistant Sessions Judge, as the case
may be, the Sessions Judge or Assistant Sessions Judge may make such order as he thinks fit for the
disposal by confiscation or delivery of seized article or currency or security, as the case may be, to any
person claiming to be entitled to possession thereof or otherwise, or which has been used for the
commission of any offence under this Act.
Procedure for confiscation (Section 30)

No order of adjudication of confiscation shall be made unless a reasonable opportunity of making a
representation against such confiscation has been given to the person from whom any article or currency
or security has been seized.
Appeal (Section 31)

(1) Where any person is aggrieved by any order, may prefer an appeal against -
The Court of Session to the HC to which such Court is subordinate
OR
Any officer specified Court of Session within the local limits of whose
section 29(1)(b) to jurisdiction such order of adjudication of confiscation was made
Note:
Appeal may be preferred within one month from the date of communication to such person of the
order.
However, the appeallate court may, allow such appeal to be preferred within a further period of one
month, but not thereafter.
(2) Any organisation referred to in section 3(1)(f), or any person or association referred to in section 6
or section 9, aggrieved by an order made in pursuance of section 5 or by an order of the Central
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Government refusing to give permission under this Act, or by any order made by the Central
Government section 12(2) or 12(4), or section 14(1), as the case may be, may,
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• prefer an appeal against such order to the High Court within the local limits of whose jurisdiction
the appellant ordinarily resides or carries on business or personally works for gain, or, where the
appellant is an organisation or association, the principal office of such organisation or association is
located
• within sixty days from the date of such order.
Revision of orders by Central Government (Section 32)

(1) Power to central Government- The Central Government may either-
• of its own motion or
• on an application for revision by the person registered under this Act,
call for and examine the record of any proceeding under this Act in which any such order has been
passed by it and may make such inquiry or cause such inquiry to be made and, subject to the provisions
of this Act, may pass such order thereon as it thinks fit.
(2) Restriction on entertainment of revision: The Central Government shall notofits own motion revise
any order under this section if the order has been made more than one year previously.
(3) In the case of an application for revision under this section:the application must be made within one
year from the date on which the order in question was communicated to him or the date on which he
otherwise came to know of it, whichever is earlier.
Where if, the Central Government is satisfied that such person was prevented by sufficient cause from
making the application within that period - may admit an application made after the expiry of that
period.
OFFENCES AND PENALTIES :

Types of offence Penalties given
Any person who knowingly,— imprisonment upto 6 months or with fine or with
(a) gives false intimation under section 9(c) both
or section 18; or
(b) seeks prior permission or registration
by means of fraud, false
representation or concealment of
material fact.
Any person, on whom any prohibitory order has - imprisonment upto 3 years, or with fine, or with
been served under section 10, pays, delivers, both.
transfers or otherwise deals with, any article or - the court trying such contravention may also
currency or security, whether Indian or foreign, in impose on the person convicted an additional fine
contravention of such prohibitory order. equivalent to the market value of the article or
the amount of the currency or security in
respect of which the prohibitory order has been
contravened by him or such part thereof as the
court may deem fit.
Whoever accepts, or assists any person, imprisonment upto 5 years, or with fine, or with
political party or organisation in accepting, any both.
foreign contribution or any currency or security
from a foreign source, in contravention of any
provision of this Act or any rule or order made
thereunder
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the court trying a person, who, in relation to any fine of Maximum five times the value of the
article or currency or security, whether Indian article or currencyor security or Rs. 1000,
or foreign, does or omits to do any act which whichever is more, if such article or currency or
act or omission would render such article or security is not available for confiscation, and the
currency or security liable to confiscation under fine so imposed shall be in addition to any other
this Act, may, in the event of the conviction of fine which may be imposed on such person under
such person for the act or omission aforesaid this Act
Whoever fails to comply with any provision of imprisonment for a upto 1year, or with fine or
This Act for which no separate penalty has been with both
Provided in this act.
Section 35 or section 37 , in so far as such offence Shall not accept any foreign contribution for a
relates to the acceptance or utilization of foreign period of 5 years from the date of subsequent
contribution, is again convicted of such offence conviction.
Offences by companies
Where an offence under this Act or any rule or order made thereunder has been committed by a
company, every person who, at the time the offence was committed, was in charge of, and was
responsible to, the company for the conduct of the business of the company, as well as the company,
shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished
accordingly.
However, such person shall not be liable to any punishment if he proves that the offence was committed
–
• without his knowledge, or
• he had exercised all due diligence to prevent the commission of such offence.
Where an offence under this Act or any rule or order made thereunder has been committed by a
company and it is proved that the offence has been committed with the consent or connivance of, or is
attributable to any neglect on the part of, any director, manager, secretary or other officer of the
company, such director, manager, secretary or other officer shall also be deemed to be guilty of that
offence and shall be liable to be proceeded against and punished accordingly.
Note: In the above provision,

(a) “company” means any body corporate and includes a firm, society, trade union or other association
of individuals; and
(b) “director”, in relation to a firm, society, trade union or other association of individuals, means a
partner in the firm or a member of the governing body of such society, trade union or other association
of individuals.
Bar on prosecution of offences under the Act.

No court shall take cognizance of any offence under this Act, except with the previous sanction of the
Central Government or any officer authorised by that Government in this behalf.
Compounding of certain offences (Section 41)

• any offence punishable under this Act (whether committed by an individual or association or any
officer or employee thereof), not being an offence punishable with imprisonment only, may, before the
institution of any prosecution, be compounded by such officers or authorities and for such sums as the
Central Government may, by notification in the Official Gazette, specify.
• Compounding of offences as stated above, shall not apply to an offence committed by an individual
or association or its officer or other employee within a period of three years from the date on which a
similar offence committed by it or him was compounded under this section.
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For the purposes of this section, any second or subsequent offence committed after the expiry of a
period of three years from the date on which the offence was previously compounded, shall be deemed
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to be a first offence.
• Every officer or authority shall exercise the powers to compound an offence, subject to the direction,
control and supervision of the Central Government.
• Where any offence is compounded before the institution of any prosecution, no prosecution shall
be instituted in relation to such offence, against the offender in relation to whom the offence is so
compounded.
• Every officer or authority while dealing with a proposal for the compounding of an offence for a
default in compliance with any provision of this Act which requires by an individual or association or its
officer or other employee to obtain permission or file or register with, or deliver or send to, the Central
Government or any prescribed authority any return, account or other document, may direct, by order,
any individual or association or its officer or other employee to file or register with, such return, account
or other document within such time as may be specified in the order.
MISCELLANEOUS
Power to call of information or document and Investigation into cases under the Act
(Sections 42 & 43)
• Any inspecting officer, authorised by the Central Government may, during the course of any
inspection of any account or record maintained by any political party, person, organisation or association
in connection with the contravention of any provision of this Act,—
(a) call for information from any person for the purpose of satisfying himself whether there has been
any contravention of the provisions of this Act or rule or order made thereunder;
(b) require any person to produce or deliver any document or thing useful or relevant to such inspection;
(c) examine any person acquainted with the facts and circumstances of the case related to the inspection.
• Investigation into cases under the Act: Any offence punishable under this Act may also be
investigated into by such authority as the Central Government may specify in this behalf and the
authority so specified shall have all the powers which an officer-in-charge of a police station has while
making an investigation into a cognizable offence.
Power of Central Government to give directions and delegation of powers (Sections 46 & 47)
• The Central Government may give such directions as it may deem necessary to any other authority
or any person or class of persons regarding the carrying into execution of the provisions of this Act.
• The Central Government may direct that any of its powers or functions under this Act, except power
to make rule under section 48, shall, in relation to such matters and subject to such conditions, if any,
may be specified in the notification, be exercised or discharged also by such authority as may be
specified.
Power to make rules (Section 48)

The Central Government may, by notification, make rules for carrying out the provisions of this Act. In
particular, and without prejudice to the generality of the existing power, such rules may provide for all
or any of the following matters, namely :—
(a) the value of the article which may be specified under section 2(1)(i);
(b) the authority which may be specified under section 2(1)(p);
(c) acceptance or retention of gift or presentation under section 4(d);
(d) guidelines specifying the ground or grounds on which an organisation may be specified as an
organization of political nature under section 5(1);
(e) the activities or business which shall be construed as speculative business under the proviso to
section8(1)(a);
(f) the elements and the manner in which the administrative expenses shall be calculated section 8(2);
(g) the time within which and the manner in which any person or class of persons or an ssociation may
193
be required to furnish intimation regarding the amount of foreign contribution received under section
9(c);
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(h) the time within which and the manner in which any person or class of persons may be required to
furnish
intimation regarding foreign hospitality under section 9(e);
(i) the manner in which the copy of the order of the CG shall be served upon any person under
section 10;
(j) the form and manner in which the application for grant of certificate of registration or giving of
prior permission under section 12(1);
(k) the fee to be accompanied by the application under section 12(1);
(l) the terms and conditions for granting a certificate or giving prior permission under section 12(4)(g);
(m) the manner of utilising the foreign contribution under section 13(2)(b);
(n) the authority with whom the foreign contribution to be vested under section 15(1);
(o) the period within which and the manner in which the foreign contribution shall be managed
section 15(2);
(p) the form and manner in which the application for a renewal of certificate of registration shall be
made under section 16(2);
(q) the fee to be accompanied by the application for renewal of certificate under section 16(2);
(r) the prescribed amount of foreign remittance, the form and manner in which the foreign remittance
received by every bank or authorised person in foreign exchange shall be reported under section
17(2);
(s) the time within which and the manner in which the person who has been granted certificate of
registration or given prior permission under this Act shall give intimation under section 18;
(t) the form and manner in which account of any foreign contribution and the manner in which such
contribution has been utilised shall be maintained under section 19;
(u) the time within which and the manner in which a candidate for election shall give intimation under
section 21;
(v) the manner and procedure to be followed in disposing of the assets under section 22;
(w) the limits subject to which any confiscation may be adjudged under section 29(1)(c);
(x) the fee to be accompanied along with every application for revision section 32(5);
(y) the form and manner for making of an application for compounding of an offence and the fee
therefor under section 41(4);
(z) the form and manner in which and the time within which returns and statements to be furnished by
the prescribed authority under section 44;
(za) any other matter which is required to be, or may be, prescribed.
Power to exempt in certain cases (Section 50)

If the Central Government is of opinion that it is necessary or expedient in the interests of the general
public so to do, it may-
• by order and subject to such conditions as may be specified in the order, exempt
- any person or
- association or
- organisation (not being a political party), or
- any individual (not being a candidate for election)
• from the operation of all or any of the provisions of this Act and may, revoke or modify such order.
Act not to apply to certain Government transactions (Section 51)

Nothing contained in this Act shall apply to any transaction between-
• the Government of India. and
• the Government of any foreign country or territory.
Application of other laws not barred (Section 52)

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The provisions of this Act shall be in addition to, and not in derogation of, the provisions of any other
law for the time being in force.
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Power to remove difficulties (Section 53)

(1) If any difficulty arises in giving effect to the provisions of this Act, the Central Government may, by
order, published in the Official Gazette, make such provisions not inconsistent with the provisions of
this Act as may
appear to be necessary for removing the difficulty :
Provided that no order shall be made under this section after the expiry of two years from the
commencement of this Act.
(2) Every order made under this section shall be laid, as soon as may be after it is made, before each
House of Parliament.
FCRA – Foreign Contribution (Regulation) (Amendment) Rules, 2020

Rule 3. Guidelines for declaration of an organisation to be of a political nature, not being a political
party. –
(1) The Central Government may specify any organisation as organisation of political nature on one or
more of the following grounds: -
(i) organisation having avowed political objectives in its Memorandum of Association or bylaws;
(ii) any Trade Union whose objectives include activities for promoting political goals;
(iii) any voluntary action group with objectives of a political nature or which participates in political
activities;
(iv) front or mass organisations like Students Unions, Workers' Unions, Youth Forums and Women's
wing of a political party;
(v) organisation of farmers, workers, students, youth based on caste, community, religion, language or
otherwise, which is not directly aligned to any political party, but whose objectives, as stated in the
MOA, or activities gathered through other material evidence, include steps towards advancement of
Political interests of such groups;
(vi) any organisation, by whatever name called, which habitually engages itself in or employs common
methods of political action like 'bandh' or 'hartal', 'rasta roko', 'rail roko' or 'jail bharo' in support of
public causes.
(2) The organisations specified under clauses (v) and (vi) of sub-rule (1) shall be considered to be of
political nature, if they participate in active politics or party politics, as the case may be.
Rule 4. Speculative activities. –

(1) The following activities shall be treated as speculative activities:-
(a) any activity or investment that was an element of risk of appreciation or depreciation of the original
investment, linked to market forces, including investment in mutual funds or in shares;
(b) participation in any scheme that promises high returns like investment in chits or land or similar
assets not directly linked to the declared aims and objectives of the organisation or association.
(2) A debt-based secure investment shall not be treated as speculative investment.
(3) Every association shall maintain a separate register of investments.
(4) Every register of investments maintained under sub-rule (3) shall be submitted for audit.
Rule 5. Administrative expenses. –

The following shall constitute administrative expenses:-
(i) salaries, wages, travel expenses or any remuneration realised by the Members of the Executive
Committee or Governing Council of the person;
(ii) all expenses towards hiring of personnel for management of the activities of the person and salaries,
wages or any kind of remuneration paid, including cost of travel, to such personnel;
(iii) all expenses related to consumables like electricity and water charges, telephone charges, postal
charges, repairs to premise(s) from where the organisation or Association is functioning, stationery and
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printing charges transport and travel

charges by the Members of the Executive Committee or Governing Council and expenditure on office
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equipment;
(iv) cost of accounting for and administering funds;

(v) expenses towards running and maintenance of vehicles;
(vi) cost of writing and filing reports;
(vii) legal and professional charges; and
(viii) rent of premises, repairs to premises and expenses on other utilities:
Provided that the expenditure incurred on salaries or remuneration of personnel engaged in training
or for collection or analysis of field data of an association primarily engaged in research or training
shall not be counted towards administrative expenses:
Provided further that the expenses incurred directly in furtherance of the stated objectives of the
welfare oriented organisation shall be excluded from the administrative expenses such as salaries to
doctors of hospital, salaries to teachers of school etc.
Rule 6. Intimation of receiving foreign contribution from relatives.

- Any person receiving foreign contribution in excess of one lakh rupees or equivalent thereto in a
financial year from any of his relatives shall inform the Central Government [regarding the details of
the foreign contribution received by him in electronic form] in Form FC-1 within thirty days from the
date of receipt of such contribution.
Rule 6A. When articles gifted for personal use do not amount to foreign contribution. –
Any article gifted to a person for his personal use whose market value in India on the date of such gift
does not exceed [one lakh rupees] shall not be a foreign contribution within the meaning of sub-clause
(i) of clause (h) of sub-section (1) of section (2).
Rule 7. Receiving foreign hospitality by specified categories of persons. –

(1) Any person belonging to any of the categories specified in section 6 who wishes to avail of foreign
hospitality shall apply [to the Central Government in electronic form] in Form FC-2 for prior
permission to accept such foreign hospitality.
(2) Every application for acceptance of foreign hospitality shall be accompanied by an invitation letter
from the host or the host country, as the case may be, and administrative clearance of the Ministry or
department concerned in case of visits sponsored by a Ministry or department of the Government.
(3) The application for grant of permission to accept foreign hospitality must reach the appropriate
authority ordinarily two weeks before the proposed date of onward journey.
(4) In case of emergent medical aid needed on account of sudden illness during a visit abroad, the
acceptance of foreign hospitality shall be required to be intimated to the Central Government within
[one month] of such receipt giving full details including the source, approximate value in Indian
Rupees, and the purpose for which and the manner in which it was utilised.
Provided that no such intimation is required if the value of such hospitality in emergent medical aid is
upto one lakh rupees or equivalent thereto.
Rule 8. Action in respect of article, currency or security received in contravention of the Act. –
(1) The Central Government may issue a prohibitory order for contravention of the Act in respect of
any article, currency or securities.
(2) The prohibitory order issued under sub-rule (1) shall be served on the person concerned in the
following manner:-
(a) by delivering or tendering it to that person or to his duly authorised agent; or
(b) by sending it to him by 'registered post with acknowledgement due' or 'speed post' to the address of
his last known place of residence or the place where he carries on, or is known to have last carried on,
business or the place where he personally works for gain or is known to have last worked for gain and,
in case the person is an organisation or an association, to the last known address of the office of such
organisation or association; or
(c) if it cannot be served in any of the manner aforesaid, by affixing, it on the outer door or some other
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conspicuous part of the premises in which that person resides or carries on, or is known to have last
carried on, business or personally works for gain or is known to have last worked personally for gain
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and, in case the person is an organisation or an association, on the outer door or some other
conspicuous part of the premises in which the office of that organisation or association is located, or is
known to have been last located, and the written report whereof should be witnessed by at least two
persons.
Rule 9. Application for obtaining 'registration' or 'prior permission' to receive foreign contribution. –
(1)(a) An application for certificate of registration by a person under sub-section (1) of section 11, for
acceptance of foreign contribution shall be made [in electronic form] in Form FC-3A [with an affidavit
executed by each office bearer and key functionary and member in Proforma 'AA' appended to these
rules] and an application for obtaining prior permission by a person under sub-section (2) of section
11, for acceptance of foreign contribution, shall be made [in electronic form] in Form FC-3B [with an
affidavit executed by each office bearer and key functionary and member in Proforma 'AA' appended
to these rules].
(b) The applicant shall upload the signed or digitally signed application along with scanned documents
as specified by the Central Government from time to time;
(d) Any person making an application for registration under clause (a) of sub-rule (1) shall have an
FCRA Account.
(e) The person may open one or more accounts in one or more banks for the purpose of utilising the
foreign contribution after it has been received and, in all such cases, intimation [in electronic form] in
form [FC-6D]] shall be furnished to the Secretary, Ministry of Home Affairs, New Delhi within fifteen
days of the opening of any account.
(f) A person seeking registration under clause (b) of sub-section (4) of section 12 of the Act shall meet
the following conditions, namely: -
(i) it shall be in existence for three years and have spent a minimum amount of rupees fifteen lakh on
its core activities for the benefit of society during the last three financial years:
Provided that the Central Government, in exceptional cases or in cases where a person is controlled by
the Central Government or a State Government may waive the conditions;
(ii) if the person wants inclusion of its existing capital investment in assets like land, building, other
permanent structures, vehicles, equipment in the computation of its spending during last three years,
then the chief functionary shall give an undertaking that the assets shall be vested henceforth with the
person till the validity of the certificate and they shall be utilised only for the activities covered under
the Act and the rules made thereunder and shall not be diverted for any other purpose till the validity
of its certificate of registration remains valid.
(1A) Every application seeking registration under clause (a) of sub-rule (1), made before the
commencement of these rules but not disposed of, shall be considered after furnishing the details of
FCRA Account.
(2) [* * *]
(d) Any person making an application for obtaining prior permission under clause (a) of sub-rule (1)
shall have an FCRA Account.]
(e) person seeking prior permission under this rule may open one or more accounts in one or more
banks for the purpose of utilising the foreign contribution after it has been received and in all such
cases intimation [ [in electronic form] in form [FC-6D]] shall be furnished to the Secretary, Ministry of
Home Affairs, New Delhi within fifteen days of the opening of any account.
(f) A person seeking prior permission for receipt of specific amount from a specific donor for carrying
out specific activities or projects mentioned in clause (c) of sub-section (4) of section 12 of the Act shall
meet the following criteria, namely: -
(i) submit a specific commitment letter from the donor indicating the amount of foreign contribution
and the purpose for which it is proposed to be given;
(ii) for the Indian recipient persons and foreign donor organisations having common members, prior
permission shall be granted to the person subject to it satisfying the following conditions, namely: -
(A) the chief functionary of the recipient person shall not be a part of the donor organisation;
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(B) seventy-five per cent. of the office-bearers or members of the governing body of the person shall
not be members or employees of the foreign donor organisation;
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(C) in case of foreign donor organisation being a single individual that individual shall not be the chief
functionary or office bearer of the recipient person; and
(D) in case of a single foreign donor, seventy-five per cent. of the office bearers or members of the
governing body of the recipient person shall not be the family members or close relatives of the donor.
(2A) Every application for obtaining prior permission under clause (a) of sub-rule (1) made before the
commencement of these rules but not disposed of, shall be considered after furnishing the details of
FCRA Account.
(3) No person shall prefer a second application for registration or prior permission within a period of
six months after submitting an application either for the grant of prior permission for the same project
or for registration.
(4) (a) An application made for the grant of prior permission shall be accompanied by a fee of rupees
five thousand only, which shall be paid through the payment gateway specified by the Central
Government.
[(b) An application made for the grant of registration shall be accompanied by a fee of rupees ten
thousand only, which shall be paid through the payment gateway specified by the Central Government.
(c) The fee may be revised by the Central Government from time to time.
[***]
(5) Notwithstanding anything contained in sub-rules (1) to (4), every application made for registration
or prior permission under the Foreign Contribution (Regulation) Act, 1976 (49 of 1976) but not
disposed of before the date of commencement of these rules shall be deemed to be an application for
registration or prior permission, as the case may be, under these rules, subject to the condition that the
applicant furnishes the prescribed fees for such registration or prior permission, as the case may be.
Rule 9A. Permission for receipt of foreign contribution in application for obtaining prior permission. –
If the value of foreign contribution on the date of final disposal of an application for obtaining prior
permission under clause (a) of sub-rule (1) of rule 9 is over rupees one crore, the Central Government
may permit receipt of foreign contribution in such instalments, as it may deem fit:
Provided that the second and subsequent instalment shall be released after submission of proof of
utilisation of seventy five per cent. of the foreign contribution received in the previous instalment and
after field inquiry of the utilisation of foreign contribution.
Rule 10. Validity of certificate. –

(1) Every certificate or registration granted to a person under the Act shall be valid for a period of five
years from the date of its issue.
(2) The validity of certificate surrendered under section 14A of the Act shall be deemed to have
expired on the date of acceptance of the request by the Central Government.
Rule 11. Maintenance of accounts. –

Every person who has been granted registration or prior permission under section 12 shall maintain a
separate set of accounts and records, exclusively, for the foreign contribution received and utilized.
Rule 12. Renewal of registration certificate. –

(1) Every certificate of registration issued to a person shall be liable to be renewed after the expiry of
five years from the date of its issue on proper application.
(2) An application for renewal of the certificate of registration shall be made to the Central
Government in electronic before in Form FC-3C accompanied with an affidavit executed by each
office bearer, key functionary and member in Proforma 'AA' appended to these rules within six
months from the date of expiry of the certificate of registration.
(2A) Every person seeking renewal of the certificate of registration under section 16 of the Act shall
open an FCRA Account and mention details of the account in his application for renewal of
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registration. (2B) Every application for renewal of the certificate of registration made under sub-rule (2)
before commencement of these rules, but not disposed of, shall be considered after furnishing the
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details of FCRA Account. [* * *]

(4) An application made for renewal of the certificate of registration shall be accompanied by a fee of
rupees five thousand only, which shall be paid through payment gateway specified by the Central
Government.
(5) No person whose certificate of registration has ceased to exist shall either receive or utilise the
foreign contribution until the certificate is renewed.
(6) If no application for renewal of registration is received or the application is not accompanied by
requisite fee before the expiry of the validity of the certificate of registration, the validity of the
certificate of registration shall be deemed to have ceased from the date of completion of the period of
five years from the date of the grant of certificate of registration.
Note 1: A certificate of registration granted on the 1st January, 2012 shall be valid till the 31st
December, 2016 and a request for renewal of certificate of registration shall be submitted in electronic
form accompanied by requisite fee after the 30th June, 2016 and within the 31st December, 2016.
Note 2: If no application is received or is not accompanied by renewal fee, the validity of the certificate
of registration issued on the 1st January 2012 shall be deemed to have ceased after the 31st December,
2016 and the applicant shall neither receive nor utilise the foreign contribution until the certificate of
registration is renewed.
(6A) The amount of foreign contribution lying unutilised in the FCRA Account and utilisation account
of a person whose certificate of registration is deemed to have ceased under sub-rule (6) and assets, if
any, created out of the foreign contribution, shall vest with the prescribed authority under the Act until
the certificate is renewed or fresh registration is granted by the Central Government.
(7) If the validity of the certificate of registration of a person has ceased in accordance with the
provisions of these rules, a fresh request for the grant of a certificate of registration may be made by the
person to the Centra1 Government as per the provisions of rule 9.
(8) In case a person provides sufficient grounds, in writing, explaining the reasons for not submitting
the certificate of registration for renewal within the stipulated time, his application may be accepted for
consideration along with the requisite fee [and with late fee of Rs.5000/- (Five Thousand rupees only)],
but not later than [one year] after the expiry of the original certificate of registration.
Rule 13. Declaration of receipt of foreign contribution. –

(a) A person who has been granted a certificate of registration or prior permission shall place the
audited statement of accounts on receipts and utilisation of the foreign contribution, including income
and expenditure statement, receipt and payment account and balance sheet for every financial year
beginning on the first day of April within nine months of the closure of the financial year on its official
website or on the website as specified by the Central Government. (b) A person receiving foreign
contribution in a quarter of the financial year shall place details of foreign contribution received on its
official website or on the website as specified by the Central Government within fifteen days following
the last day of the quarter in which it has been received clearly indicating the details of donors, amount
received and date of receipt.
Rule 14. Extent of amount that can be utilised in case of suspension of the certificate of registration. –
The unspent amount that can be utilised in case of suspension of a certificate of registration may be as
under –
(a) In case the certificate of registration is suspend under sub-section (1) of section 13 of the Act, up to
twenty-five per cent of the unutilised amount may be spent, with the prior approval of the Central
Government, for the declared aims and objects for which the foreign contribution was received.
(b) The remaining seventy-five per cent of the unutilised foreign contribution shall be utilised only after
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revocation of suspension of the certificate of registration.

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Rule 15. Custody of foreign contribution in respect of a person whose certificate has been cancelled. –
If the certificate of registration of a person who has opened an FCRA Account under section 17 is
cancelled, the amount of foreign contribution lying unutilised in that Account shall vest with the
prescribed authority under the Act.
Rule 15A. Voluntary surrender of certificate. –

Every person who has been granted certificate of registration under section 12 of the Act may make an
application in electronic form in Form FC-7 for surrender of the certificate of registration in terms of
section 14A of the Act.
Rule 16. Reporting by banks of receipt of foreign contribution. –

The bank shall report to the Central Government within forty-eight hours any transaction in respect of
receipt or utilisation of any foreign contribution by any person whether or not such person is registered
or granted prior permission under the Act.
Rule 17. Intimation of foreign contribution by the recipient. –

(1) Every person who receives foreign contribution under the Act, shall submit a signed or digitally
signed report [in electronic form] in Form FC-4 with scanned copies of income and expenditure
statement, receipt and payment account and balance sheet for every financial year beginning on the 1st
day of April within nine months of the closure of the financial year.
(2) The annual return in Form [FC-4] shall reflect the foreign contribution received in the exclusive
bank account and include the details in respect of the funds transferred to other bank accounts for
utilisation.
(3) If the foreign contribution relates only to articles, the intimation shall be submitted in Form [FC-1].
(4) If the foreign contribution relates to foreign securities, the intimation shall be submitted in Form
[FC-1].
(5) Every report submitted under sub-rules (2) to (4) shall be duly certified by a chartered accountant.
(6) Every such return in Form [FC-4] shall also be accompanied by a copy of statement of account
from the bank where the exclusive foreign contribution account is maintained by the person, duly
certified by an officer of such bank.
(7) The accounting statements referred to above in the preceding sub-rule shall be preserved by the
person for a period of six years.
(8) A 'Nil' report shall be furnished even if no foreign contribution is received during a financial year.
Provided that where foreign contribution has not been received or utilised during a financial year, it
shall not be required to enclose certificate from Chartered Accountant or income and expenditure
statement or receipt and payment account or balance sheet with Form FC-4.
Rule 17A - Change of designated bank account, name, address, aims, objectives or Key members of
the association. –
A person who has been granted a certificate of registration under section 12 or prior permission under
section 11 of the Act shall intimate in electronic form within fifteen days, of any change in the
following, namely: -
(i) name of the association or its address within the State for which registration/ prior permission has
been granted under the Act [in Form FC-6A;
(ii) its nature, aims and objects and registration with local/relevant authorities [in Form FC-6B;
(iii) bank and/or branch of the bank and/or designated foreign contribution account number [in Form
FC-6C]; [***]
(iiia) bank and/or branch of the bank for the purpose of utilising the foreign contribution after it has
been received in Form FC-6D; and
(iv) office bearers or key functionaries or members mentioned in the application for grant of
registration or prior permission or renewal of registration, as the case may be, in Form FC-6E.
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Provided that the change shall be effective only after final approval by the Central Government.
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Rule 18. Foreign contribution received by a candidate for election. –

Foreign contribution received by a candidate for election, referred to in section 21, shall be furnished
in Form [FC-1] [in electronic form] within forty-five days from the date on which he is duly nominated
as a candidate for election.
Rule 19. Limit to which a judicial officer, not below the rank of an Assistant Sessions Judge may make
adjudication or order confiscation. –
An officer referred in clause (b) of sub-section (1) of section 29 may adjudge confiscation in relation to
any article or currency seized under section 25, if the value of such article or the amount of such
currency seized does not exceed Rs. 10,000,000/- (Ten Lakh only).
Rule 20. Revision. –

An application for revision of an order passed by the competent authority under section 32 of the Act
shall be made to the Secretary, Ministry of Home Affairs, Government of India, New Delhi on a plain
paper and it shall be accompanied by a fee of rupees three thousand only, which shall be paid through
the payment gateway specified by the Central Government.
Rule 21. Compounding of offence. –

An application for compounding of an offence under section 41 may be made to the Secretary,
Ministry of Home Affairs, New Delhi in electronic form and shall be accompanied by fee of rupees
three thousand only, which shall be paid through the payment gateway specified by the Central
Government.
Rule 22. Returns by the Investigating Agency to the Central Government. –

The Central Bureau of Investigation or any other Government investigating agency that conducts any
investigation under the Act shall furnish reports to the Central Government on a quarterly basis,
indicating the status of each case that was entrusted to it, including information regarding the case
number, date of registration, date of filing charge sheet, court before which it has been filed, progress
of trial, date of judgment and the conclusion of each case.
Rule 23. Authority to whom an application or intimation to be sent. –

Any information or intimation about political or speculative activities of a person as mentioned in rule
3 or rule 4, shall be furnished to the Secretary to the Government of India in the Ministry of Home
Affairs, New Delhi. Such information or intimation shall be sent by registered post [or in electronic
form.

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Foreign Exchange Management Act, 1999

1 APPLICATION OF ACT (SECTION 1)
The Act extends to the whole of India. It also applies to:
• All branches, offices and agencies outside India owned or controlled by a person resident in India.
• Any contravention committed outside India by any person to whom this Act applies.
2 IMPORTANT DEFINITIONS
Person - Section 2(u)
Person includes individual, HUF, Co., firm, AOP whether incorporated or not, BOI whether
incorporated or not and any agency, office or branch owned or controlled by such person.
Person Resident in India - Section 2(v)
A person residing in India for more than 182 days during the course of the preceding financial year but
does not include:
A)A person who has gone out of India or who stays outside India, in either case:
• for or on taking up employment outside India.
• for carrying on any business or vocation outside India.
• for any other purpose, in such circumstances as would indicate his intention to stay outside India for
uncertain period.
B) A person who has come to or stays in India in either case otherwise than:
• for or on taking up employment in India.
• for carrying on any business or vocation in India.
• for any other purpose, in such circumstances as would indicate his intention to stay in India
foruncertain period.
Any person or body corporate registered or incorporated in India.
Any branch, office or agency in India owned or controlled by a person resident outside India.
Any branch, office or agency outside India owned or controlled by a person resident in India.
Currency - Section 2(h)

It includes all currency notes, postal notes, postal orders, money orders, cheques, drafts, travellers
cheques, letters of credit, bills of exchange and promissory notes, credit cards or such other similar
instrument as may be prescribed by the RBI.
Debitcards, ATM cards or any other instrument which can be used to create a financial liability are
currency.
Foreign exchange - Section 2(n)

Means foreign currency and includes:
• deposits, credits and balances payable in any foreign currency
• demand drafts, travellers cheques, letters of credit or bills of exchange expressed or drawn in Indian
currency but payable in foreign currency
demand drafts, travellers cheques, letters of credit or bills of exchange drawn by person outside India
but payable in Indian currency.
Foreign Security - Section 2(o)

It means any security in the form of shares, stocks, bonds, debentures or any other instrument
denominated or expressed in foreign currency and includes securities expressed in foreign currency
but where redemption or any form of return such as interest or dividend is payable in Indian
currency.
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Person Resident Outside India - Section 2(w)

Every person who is not a person resident in India.
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Non-resident Indian (NRI)

A person resident outside India who is a citizen or is a person of Indian origin.
Person of Indian Origin (PlO)

It means citizen of any country other than Pakistan or Bangladesh if:
He at any time held Indian passport, or
He or either of his parents or grandparents were the citizen of India, or
He is spouse of an Indian citizen.
Repatriate to India - Section 2(v)

It means realized foreign exchange should be sold to an authorized person in India in exchange of
rupees. It also includes the holding of realized amount in an account with an authorized person in India
to the extent notified by the RBI and includes use of realized amount for discharge of debt or liability
in foreign exchange.
AUTHORISED PERSONS – SECTION 2(C)

It means an authorized dealer, money changer, off-shore banking unit or any other person for the time
being authorized to deal in foreign exchange or foreign securities.
3 DUTIES OF AUTHORISED PERSON

The authorized person has duty to comply with directions of RBI for his all dealings. Deal into
transactions for which authorization has been received obtain undertaking and declaration from person
to satisfy himself that the transaction is not in violation of FEMA. If he has doubts, he should refuse the
transaction in writing. Submit periodic reports to RBI. Report any transaction to RBI, where it has
reason to believe that provision of Act is contravened.
4 CURRENT ACCOUNT TRANSACTION - SECTION 2(j) READ WITH (SECTION 5)

Any transaction other than capital account transaction is current account transaction.
All current account transactions are generally permitted. Person may sell or draw (deal) foreign
exchange to or from an authorised person for current account transaction.
However Central Government may, in public interest and in consultation with the Reserve Bank,
impose such reasonable restrictions for Current account transactions.
The current account transaction can be divided into following three categories:
1) Prohibited current account transaction — Schedule I Rule 3
2) Current account transaction with prior approval of Central Government — Schedule II Rule 4
3) Current account transaction with prior approval of RBI — Schedule III Rule 5
1) Prohibited current account transaction — Schedule I Rule 3

Drawal of foreign exchange for the following transactions isProhibited
KEY : Never Drive Luxurious CaR on CNg
(i) L-Remittance out of Lottery winnings.
(ii) R-Remittance of income from Racing/Riding, etc., or any other hobby.
(iii) L-Remittanceforpurchase of lotterytickets, banned/prescribed magazines, football pools,
sweepstakes etc.
(iv) C-Payment of commission on exports made towards equity investment in Joint
Ventures/WhollyOwned Subsidiaries abroad of Indian companies.
(v) D-Remittance of dividend by any Co. to which the requirement of dividend balancing is
applicable.
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(vi) C-Payment of commission on exports under Rupee State Credit Route, except commission up
to 10% of invoice value of exports of tea and tobacco.
(vii) C-Payment related to ― Call Back Services of telephones.
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(viii) N-Remittance of interest income on funds held in Non -resident Special Rupee Scheme A/c.
Release of foreign exchange is not admissible for travel to and transaction with residents of Nepal and
Bhutan. However, the prohibition related to the transaction with residents of Nepal and Bhutan may
be exempted by RBI subject to such terms and conditions as it may consider necessary to stipulate by
special or general order.
2) Current account transaction with prior approval of Central Government- Schedule II

Rule 4
Prior approval of the Central Government (Restricted Transactions) is required for drawal of foreign
exchange by any person for the purposes listed below:
KEY : ATOM For PC3
This rule shall not apply where the payment is made out of funds held in Resident Foreign Currency
(RFC) Account of the remitter
Purpose of Remittance Permission granting authority

C – Cultural Tours Ministry of HRD
A – Advertisement in foreign print media for the Ministry of Finance, Departmrnt of
purpose other than promotion of tourism, foreign Economic Affairs.
investments and international bidding (exceeding US$
10,000) by a State Government and its PSU.
F –Remittance of Freightof vessel chartered by a PSU. Ministry of Surface Transport
O – Payment of import through ocean transport by a Ministry of Surface Transport
Government Department or a PSU on CIF basis.
M – Multi-modal transport operators making Registration Certificate from the Director
remittance to their agents abroad. General of Shipping
T – Remittance of hiring charges of transponders by-
(a) TV Channels Ministry of Information and Broadcasting
(b) Internet service providers Ministry of Communication and Information
Technology.
C – Remittance of container detention charges Director General of Shipping
exceeding the rate prescribed by Director General of
Shipping.
P – Remittance of prize money or sponsorship of Ministry of HRD.
sports activity abroad by a person other than
International or National or State Level sports bodies,
if the amount involved exceeds US$ 1,00,000.
C – Remittance for membership of P & I Club Ministry of Finance
3) Current account transaction with prior approval of RBI — Schedule III Rule 5
Prior approval of RBI is required for drawal of foreign exchange by any person forthe purposes listed
below:
Facilities for individuals—Individuals can avail of foreign exchange facility for the following purposes
within the limit of USD 250,000 only.:
(i) Private visits to any country (except Nepal and Bhutan)
(ii) Gift or donation.
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(iii) Going abroad for employment

(iv) Emigration
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(v) Maintenance of close relatives abroad

(vi) Travel for business, or attending a conference or specialised training or for meeting expenses for
meeting medical expenses, or check-up abroad, or for accompanying as attendant to a patient going
abroad for medical treatment/ check-up.
(vii) Expenses in connection with medical treatment abroad
(viii) Studies abroad
(ix) Any other current account transaction
Any additional remittance in excess of the said limit for the said purposes shall require prior approval
of the Reserve Bank of India.
However, for the purposes mentioned at item numbers (iv), (vii) and (viii) above, the individual may
avail of exchange facility for an amount in excess of the limit prescribed under the Liberalised
Remittance Scheme if it is so required by a country of emigration, medical institute offering treatment
or the university, respectively:
Further, if an individual remits any amount under the said LRS in a financial year, then the applicable
limit for such individual would be reduced from USD 250,000 by the amount so remitted:
Further, that for a person who is resident but not permanently resident in India and-
(a) is a citizen of a foreign State other than Pakistan; or
(b) is a citizen of India, who is on deputation to the office or branch of a foreign company or subsidiary
or joint venture in India of such foreign company,
may make remittance up to his net salary (after deduction of taxes, contribution to provident fund and
other deductions).
Explanation: For the purpose of this item, a person resident in India on account of his employment or
deputation of a specified duration (irrespective of length thereof) or for a specific job or assignments,
the duration of which does not exceed three years, is a resident but not permanently resident:
Further, a person other than an individual may also avail of foreign exchange facility, mutatis mutandis,
within the limit prescribed under the said Liberalised Remittance Scheme for the purposes mentioned
herein above.
2. Facilities for persons other than individual—The following remittances by persons other than
individuals shall require prior approval of the Reserve Bank of India:
(i) Donations exceeding one per cent. of their foreign exchange earnings during the previous three
financial years or USD 5,000,000, whichever is less, for-
a. creation of Chairs in reputed educational institutes,
b. contribution to funds (not being an investment fund) promoted by educational institutes; and
c. contribution to a technical institution or body or association in the field of activity of the donor
Company.
(ii) Commission, per transaction, to agents abroad for sale of residential flats or commercial plots in
India exceeding USD 25,000 or five percent of the inward remittance whichever is more.
(iii) Remittances exceeding USD 10,000,000 per project for any consultancy services in respect of
infrastructure projects and USD 1,000,000 per project, for other consultancy services procured from
outside India.
(iv) Remittances exceeding five per cent of investment brought into India or USD 100,000 whichever is
higher, by an entity in India by way of reimbursement of pre-incorporation expenses.
3. Procedure— The procedure for drawal or remittance of any foreign exchange under this schedule
shall be the same as applicable for remitting any amount under the said Liberalised Remittance
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Scheme.
If the transaction is not listed in any of the above three schedules, it can be freely undertaken.
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Exemption for remittance from RFC Account – No approval is required where any remittance has to
be made for the transactions listed in Schedule II and Schedule III above from an RFC account.
Exemption for remittance from EEFC Account – If any remittance has to be made for the transactions
listed in Schedule II and Schedule III above from EEFC account, then also no approval is required.
However, if payment has to be made for the following transactions, approval is required even if
payment is from EEFC account:
- Remittance for membership of P & I Club.
- Commission, per transaction, to agents abroad for sale of residential flats or commercial plots in
India exceeding USD 25,000 or 5% of the inward remittance whichever is more.
Remittances exceeding 5% of investment brought into India or USD 100,000 whichever is higher, by
an entity in India by way of reimbursement of pre-incorporation expenses.
Exemption for payment by International Credit Card while on a visit abroad –

If a person is on a visit abroad, he can incur expenditure stated in Schedule III if he incurs it through
International credit card.
Note: Liberalised Remittance Scheme (LRS): Under the Liberalised Remittance Scheme (LRS), all
resident individuals, including minors, are allowed to freely remit up to USD 250,000 per financial
year (April – March) for any permissible current or capital account transaction or a combination of
both.
In case of remitter being a minor, the LRS declaration form must be countersigned by the minor’s
natural guardian. The Scheme is not available to corporates, partnership firms, HUF, Trusts etc.
5 Capital account transactions (Section 6)

(for easier explanation – refer handbook of Prof. Harsh Kachalia)
(1) Subject to the provisions of sub-section (2), any person may sell or draw foreign exchange to or from
an authorised person for a capital account transaction.
(2) The Reserve Bank may, in consultation with the Central Government, specify:
(a) any class or classes of capital account transactions, which are permissible;
(b) the limit up to which foreign exchange shall be admissible for such transactions; Provided that the
Reserve Bank shall not impose any restriction on the drawal of foreign exchange for payments due on
account of amortisation of loans or for depreciation of direct investments in the ordinary course of
business.
(3) Without prejudicial to the generality of the provision of sub-section (2), the Reserve Bank may, by
regulations, prohibit, restrict or regulate the following:
(a) transfer or issue of any foreign security by a person resident in India;
(b) transfer or issue of any security by a person resident outside India;
(c) transfer or issue of any security or foreign security by any branch, office or agency in India of a person
resident outside India;
(d) any borrowing or lending in foreign exchange in whatever form or by whatever name called;
(e) any borrowing or lending in rupees in whatever form or by whatever name called between a person
resident in India and a person resident outside India;
(f) deposits between persons resident in India and persons resident outside India;
(g) export, import or holding of currency or currency notes;
(h) transfer of immovable property outside India, other than a lease not exceeding five years, by person
a resident in India;
(i) acquisition or transfer of immovable property in India, other than a lease not exceeding five years,
by a person resident outside India;
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(j) giving of a guarantee or surety in respect of any debt, obligation or other liability incurred by a person
resident in India and owed to a person resident outside India; or by a person resident outside India.
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6 Permissible Transactions
1)The list of permissible classes of transactions
made by persons resident in India is:
(a) Investment by a person resident in India in
foreign securities.
(b) Foreign currency loans raised in India and
abroad by a person resident in India.
(c) Transfer of immovable property outside India
by a person resident in India.
(d) Guarantees issued by a person resident in India
in favour of a person resident outside India.
(e) Export, import and holding of
currency/currency notes.
(f) Loans and overdrafts (borrowings) by a person
resident in India from a person resident outside India.
(g) Maintenance of foreign currency accounts in India and outside India by a person resident in India.
(h) Taking out of insurance policy by a person resident in India from an insurance Co. outside India.
(i) Loans and overdrafts by a person resident in India to a person resident outside India.
(j) Remittance outside India of capital assets of a person resident in India.
(k) Sale and purchase of foreign exchange derivatives in India and abroad and commodity, derivatives
abroad by a person resident in India.
2) The list of permissible classes of transactions made by persons resident outside India is:
(a) Investment in India by a person resident outside India, that is to say,
• issue of security by a body corporate or an entity in India and investment therein by a person resident
outside India; and
• investment by way of contribution by a person resident outside India to the capital of a firm or a
proprietorship concern or an association of a person in India.
(b)Acquisition and transfer of immovable property in India by a person resident outside India
**AMENDMENT-
A person resident in India may acquire immovable property outside India,-
-by way of gift or inheritance acquired by a person resident in India on or before 8th July 1947 and
continued to be held by him with the permission of the Reserve Bank.
-by way of purchase out of foreign exchange held in Resident Foreign Currency (RFC) account
-jointly with a relative who is a person resident outside India, provided there is no outflow of funds
from India
Note - A company incorporated in India having overseas
offices, may acquire immovable property outside India
for its business and for residential purposes of its staff, in
accordance with the direction issued by the Reserve Bank
of India from time to time.
(c) Guarantee by a person resident outside India in favour
of, or on behalf of, a person resident in India.
(d) Import and export of currency/currency notes
into/from India by a person resident outside India.
(e) Deposits between a person resident in India and a
person resident outside India.
(f) Foreign currency accounts in India of a person resident
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outside India.
(g) Remittance outside India of capital assets in India of a person resident outside India.
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7 PROHIBITED CAPITAL ACCOUNT TRANSACTIONS

Any person who is resident outside India can’t make investment in India, in any Co. or partnership firm
orproprietary concern or any entity, which is engaged:
• in the business of chit fund.
• as Nidhi Co..
• in agricultural or plantation activities.
• in real estate business (the term shall not include developments of
townships, construction of residential orcommercial premises, roads or
bridges and Real Estate Investment Trusts (REITs) registered andregulated
under the SEBI (REITs) Regulations 2014) or construction of farm houses;
• in trading in Transferable Development Rights (TDRs).
8 PROCEDURE RELATING TO EXPORT OF GOODS
Meaning of export
'Export' means-
(i) the taking out of India to a place outside India any goods; and (ii) provision of services from India to
any person outside India.
Declaration by an exporter of goods

• The declaration shall contain true and correct particulars.
• The declaration shall be made in the prescribed form and in the prescribed manner.
• The declaration shall indicate full export value of goods exported.
• The declaration shall indicate the expected export value of goods exported, if full export value is not
ascertainable at the time of export.
Declaration by an exporter of services

• The declaration shall contain true and correct particulars.
• The declaration shall be made in the prescribed form and in the prescribed manner.
Furnishing of information to RBI

• RBI may demand information from the exporter for the purpose of ensuring that the full export
proceeds are realised by the exporter.
• The exporter shall furnish such information to RBI.
Issue of directions by RBI

208
• RBI may direct any exporter to comply with such requirements as it deems fit, for the purpose of
ensuring that the full export proceeds are realised without any delay.
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• RBI may determine in a particular case, the reduced value of the export proceeds that may be
realised by the exporter.
8A Foreign Exchange Management (Exportof Goods & Services) Regulations, 2015

(17 Regulations to remember – for Simpler Explanation refer handwritten notes or Video of Prof. Harsh
Kachalia)
1. Short title and commencement:-

(i)These Regulations may be called the Foreign Exchange Management (Export of Goods and Services)
Regulations, 2015.
(ii)They shall come into force from the date of their publication in the Official Gazette.
2. Definitions:- Some definitions:
In these Regulations, unless the context requires otherwise,
(i) 'export' includes the taking or sending out of goods by
-land,
-sea or
-air,
-on consignment or by way of sale, lease, hire-purchase, or under any other arrangement by whatever
name called, and
-in the case of software, also includes transmission through any electronic media;
(ii) 'export value' in relation to export by way of lease or hire-purchase or under any other
similararrangement, includes the charges, by whatever name called, payable in respect of such lease or
hire-purchase or any other similar arrangement;
(iii) 'form' means form annexed to these Regulations;
(iv) 'software' means any computer programme, database, drawing, design, audio/video signals,
anyinformation by whatever name called in or on any medium other than inor on any physical medium;
(v) specified authority' meansthe person or the authority to whom the declaration as specified in
Regulation 3 is to be furnished;
3. Declaration of exports:-
(1) In case of exports taking place through Customs manual ports, exporter of goods or software
inphysical form or through any other form, either directly or indirectly, to any place outside India,other
than Nepal and Bhutan, shall furnish, a declaration in one of the forms set out in the Scheduleand
supported by such evidence as may be specified, containing true and correct material particulars
including the amount representing –
(i) the full export value of the goods or software;or
(ii) if the full export value is not ascertainable at the time of export, the value which the exporter, having
regard to the prevailing market conditions expects to receive on the sale of the goods or the software in
overseas market, and affirms in the said declaration that the full export value of goods (whether
ascertainable at the time of export or not) or the software has been or will within the specified period
be, paid in the specified manner.
(2) Declarations shall be executed in sets of such number as specified.
(3) For the removal of doubt, it is clarified that, in respect of export of services to which none of the
Forms specified in these Regulations apply, the exporter may export such services without furnishing
any declaration, but shall be liable to realise the amount of foreign exchange which becomes due or
accrues on account of such export, and to repatriate the same to India in accordance with theprovisions
of the Act, and these Regulations, as also other rules and regulations made under the Act.
209
(4) Realization of export proceeds in respect of export of goods / software from third party should
beduly declared by the exporter in the appropriate declarationform.
Page
4. Exemptions:-
Notwithstanding anything contained in Regulation 3, export of goods / software may be made without
furnishing the declaration in the following cases, namely:
(a) trade samples of goods and publicity material supplied free ofpayment;
(b) personal effects of travellers, whether accompanied orunaccompanied;
(c) ship's stores, trans-shipment cargo and goods supplied under the orders of Central Government or
of such officers as may be appointed by the Central Government in this behalf or of the military, navalor
air force authorities in India for military, naval or air force requirements;
(d) by way of gift of goods accompanied by a declaration by the exporter that they are not more than
five lakh rupees in value
(e) aircrafts or aircraft engines and spare parts for overhauling and/or repairs abroad subject to their
reimport into India after overhauling /repairs, within a period of six months from the date of their
export;
(ea) re-export of leased aircraft/ helicopter and/or engines/auxiliary power units (APUs) re-possessed by
overseas lessor and duly de-registered by the Directorate General of Civil Aviation (DGCA) on the
request of Irrevocable Deregistration and Export Request Authorisation (IDERA) holder under ‘Cape
Town Convention’ subject to permission by DGCA/Ministry of Civil Aviation for such export/s.
(f) goods imported free of cost on re-export basis;
(g) the following goods which are permitted by the Development Commissioner of the Special
Economic Zones, Electronic Hardware Technology Parks, Software Technology Parks or Free Trade
Zones to be re-exported, namely:
(1) imported goods found defective, for the purpose of their replacement by the foreign
suppliers/collaborators;
(2) Goods imported from foreign suppliers/collaborators on loan basis;
(3) Goods imported from foreign suppliers/collaborators free of cost, found surplus after production
operations.
(ga) goods listed at items (1), (2) and (3) of clause (i) to be re-exported by units in Special Economic
Zones, under intimation to the Development Commissioner of Special Economic Zones / concerned
Assistant Commissioner or Deputy Commissioner of Customs
(h) replacement goods exported free of charge in accordance with the provisions of Foreign Trade
Policy in force, for the time being.
(i) goods sent outside India for testing subject to re-import into India;
(j) defective goods sent outside India for repair and re-import provided the goods are accompanied by
a certificate from an authorised dealer in India that the export is for repair and re-import and that the
export does not involve any transaction in foreign exchange.
(k) exports permitted by the Reserve Bank, on application made to it, subject to the terms and
conditions, if any, as stipulated in the permission.
5.Indication of importer-exporter code number:-

The importer-exporter code number allotted by the Director General of Foreign Trade under Section
7 of the Foreign Trade (Development & Regulation) Act, 1992 (22 of 1992) shall be indicated on all
copies of the declaration forms submitted by the exporter to the specified authority and in all
correspondence of the exporter with the authorised dealer or the Reserve Bank, as the case may be.
6.Authority to whom declaration is to be furnished and the manner of dealing with the
declaration:-
A. Declaration in Form EDF
(i)The declaration in form EDF shall be submitted in duplicate to the Commissioner of Customs.
(ii)After duly verifying and authenticating the declaration form, the Commissioner of Customs shall
210
forward the original declaration form/data to the nearest office of the Reserve Bank and hand over the
duplicate form to the exporter for being submitted to the authorised dealer.
Page
B.Declaration in Form SOFTEX

(i)The declaration in Form SOFTEX in respect of export of computer software and audio/video/
television software shall be submitted in triplicate to the designated official of Ministry of Information
Technology, Government of India at the Software Technology Parks of India (STPIs) or at the Free
Trade Zones (FTZs) or Special Economic Zones (SEZs) in India.
(ii)After certifying all three copies of the SOFTEX form, the said designated official shall forward the
original directly to the nearest office of the Reserve Bank and return the duplicate to the exporter. The
triplicate shall be retained by the designated official for record.
C. Duplicate Declaration Forms to be retained with Authorised Dealers

On the realisation of the export proceeds, the duplicate copies of export declaration forms viz. EDF
and SOFTEX and Exchange Control copies of the shipping bills shall be retained by the Authorised
Dealers.
7. Evidence in support of declaration:-

The Commissioner of Customs or the postal authority or the official of Department of Electronics, to
whom the declaration form is submitted, may, in order to satisfy themselves of due compliance with
Section 7 of the Act and these regulations, require such evidence in support of the declaration as may
establish that –
(a)the exporter is a person resident in India and has a place of business in India;
(b) the destination stated on the declaration is the final place of the destination of the goods exported;
(c)the value stated in the declaration represents –
(i)the full export value of the goods or software;or
(ii) where the full export value of the goods or software is not ascertainable at the time of export, the
value which the exporter, having regard to the prevailing market conditions expects to receive on the
sale of the goods in the overseas market.
**For the purpose of this regulation, 'final place of destination' means a place in a country in which
thegoods are ultimately imported and cleared through Customs of that country.
8. Manner of payment of export value of goods:-

Unless otherwise authorised by the Reserve Bank, the amount representing the full export value of the
goods
exported shall be paid through an authorised dealer in the manner specified in the Foreign Exchange
Management
(Manner of Receipt and Payment) Regulations, 2000 as amended from time to time.
**For the purpose of this regulation, re-import into India, within the period specified for realisation of
the export value, of the exported goods in respect of which a declaration was made under Regulation 3,
shall be deemed to be realisation of full export value of such goods.
9. Period within which export value of goods/software/services to be realised:-

(1) The amount representing the full export value of goods / software/ services exported shall be realised
and repatriated to India within nine months or within such period as may be specified by the Reserve
Bank, in consultation with the Government, from time to time, from the date of export, provided
(a) that where the goods are exported to a warehouse established outside India with the permission of
the Reserve Bank, the amount representing the full export value of goods exported shall be paid to the
authorised dealer as soon as it is realised and in any case within 15 months or within such period as may
be specified by the Reserve Bank, in consultation with the Government, from time to time from the
date of shipment of goods;
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(b) further that the Reserve Bank, or subject to the directions issued by that Bank in this behalf, the
authorised dealer may, for a sufficient and reasonable cause shown, extend the said period.
Page
(2) (a) Where the export of goods / software / services has been made by Units in Special Economic
Zones (SEZ) / Status Holder exporter / Export Oriented Units (EOUs) and units in Electronics
Hardware Technology Parks (EHTPs), Software Technology Parks (STPs) and Bio-Technology Parks
(BTPs) as defined in the Foreign Trade Policy in force, then notwithstanding anything contained in sub-
regulation (1), the amount representing the full export value of goods or software shall be realised and
repatriated to India within nine months or within such period as may be specified by the Reserve Bank,
in consultation with the Government, from time to time, from the date of export.
Provided further that the Reserve Bank, or subject to the directions issued by the Bank in this behalf,
the authorised dealer may, for a sufficient and reasonable cause shown, extend the said period.
(b) The Reserve Bank may for reasonable and sufficient cause direct that the said exporter/s shall cease
to be governed by sub-regulation (2);
Provided that no such direction shall be given unless the unit has been given a reasonable opportunity
to make a representation in the matter.
(c) On such direction, the said exporter/s shall be governed by the provisions of sub-regulation (1), until
directed otherwise by the Reserve Bank.'
Explanation: For the purpose of this regulation, the “date of export” in relation to the export of software
in other than physical form, shall be deemed to be the date of invoice covering such export.
10. Submission of export documents:-

The documents pertaining to export shall be submitted to the authorised dealer mentioned in the
relevant export declaration form, within 21 days from the date of export, or from the date of certification
of the SOFTEX form:
Provided that, subject to the directions issued by the Reserve Bank from time to time, the authorized
dealer may accept the documents pertaining to export submitted after the expiry of the specified period
of 21 days, for reasons beyond the control of the exporter.
11. Transfer of documents:-

Without prejudice to Regulation 3, an authorised dealer may accept, for negotiation or collection,
shipping documents including invoice and bill of exchange covering exports, from his constituent (not
being a personwho has signed the declaration in terms of Regulation 3).
Provided that before accepting such documents for negotiation or collection, the authorised dealer shall
–
(a)where the value declared in the declaration does not differ from the value shown in the
documentsbeing negotiated or sent for collection,
(b) or where the value declared in the declaration is less than the value shown in the documents being
negotiated or sent for collection, require the constituent concerned also to sign such declaration and
thereupon such constituent shall be bound to comply with such requisition and such constituent signing
the declaration shall be considered to be the exporter for the purposes of these Regulations to the extent
of the full value shown in the documents being negotiated or sent for collection and shall be governed
by these Regulations accordingly.
12. Payment for the Export:-

In respect of export of any goods or software for which a declaration is required to be furnished under
Regulation 3, no person shall except with the permission of the Reserve Bank or, subject to the
directions of the Reserve Bank, permission of an authorised dealer, do or refrain from doing anything
or take or refrain from taking any action which has the effect of securing –
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(i) that the payment for the goods or software is made otherwise than in the specified manner; or
(ii) that the payment is delayed beyond the period specified under these Regulations;or
Page
(iii) that the proceeds of sale of the goods or software exported do not represent the full export value of
the goods or software subject to such deductions, if any, as may be allowed by the Reserve Bank or,
subject to the directions of the Reserve Bank, by an authorised dealer;
Provided that no proceedings in respect of contravention of these provisions shall be instituted unless
the specified period has expired and payment for the goods or software representing the full export
value, or the value after deductions allowed under clause (iii), has not been made in the specified manner
within the specified period.
(iv) Export of services to which no Form specified in these Regulations apply, the exporter may export
such services without furnishing any declaration, (i), (ii) & (iii) above shall apply.
13. Certain Exports requiring prior approval:- Exports under trade agreement/rupee credit etc.
(i) Export of goods under special arrangement between the Central Government and Government of a
foreign state, or under rupee credits extended by the Central Government to Govt. of a foreign state
shall be governed by the terms and conditions set out in therelative public notices issued by theTrade
ControlAuthority in India and the instructions issued from time to time by the Reserve Bank.
(ii) An export under the line of credit extended to a bank or a financial institution operating in a
foreign state by the Exim Bank for financing exports from India, shallbe governed by the terms
andconditions advised by the Reserve Bank to the authorised dealers from time to time.
14. Delay in Receipt of Payment:-Where in relation to goods or software export of which is

required tobe declared on the specified form and export of services, in respect of which no
declaration forms has been made applicable, the specified period has expired and the payment
therefor has not been made as aforesaid, the Reserve Bank may give to any person who has sold the
goods or software or who is entitled to sell the goods or software or procure the sale thereof, such
directions as appear to it to be expedient, for the purpose of securing,
(a) the payment therefor if the goods or software has been sold and
(b) the sale of goods and payment thereof, if goods or software has not been sold or reimport thereof
into India as the circumstances permit, within such period as the Reserve Bank may specify in this
behalf; that omission of the Reserve Bank to give directions shall not have the effect of absolving the
person committing the contravention from the consequences thereof.
15. Advance payment against exports:-

(1) Where an exporter receives advance payment (with or without interest), from a buyer / third
partynamed in the export declaration made by the exporter, outside India, the exporter shall be under
an obligation to ensure that –
(i) the shipment of goods is made within one year from the date of receipt of advance payment;
(ii) the rate of interest, if any, payable on the advance payment does not exceed the rate of interest
London Inter-Bank Offered Rate (LIBOR) + 100 basis points and
(iii) the documents covering the shipment are routed through the authorised dealer through whom the
advance payment is received;
Provided that in the event of the exporter's inability to make the shipment, partly or fully, within one
year from the date of receipt of advance payment, no remittance towards refund of unutilized portion
of advance payment or towards payment of interest, shall be made after the expiry of the period of one
year, without the prior approval of the Reserve Bank.
(2) Notwithstanding anything contained in clause (i) of sub-regulation (1), an exporter may receive
advance payment where the export agreement itself duly provides for shipment of goods
extendingbeyond the period of one year from the date of receipt of advance payment.
16. Issue of directions by Reserve Bank in certain cases:-

213
(1) Without prejudice to the provisions of Regulation 3 in relation to the export of goods or software
which is required to be declared, the Reserve Bank may, for the purpose of ensuring that the full export
value of the goods or, as the case may be, the value which the exporter having regard to the prevailing
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market conditions expects to receive on the sale of goods or software in the overseas market, is received
in proper time and without delay, by general or special order, direct from time to time that in respect
of export of goods or software to any destination or any class of export transactions or any class of goods
or software or class of exporters, the exporter shall, prior to the export, comply with the conditions as
may be specified in the order, namely ;
(a) that the payment of the goods or software is covered by an irrevocable letter of credit or by such
other arrangement or document as may be indicated in the order ;
(b) that any declaration to be furnished to the specified authority shall be submitted to the authorised
dealer for its prior approval, which may, having regard to the circumstances, be given or withheld or
may be given subject to such conditions as may be specified by the Reserve Bank by directions issued
from time to time.
(c) that a copy of the declaration to be furnished to the specified authority shall be submitted to such
authority or organisation as may be indicated in the order for certifying that the value of goods or
software specified in the declaration represents the proper value thereof.
(2) No direction under sub-regulation (1) shall be given by the Reserve Bank and no approval under
clause(b)of that sub-regulation shall be withheld by the Authorised Dealer, unless the exporter has been
given a reasonable opportunity to make a representation in the matter.
17. Project exports:-

(1) Where an export of goods or services is proposed to be made on deferred payment terms or in
execution of a turnkey project or a civil construction contract, the exporter shall, before enteringinto
any such export arrangement, submit the proposal for prior approval of the approving authority,which
shall consider the proposal in accordance with the guidelines issued by the Reserve Bank of India from
time to time.
(2) In case a guarantee is required to be given prior to post award approval, the same may be issued by
an authorized dealer bank/ a person resident in India being an exporting company, for performance of
a project outside India, or for availing of credit facilities, whether fund-based or non-fund based, from
a bank or a financial institution outside India in connection with the execution of such project, provided
that the contract / Letter of Award stipulates such requirements.
Explanation:
For the purpose of this Regulation, 'approving authority' means the EXIM Bank of India or the
authorised dealer.
9. REALISATION AND REPATRIATION OF FOREIGN EXCHANGE (Sec. 8)

- Where any amount of foreign exchange is due or has accrued to a PRI, such PRI shall take all
reasonable steps to realise and repatriate to India -
- the whole amount of such foreign exchange
- within the period specified by RBI
- in the manner specified by RBI.
Meaning of Repatriation Sec.2(y)
- 'Repatriate to India' means bringing into India the realised foreign exchange and -
(i) the selling of such foreign exchange to an AP in India in exchange for Rupees or
(ii) the holding of realised amount in an account with an AP in India to the extent notified by RBI.
- 'Repatriate to India' includes use of the realised amount for discharge of a debt or liability denominated
in foreign exchange.
10 PENALTY
Sec.11- If AP contravenes any directions of RBI or does not file return as required by RBI :
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Fine upto Rs. 10,000

And Fine upto Rs. 2,000 per day until default continues
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Sec 13- Any contravention by anybody of any provision of this Act,

any rule, regulation, notification or conditions imposed, directions
given etc. :
a) If amount is Identifiable – Upto 3 times the amount involved
b) If amount is NOT Identifiable – Fine upto Rs. 200,000
and
Rs. 5000 per day until the default continues (for both cases)
Sec 14 - Failure to pay penalty as above:

(a) If demand of the amount is more then Rs. 1 Crore then Imprisonment upto 3 years
(b) Otherwise Imprisonment upto 6 months
**Defaulter will be released if the payment is made after Imprisonment.
11 EXEMPTION FROM RELAISATION AND REPATRIATION IN CERTAIN CASES

Sr. No. Nature of Exemption Conditions/ limits
a. Possession of foreign currency or foreign coins. Upto the limit specified by
RBI
b. Holding amount in foreign currency account in specified Upto the limit specified by
manner RBI
c. Foreign exchange acquired from- Upto the limit specified by
■ employment, services, honorarium RBI
■ business, trade, vocation,
■ gifts, inheritance or any other legitimate means.
d. Foreign exchange acquired before 8.7.1947, including any As per general or special
income arising thereon. permission granted by RBI
e. Foreign exchange (including any income arising thereon) Upto the limit specified by
acquired by way of gift or inheritance from a person who RBI
acquired such foreign exchange –
■ with the general or special permission of RBI.
f. Other receipts As specified by RBI
12 Procedure for Adjudication:

(1)Adjudicating Authority (AA):
(i)Appointed by CG to impose penalty
(ii)AA should try to dispose off complaints within 1 year
(iii)He should give Opportunity of being heard to accused
(iv)He can take complaints only when given in writing by an officer authorised by CG
(2) He should given OOBH by showing show cause notice. The accused should be given atleast 10
days time to reply.
(3) Procedure of Enquiry:

(1) Consider the reply
(2) Fix a date for hearing
(3) At the hearing accuse may appear a person take assistance or legal representative
(4) AA shall explained alleged contravention
(5) He should give OOBH to produce documents & evidence
(6) He may enforce attendance of any person
(7) He may also pass order ex-party
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(8) He may order such penalty as he may deems fit.

# No appeal to Supreme Court
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Overseas Direct Investment

I) Mode of Direct Investment Outside India
1) Automatic route for Direct Investment or 2) Approval route for direct investment or
Financial Commitment outside India financial commitment outside India
1) Automatic Route:
 
wants to
Invest
Indian Entity (I.E.) Foreign Entity (WOS/JV)
➔ I.E. → Apply to AD in form ODI + Enclosures
➔ I.E. = Must Not be on Defaulters list of RBI
Exception: N.A. if invested out of funds from EEFC A/c / ADR’s / GRD’s
➔ All transactions of I.E. = Only through / Branch of AD.
➔ Total FC allowed for I.E. = Max. 400% of NW (PUSC + FR)

Excess = go to “Approval Route”
➔ Max. Financial Commitment* Allowed = $ 1 Billion / FY

Excess = RBI Approval (“Approval Route”)
* Financial Commitment shall comprise of the following: (GOLE PB)

a) 100% of Amt. of Eq. Shs./Compulsory Conv. Pref. Shs.
b) 100% of Amt. of Other Pref. Shs.
c) 100% of Amt. of Loan
d) 100% of Amt. of Guar. Issued by Indian Party (Not performance guarantee)
e) 100% of Amt. of Bank Guarantee issued by Resident
f) 50% of Amt. of Performance Guarantee.
(2) Approval route for direct investment or financial commitment outside India
(i) Prior approval of the RBI would be required in all other cases of direct investment (or financial
commitment) abroad.
(ii) RBI would, inter alia, take into account the following factors while considering such applications:
(V – FEB)
a) Prima facie viability of the JV / WOS outside India;
b) Financial position and business track record of the Indian Party and the foreign entity;
c) Expertise and experience of the Indian Party in the same or related line of activity as of the JV /
WOS outside India.
d) Contribution to external trade and other benefits which will accrue to India through such
investment (or financial commitment) and
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Therefore, under the approval route prior approval of the RBI would be required in Form ODI with
the documents prescribed therein to be made through the Authorized Dealer Category – I banks.
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• Overseas Direct Investments by resident individuals:

- A resident individual satisfying the criteria as per Schedule V of the Notification, may make overseas
direct investment in the equity shares and compulsorily convertible preference shares of a Joint
Venture (JV) or Wholly Owned Subsidiary (WOS) outside India.
- The limit of overseas direct investment by the resident individual shall be within the overall limit
prescribed by the RBI under the provisions of Liberalised Remittance Scheme, as prescribed by the
RBI from time to time. (Current Account Transations)
Prohibitions on direct investment in abroad by an Indian party:

(a) Indian Parties are prohibited from making investment (or financial commitment) in foreign entity
engaged in real estate (meaning buying and selling of real estate or trading in Transferable
Development Rights (TDRs) but does not include development of townships, construction of
residential/commercial premises, roads or bridges) or banking business, without the prior approval of
the RBI.
(b) An overseas entity, having direct or indirect equity participation by an Indian Party, shall not offer
financial products linked to Indian Rupee (e.g. non-deliverable trades involving foreign currency,
rupee exchange rates, stock indices linked to Indian market, etc.) without the specific approval of the
RBI.
General Permission: General permission has been granted to persons residents in India for purchase /
acquisition of securities in the following manner:
(a) out of the funds held in RFC account;
(b) as bonus shares on existing holding of foreign currency shares; and
(c) when not permanently resident in India, out of their foreign currency resources outside India.
Note : General permission is also available to sell the shares so purchased or acquired.
Import of Goods and Services (New Concept)

- Import of Goods and Services into India is being allowed in terms of Foreign Exchange
Management (Current Account Transaction) Rules, 2000.
- Import trade is regulated by the DGFT under the Ministry of Commerce & Industry, Department of
Commerce, Government of India.
- Authorised Dealer Category – I banks should ensure that the imports into India are in conformity
with the Foreign Trade Policy in force and FEM (Current Account Transactions) Rules, 2000 and the
Directions issued by RBI under FEMA, 1999 from time to time.
General Guidelines for Imports :

(1) General Guidelines: Where specific regulations do not exist, AD may be governed by normal
trade practices and it may particularly adhere to "Know Your Customer" (KYC) guidelines (issued by
Reserve Bank) in all their dealings.
(2) Remittances for Import Payments: AD may allow remittance for making payments for
imports into India, after ensuring that all the requisite details are made available by the importer and
the remittance is for bona fide trade transactions as per applicable laws in force.
(3) Obligation of Purchaser of Foreign Exchange: Following are the obligation of the
purchaser to be complied with:
(i) Utilization of acquired Foreign Exchange for the said purpose: Any person acquiring
foreign exchange is permitted to use it :
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a) for the purpose mentioned in the declaration made by him to an Authorised or

b) for any other purpose which is permissible under the said Act or Rules or Regulations framed there
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under.
(ii) Evidence of import: Where foreign exchange acquired has been utilised for import of goods
into India, the AD should ensure that the importer furnishes evidence of import viz., as in IDPMS,
Postal Appraisal Form or Customs Assessment Certificate, etc., and satisfy himself that goods
equivalent to the value of remittance have been imported.
AD should ensure that all import remittances outstanding on the notified date of IDPMS are
uploaded in IDPMS (Import Data Processing and Monitoring System).
(iii) Mode of payment: A person resident in India may make payment for import of goods in
foreign exchange through-
• an international card held by him/in rupees from international credit card/ debit card through bank
in India against the charge slip signed by the importer, or
• as prescribed by Reserve Bank from time to time, provided that the transaction is in conformity
with the extant provisions and the import is in conformity with the Foreign Trade Policy in force.
(iv) Other mode: Any person resident in India may also make payment as under :
(a) In rupees towards expenses of boarding, lodging and services related thereto or travel to and from
and within India of a person resident outside India who is on a visit to India;
(b) By means of a crossed cheque or a draft as consideration for purchase of gold or silver in any form
imported by such person in accordance with the terms and conditions imposed under any order
issued by the Central Government;
(c) A company or resident in India may make payment in rupees to its non-whole time director who is
resident outside India and is on a visit to India for the company’s work and is entitled to payment of
sitting fees or commission or remuneration, and travel expenses to and from and within India, in
accordance with the provisions contained in the company’s Memorandum of Association or Articles
of Association or in any agreement entered into it or in any resolution passed by the company in
general meeting or by its Board of Directors, provided the requirement of any law, rules, regulations,
directions applicable for making such payments are duly complied with.
(4) Time Limit for Settlement of Import Payments:

(i) Time limit for Normal Imports:
(a) Remittances against imports should be completed not later than six months from the date of
shipment, except in cases where amounts are withheld towards guarantee of performance, etc.
(b) AD may permit settlement of import dues delayed due to disputes, financial difficulties, etc.
However, interest if any, on such delayed payments, usance bills (a bill of exchange which allows the
drawee to have period of credit or term) or overdue interest is payable only for a period of up to three
years from the date of shipment at the rate
prescribed for trade credit from time to time.
(ii) Time Limit for Deferred Payment Arrangements: Deferred payment arrangements (including
suppliers’ and buyers’ credit) upto five years, are treated as trade credits for which the procedural
guidelines as laid down in the Master Circular for External Commercial Borrowings and Trade
Credits may be followed.
(5) Extension of Time:

(i) limit of extension: AD can consider granting extension of time for settlement of import dues up to
a period of six months at a time (maximum up to the period of three years) .
(ii) Circumstances: While granting extension of time, AD must ensure that:
a. The import transactions covered by the invoices are not under investigation by Directorate of
Enforcement / Central Bureau of Investigation or other investigating agencies;
218
b. While considering extension beyond one year from the date of remittance, the total outstanding of
the importer does not exceed USD one million or 10 percent of the average import remittances
Page
during the preceding two financial years, whichever is lower;

and
c. Where extension of time has been granted by the AD, the date up to which extension has been
granted may be indicated in the ‘Remarks’ column.
(iii) In exceptional cases: Cases not covered by the above instructions / beyond the above limits,
may be referred to the concerned Regional Office of Reserve Bank of India.
(iv) Noting of the extension: The above extension period shall be reported in IDPMS as per
message “Bill of Entry Extension” and the date up to which extension is granted will be indicated in
“Extension Date” column.
(6) Import of Foreign Exchange / Indian Rupees:

(i) Except as otherwise provided in the Regulations, no person shall, without the general or special
permission of the Reserve Bank, import or bring into India, any foreign currency, including cheques.
(ii) Reserve Bank may allow a person to bring into India currency notes of Government of India and /
or of Reserve Bank subject to such terms and conditions as the Reserve Bank may stipulate.
(7) Import of Foreign Exchange into India: A person may–

(i) Send into India, without limit, foreign exchange in any form (other than currency notes, bank notes
and travellers cheques);
(ii) Bring into India from any place outside India, without limit, foreign exchange (other than unissued
notes), subject to the condition that such person makes, on arrival in India, a declaration to the
Custom Authorities at the Airport in the Currency Declaration Form (CDF) annexed to these
Regulations;
Provided further that it shall not be necessary to make such declaration where the aggregate value of
the foreign exchange in the form of currency notes, bank notes or travellers cheques brought in by
such person at any one time does not exceed USD 10,000 (US Dollars ten thousand) or its equivalent
and/or the aggregate value of foreign currency notes (cash portion) alone brought in by such person at
any one time does not exceed USD 5,000 (US Dollars five thousand) or its equivalent.
(8) Import of Indian Currency and Currency Notes

(i) Any person resident in India who had gone out of India on a temporary visit, may bring into India
at the time of his return from any place outside India (other than from Nepal and Bhutan), currency
notes of Government of India and Reserve Bank of India notes up to an amount not exceeding Rs.
25,000 (Rupees twenty five thousand only).
(ii) A person may bring into India from Nepal or Bhutan, currency notes of Government of India and
Reserve Bank of India for any amount in denominations up to Rs.100/-.
(9) Issue of Guarantees by an Authorised Dealer:

(i) An authorised dealer may give a guarantee in respect of any debt, obligation or other liability
incurred by a person resident in India and owned to a person resident outside India, as an importer,
in respect of import on deferred payment terms in accordance with the approval by the Reserve Bank
of India for import on such terms.
(ii) An authorised dealer may give guarantee, Letter of Undertaking or Letter of Comfort in respect of
any debt, obligation or other liability incurred by a person resident in India and owned to a person
resident outside India (being an overseas supplier of goods, bank or a financial institution), for import
of goods, as permitted under the Foreign Trade Policy announced by Government of India from time
to time and subject to such terms and conditions as may be specified by Reserve Bank of India from
219
time to time.
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(iii) An authorised dealer may, in the ordinary course of his business, give a guarantee in favour of a
non-resident service provider, on behalf of a resident customer who is a service importer, subject to
such terms and conditions as stipulated by Reserve Bank of India from time to time:
Limit of providing guarantee:
(iv) An authorised dealer may, subject to the directions issued by the Reserve Bank of India in this
behalf, permit a person resident in India to issue corporate guarantee in favour of an overseas lessor
for financing import through operating lease effected in conformity with the Foreign Trade Policy in
force and under the provisions of the Foreign exchange Management (Current Account Transactions)
Rules, 2000, and the Directions issued by Reserve Bank of India under Foreign Exchange
Management Act, 1999 from time to time.
220
Page
External Commercial Borrowings – (ECB)

Sr. Parameters FCY denominated ECB INR denominated ECB
No
.
i Currency of Any freely convertible Foreign Currency Indian Rupee (INR)
borrowing
ii Forms of Loans including bank loans; Loans including bank loans;
ECB floating/fixed rate notes/ bonds/ floating/ fixed rate notes/ bonds/
debentures (other than fully and debentures/ preference shares
compulsorily convertible instruments); (other than fully and compulsorily
Trade credits beyond 3 years; FCCBs; convertible instruments); Trade
FCEBS and Financial Lease. credits beyond 3 years; and
Financial Lease. Also, plain vanilla
Rupee denominated bonds issued
overseas, which can be either
placed privately or listed on
exchanges as per host country
regulations.
iii Eligible All entities eligible to receive FDI. a) All entities eligible to raise FCY
borrowers Further, the following entities are also ECB; and
eligible to raise ECB: Registered entities engaged in
i. Port Trusts; micro-finance activities, viz.,
ii. Units in SEZ; registered Not for Profit
iii. SIDBI; and companies, registered societies
/trusts/cooperatives and Non-
iv. EXIM Bank of India. Government Organisations.
iv. Recognised The lender should be resident of FATF
lenders or IOSCO compliant country, including
on transfer of ECB. However,
a) Multilateral and Regional Financial
Institutions where India is a member
country will also be considered as
recognised lenders;
b) Individuals as lenders can only be
permitted if they are foreign equity
holders or for subscription to bonds/
debentures listed abroad; and
c) Foreign branches / subsidiaries of
Indian banks are permitted as recognised
lenders only for FCY ECB (except
FCCBs and FCEBs).
Foreign branches / subsidiaries of Indian
banks, subject to applicable prudential
norms, can participate as arrangers /
underwriters / market-makers / traders
for Rupee denominated Bonds issued
221
overseas. However, underwriting by

foreign branches / subsidiaries of Indian
Page
banks for issuances by Indian banks will

not be allowed.
v Minimum MAMP for ECB will be 3 years. Call and put options, if any, shall not be
Average exercisable prior to completion of minimum average maturity. However, for
Maturity the specific categories mentioned below, the MAMP will be as prescribed
Period therein:
(MAMP)
Sr.N Category MAMP
o.
(a) ECB raised by manufacturing companies up to 1 year
USE 50 million or its equivalent per financial
year.
(b) ECB raised from foreign equity holder for 5 years
working capital purposes, general corporate
purposes or for repayment of Rupee loans
7
(c) FCB raised for 10 years
(i) working capital purposes or general corporate
purposes
(ii) on-lending by NBFCs for working capital
purposes or general corporate purposes
(d) ECB raised for 7 years
(i) repayment of Rupee loans availed
domestically for capital expenditure
(ii) on-lending by NBFCs for the same purpose
(e) ECB raised for 10 years
(i) repayment of Rupee loans availed
domestically for purposes other than capital
expenditure
(ii) on-lending by NBFCs for the same purpose
For the categories mentioned at (b) to (e) –
(i) ECB cannot be raised from foreign branches / subsidiaries of Indian banks
(ii) the prescribed MAMP will have to be strictly complied with under all
circumstances.
vi. All-in-cost Benchmark rate plus 450 bps spread.
ceiling per
annum
vii Other costs Prepayment charge/ Penal interest, if any, for default or breach of covenants,
should not be more than 2 per cent over and above the contracted rate of
interest on the outstanding principal amount and will be outside the all-in-cost
ceiling.
viii End-uses The negative list, for which the ECB proceeds cannot be utilised, would include
(Negative the following:
list) a) Real estate activities.
b) Investment in capital market
222
c) Equity investment
Page
d) 8Working capital purposes, except in case of ECB mentioned at v(b) and v(c)
above.
e) General corporate purposes, except in case of FCB mentioned at v(b) and
v(c) above
f) Repayment of Rupee loans, except in case of ECB mentioned at v(d) and v(e)
above.
g) On-lending to entities for the above activities, except in case of ECB raised
by NBFCs as given at v(c), v(d) and v(e) above.
ix Exchange Change of currency of FCY ECB into INR ECB For conversion to Rupee,
rate can be at the exchange rate prevailing on the the exchange rate shall be
date of the agreement for such change between the rate prevailing on the
the parties concerned or at an exchange rate, date of settlement.
which is less than the rate prevailing on the date
of the agreement, if consented to by the ECB
lender.
x Hedging The entities raising ECB are required to follow Overseas investors are
provision the guidelines for hedging issued, if any, by the eligible to hedge their
concerned sectoral or prudential regulator in exposure in Rupee through
respect of foreign currency exposure. permitted derivative
Infrastructure space companies shall have a products with AD Category
Board approved risk management policy. I banks in India. The
Further, such companies are required to investors can also access the
mandatorily hedge 70 per cent of their ECB domestic market through
exposure in case the average maturity of the branches / subsidiaries of
ECB is less than 5 years. The designated AD Indian banks abroad or
Category-I bank shall verify that 70 per cent branches of foreign banks
hedging requirement is complied with during with Indian presence on
the currency of the ECB and report the position back to back basis.
to RBI through Form ECB 2. The following
operational aspects with respect to hedging
should be ensured:
a. Coverage: The ECB borrower will be
required to cover the principal as well as the
coupon through financial hedges.
b. Tenor and rollover: A minimum tenor of one
year for the financial year hedge would be
required with periodic rollover, duly ensuring
that the exposure on account of ECB is not
unhedged at any point during the currency of the
ECB.
c. Natural Hedge: Natural hedge in lieu of
financial hedge, will be considered only to the
extent of offsetting projected cash flows/
revenues in matching currency, net of all other
projected outflows. For this purpose, an ECB
may be considered naturally hedged if the
offsetting exposure has the maturity / cash flow
223
within the same accounting any other

arrangements / structures, where revenues are
Page
indexed to foreign currency will not be

considered as a natural hedge.
xi Change of Change of currency of ECB from one freely Change of currency from
currency of convertible foreign currency to any other freely INR to any freely
borrowing convertible foreign currency as well as to INR is convertible foreign
freely permitted. currency is not permitted.
Limit and leverage:
Under the aforesaid framework, all eligible borrowers can raise ECB up to USD 750 million or
equivalent per financial year under the automatic route.
Further, in case of FCY denominated ECB raised from direct foreign equity holder, ECB liability-
equity ratio for ECB raised under the automatic route cannot exceed 7:1. if the outstanding amount of
all ECB, including the proposed one, is up to USD 5 million or its equivalent.
Issuance of Guarantee, etc. by Indian banks and Financial Institutions:

Issuance of any type of guarantee by Indian banks, All India Financial Institutions and NBFCs relating
to ECB is not permitted.
Parking of ECB proceeds: ECB proceeds are permitted to be parked abroad

as well as domestically in the manner given below:
Parking of ECB proceeds abroad:
ECB proceeds meant only for foreign currency expenditure can be parked abroad pending utilisation.
Till utilisation, these funds can be invested in the following liquid assets :
(a) deposits or Certificate of Deposit or other products offered by banks rated not less than AA (-) by
Standard and Poor/Fitch IBCA or Aa3 by Moody’s;
(b) Treasury bills and other monetary instruments of one-year maturity having minimum rating as
indicated above and
(c) deposits with foreign branches/subsidiaries of Indian banks abroad.
Parking of ECB proceeds domestically:

ECB proceeds meant for Rupee expenditure should be repatriated immediately for credit to their
Rupee accounts with AD Category I banks in India.
ECB borrowers are also allowed to park ECB proceeds in term deposits with AD Category I banks in
India for a maximum period of 12 months cumulatively.
These term deposits should be kept in unencumbered position.
Procedure of raising ECB:

All ECB can be raised under the automatic route if they conform to the parameters prescribed under
this framework.
For approval route cases, the borrowers may approach the RBI with an application in prescribed
format (Form ECB) for examination through their AD Category I bank. Such cases shall be
considered keeping in view the overall guidelines, macroeconomic situation and merits of the specific
proposals. ECB proposals received in the Reserve Bank above certain threshold limit (refixed from
time to time) would be placed before the Empowered Committee set up by the Reserve Bank.
The Empowered Committee will have external as well as internal members and the Reserve Bank will
take a final decision in the cases taking into account recommendation of the Empowered Committee.
224
Entities desirous to raise ECB under the automatic route may approach an AD Category I bank with
their proposal along with duly filled in Form ECB.
Page
Reporting Requirements:
Borrowings under ECB Framework are subject to following reporting requirements apart from any
other specific reporting required under the framework:
Loan Registration Number (LRN): Any draw-down in respect of an ECB should happen only after
obtaining the LRN from the Reserve Bank. To obtain the LRN, borrowers are required to submit
duly certified Form ECB, which also contains terms and conditions of the ECB, in duplicate to the
designated AD Category I bank.
In turn, the AD Category I bank will forward one copy to the Director, Reserve Bank of India,
Changes in terms and conditions of ECB:

Changes in ECB parameters in consonance with the ECB norms, including reduced repayment by
mutual agreement between the lender and borrower, should be reported to the 10 DSIM through
revised Form ECB at the earliest, in any case not later than 7 days from the changes effected.
While submitting revised Form ECB the changes should be specifically mentioned in the
communication.
Monthly Reporting of actual transactions:

The borrowers are required to report actual ECB transactions through Form ECB 2 Return through
the AD Category I bank on monthly basis so as to reach DSIM within seven working days from the
close of month to which it relates.
Changes, if any, in ECB parameters should also be incorporated in Form ECB 2 Return.
Late Submission Fee (LSF) for delay in reporting:

Any borrower, who is otherwise in compliance of ECB guidelines, can regularise the delay in
reporting of drawdown of ECB proceeds before obtaining LRN or delay in submission of Form ECB
2 returns, by payment of late submission fees as detailed in the following matrix:
The borrower, through its AD bank, may pay the LSF by way of demand draft in favour of “Reserve
Bank of India” or any other mode specified by the Reserve Bank. Such payment should be
accompanied with the requisite return(s).
Form ECB and Form ECB 2 returns reporting contraventions will be treated separately.
Non-payment of LSF will be treated as contravention of reporting provision and shall be subject to
compounding or adjudication as provided in FEMA 1999 or regulations/rules framed thereunder.
Standard Operating Procedure (SOP) for Untraceable Entities:

225
The following SOP has to be followed by designated AD Category-I banks in case of untraceable
entities who are found to be in contravention of reporting provisions for ECB by failing to submit
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prescribed return(s) under the ECB framework, either physically or electronically, for past eight
quarters or more.
i. Definition:
Any borrower who has raised ECB will be treated as ‘untraceable entity’, if
entity/auditor(s)/director(s)/ promoter(s) of entity are not reachable/responsive/reply in negative over
email/letters/phone for a period of not less than two quarters with documented communication/
reminders numbering 6 or more and it fulfills both of the following conditions:
a) Entity not found to be operative at the registered office address as per records available with the AD
Bank or not found to be operative during the visit by the officials of the AD Bank or any other
agencies authorised by the AD bank for the purpose;
b) Entities have not submitted Statutory Auditor’s Certificate for last two years or more;
ii. Action:
The followings actions are to be undertaken in respect of ‘untraceable entities’:
a) File Revised Form ECB, if required, and last Form ECB 2 Return without certification from
company with ‘UNTRACEABLE ENTITY’ written in bold on top. The outstanding amount will be
treated as written-off from external debt liability of the country but may be retained by the lender in its
books for recovery through judicial/ non-judicial means;
b) No fresh ECB application by the entity should be examined/processed by the AD bank;
c) Directorate of Enforcement should be informed whenever any entity is designated
‘UNTRACEABLE ENTITY’; and
d) No inward remittance or debt servicing will be permitted under auto route.
Powers delegated to AD Category I banks to deal with ECB cases:

The designated AD Category I banks can approve any requests from the borrowers for changes in
respect of ECB, except for FCCBs/FCEBs, duly ensuring that the changed conditions, including
change in name of borrower/lender, transfer of ECB and any other parameters, comply with extant
ECB norms and are with the consent of lender(s).
Further, the following can also be undertaken under the automatic route :
Change of the AD Category I bank:

AD Category I bank can be changed subject to obtaining no objection certificate from the existing AD
Category I bank.
Cancellation of LRN:
The designated AD Category I banks may directly approach DSIM for cancellation of LRN for ECB
contracted, subject to ensuring that no draw down against the said LRN has taken place and the
monthly ECB2 returns till date in respect of the allotted LRN have been submitted to DSIM.
Refinancing of existing ECB:

Refinancing of existing ECB by fresh ECB provided the outstanding maturity of the original
borrowing (weighted outstanding maturity in case of multiple borrowings) is not reduced and all-incost
of fresh ECB is lower than the all-in-cost (weighted average cost in case of multiple borrowings) of
existing ECB.
Further, refinancing of ECB raised under the previous ECB frameworks may also be permitted,
subject to additionally ensuring that the borrower is eligible to raise ECB under the extant framework.
Raising of fresh ECB to part refinance the existing ECB is also permitted subject to same conditions.
226
Indian banks are permitted to participate in refinancing of existing ECB, only for highly rated
corporates (AAA) and for Maharatna/ Navratna public sector undertakings.
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Conversion of ECB into equity:

Conversion of ECB, including those which are matured but unpaid, into equity is permitted subject to
the following conditions:
(i) The activity of the borrowing company is covered under the automatic route for FDI or
Government approval is received, wherever applicable, for foreign equity participation as per extant
FDI policy.
(ii) The conversion, which should be with the lender’s consent and without any additional cost, should
not result in contravention of eligibility and breach of applicable sector cap on the foreign equity
holding under FDI policy;
(iii) Applicable pricing guidelines for shares are complied with;
(iv). In case of partial or full conversion of ECB into equity, the reporting to the Reserve Bank will be
as under: (a) For partial conversion, the converted portion is to be reported in Form FC-GPR
prescribed for reporting of FDI flows, while monthly reporting to DSIM in Form ECB 2 Return will
be with suitable remarks, viz., "ECB partially converted to equity".
(b) For full conversion, the entire portion is to be reported in Form FCGPR, while reporting to DSIM
in Form ECB 2 Return should be done with remarks “ECB fully converted to equity”. Subsequent
filing of Form ECB 2 Return is not required.
(c) For conversion of ECB into equity in phases, reporting through Form FC-GPR and Form ECB 2
Return will also be in phases.
(v) If the borrower concerned has availed of other credit facilities from the Indian banking system,
including foreign branches/subsidiaries of Indian banks, the applicable prudential guidelines issued by
the Department of Banking Regulation of Reserve Bank, including guidelines on restructuring are
complied with;
(vi) Consent of other lenders, if any, to the same borrower is available or atleast information regarding
conversions is exchanged with other lenders of the borrower.
(vii) For conversion of ECB dues into equity, the exchange rate prevailing on the date of the
agreement between the parties concerned for such conversion or any lesser rate can be applied with a
mutual agreement with the ECB lender. It may be noted that the fair value of the equity shares to be
issued shall be worked out with reference to the date of conversion only.
Security for raising ECB:

AD Category I banks are permitted to allow creation/cancellation of charge on immovable assets,
movable assets, financial securities and issue of corporate and/or personal guarantees in favour of
overseas lender / security trustee, to secure the ECB to be raised/ raised by the borrower, subject to
satisfying themselves that:
(i) the underlying ECB is in compliance with the extant ECB guidelines,
(ii) there exists a security clause in the Loan Agreement requiring the ECB borrower to create/cancel
charge, in favour of overseas lender/security trustee, on immovable assets/movable assets/financial
securities/issuance of corporate and/or personal guarantee, and
(iii) No objection certificate, as applicable, from the existing lenders in India has been obtained in case
of creation of charge.
Once the aforesaid stipulations are met, the AD Category I bank may permit creation of charge on
immovable assets, movable assets, financial securities and issue of corporate and/or personal
guarantees, during the currency of the ECB with security co-terminating with underlying ECB, subject
to the following:
(i) Creation of Charge on Immovable Assets:
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The arrangement shall be subject to the following:

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(a) Such security shall be subject to provisions contained in the Foreign Exchange Management
(Acquisition and Transfer of Immovable Property in India) Regulations, 2017, as amended from time
to time.
(b) The permission should not be construed as a permission to acquire immovable asset (property) in
India, by the overseas lender/ security trustee.
(c) In the event of enforcement / invocation of the charge, the immovable asset/ property will have to
be sold only to a person resident in India and the sale proceeds shall be repatriated to liquidate the
outstanding ECB.
(ii) Creation of Charge on Movable Assets:
In the event of enforcement/ invocation of the charge, the claim of the lender, whether the lender
takes over the movable asset or otherwise, will be restricted to the outstanding claim against the ECB.
Encumbered movable assets may also be taken out of the country subject to getting ‘No Objection
Certificate’ from domestic lender/s, if any.
(iii) Creation of Charge over Financial Securities: The arrangements may be permitted
subject to the following:
(a) Pledge of shares of the borrowing company held by the promoters as well as in domestic associate
companies of the borrower is permitted. Pledge on other financial securities, viz. bonds and
debentures, Government Securities, Government Savings Certificates, deposit receipts of securities
and units of the Unit Trust of India or of any mutual funds, standing in the name of ECB
borrower/promoter, is also permitted.
(b) In addition, security interest over all current and future loan assets and all current assets including
cash and cash equivalents, including Rupee accounts of the borrower with ADs in India, standing in
the name of the borrower/promoter, can be used as security for ECB. The Rupee accounts of the
borrower/promoter can also be in the form of escrow arrangement or debt service reserve account.
(c) In case of invocation of pledge, transfer of financial securities shall be in accordance with the extant
FDI/FII policy including provisions relating to sectoral cap and pricing as applicable read with the
Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India)
Regulations, 2017, as amended from time to time.
(iv) Issue of Corporate or Personal Guarantee:

The arrangement shall be subject to the following:
(a) A copy of Board Resolution for the issue of corporate guarantee for the company issuing such
guarantee, specifying name of the officials authorised to execute such guarantees on behalf of the
company or in individual capacity should be obtained.
(b) Specific requests from individuals to issue personal guarantee indicating details of the ECB should
be obtained.
(c) Such security shall be subject to provisions contained in the Foreign Exchange Management
(Guarantees) Regulations, 2000, as amended from time to time.
(d) ECB can be credit enhanced / guaranteed / insured by overseas party/ parties only if it/ they fulfil/s
the criteria of recognised lender under extant ECB guidelines.
Additional Requirements: While exercising the delegated powers, the AD Category I

banks should ensure that:
i. The changes permitted are in conformity with the applicable ceilings / guidelines and the ECB
continues to be in compliance with applicable guidelines. It should also be ensured that if the ECB
borrower has availed of credit facilities from the Indian banking system, including foreign
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branches/subsidiaries of Indian banks, any extension of tenure of ECB (whether matured or not) shall
be subject to applicable prudential guidelines issued by Department of Banking Regulation of Reserve
Bank including guidelines on restructuring.
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ii. The changes in the terms and conditions of ECB allowed by the ADs under the powers delegated
and / or changes approved by the Reserve Bank should be reported to the DSIM as given at
paragraph 6.2 above. Further, these changes should also get reflected in the Form ECB 2 returns
appropriately.
Special Dispensations under the ECB framework:
ECB facility for Oil Marketing Companies: Notwithstanding the provisions contained ‘Negative List’,
‘Hedging Provisions’ and ‘Limit and Leverage’ above, Public Sector Oil Marketing Companies
(OMCs) can raise ECB for working capital purposes with minimum average maturity period of 3 years
from all recognised lenders under the automatic route without mandatory hedging and individual limit
requirements.
The overall ceiling for such ECB shall be USD 10 billion or equivalent.
However, OMCs should have a Board approved forex mark to market procedure and prudent risk
management policy, for such ECB.
All other provisions under the ECB framework will be applicable to such ECB.
ECB facility for Startups:

AD Category-I banks are permitted to allow Startups to raise ECB under the automatic route as per
the following framework:
(i) Eligibility:
An entity recognised as a Startup by the Central Government as on date of raising ECB.
(ii) Maturity:
Minimum average maturity period will be 3 years.
(iii) Recognised lender:
Lender / investor shall be a resident of a FATF compliant country. However, foreign
branches/subsidiaries of Indian banks and overseas entity in which Indian entity has made overseas
direct investment as per the extant Overseas Direct Investment Policy will not be considered as
recognised lenders under this framework.
(iv) Forms:
The borrowing can be in form of loans or non-convertible, optionally convertible or partially
convertible preference shares.
(v) Currency:
The borrowing should be denominated in any freely convertible currency or in Indian Rupees (INR)
or a combination thereof.
(vi) Amount:
The borrowing per Startup will be limited to USD 3 million or equivalent per financial year either in
INR or any convertible foreign currency or a combination of both.
(vii) All-in-cost:
Shall be mutually agreed between the borrower and the lender.
(viii) End uses:
For any expenditure in connection with the business of the borrower. (i.e. Buss. Purpose only)
(ix) Conversion into equity:
Conversion into equity is freely permitted subject to Regulations applicable for foreign investment in
Startups.
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(x) Security:
The choice of security to be provided to the lender is left to the borrowing entity. Security can be in
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the nature of movable, immovable, intangible assets (including patents, intellectual property rights),
financial securities, etc. and shall comply with foreign direct investment / foreign portfolio investment /
or any other norms applicable for foreign lenders / entities holding such securities.
Further, issuance of corporate or personal guarantee is allowed.
However, issuance of guarantee, standby letter of credit, letter of undertaking or letter of comfort by
Indian banks, all India Financial Institutions and NBFCs is not permitted.
(xi) Hedging:
The overseas lender, in case of INR denominated ECB, will be eligible to hedge its INR exposure
through permitted derivative products with AD Category – I banks in India. The lender can also
access the domestic market through branches/ subsidiaries of Indian banks abroad.
Note: Startups raising ECB in foreign currency, whether having natural hedge or not, are exposed to
currency risk due to exchange rate movements and hence are advised to ensure that they have an
appropriate risk management policy to manage potential risk arising out of ECB.
(xii) Conversion rate:
In case of borrowing in INR, the foreign currency - INR conversion will be at the market rate as on
the date of agreement.
(xiii) Other Provisions:
Other provisions like parking of ECB proceeds, reporting arrangements, powers delegated to AD
banks, borrowing by entities under investigation, conversion of ECB into equity will be as included in
the ECB framework.
However, provisions on leverage ratio and ECB liability: Equity ratio will not be applicable.
Further, the Start-ups as defined above as well as other start-ups which do not comply with the
aforesaid definition but are eligible to receive FDI, can also raise ECB under the general ECB
route/framework.
Borrowing by Entities under Investigation: All entities against which investigation / adjudication /
appeal by the law enforcing agencies for violation of any of the provisions of the Regulations under
FEMA pending, may raise ECB as per the applicable norms, if they are otherwise eligible,
notwithstanding the pending investigations / adjudications / appeals, without prejudice to the outcome
of such investigations / adjudications / appeals. The borrowing entity shall inform about pendency of
such investigation / adjudication / appeal to the AD Category-I bank / RBI as the case may be.
Accordingly, in case of all applications where the borrowing entity has indicated about the pending
investigations / adjudications / appeals, the AD Category I Banks / Reserve Bank while approving the
proposal shall intimate the agencies concerned by endorsing a copy of the approval letter.
ECB by entities under restructuring/ ECB facility for refinancing stressed assets:
• An entity which is under a restructuring scheme/ corporate insolvency resolution process can
raise ECB only if specifically permitted under the resolution plan
• Eligible corporate borrowers who have availed Rupee loans domestically for capital
expenditure in manufacturing and infrastructure sector and which have been classified as SMA-2
(means a Special Mention Account having outstanding >60Days but <90Days) or NPA can avail ECB
for repayment of these loans under any one time settlement with lenders. Lender banks are also
permitted to sell, through assignment, such loans to eligible ECB lenders, provided, the resultant
external commercial borrowing complies with all-in-cost, minimum average maturity period and other
relevant norms of the ECB framework. Foreign branches/ overseas subsidiaries of Indian banks are
not eligible to lend for the above purposes. The applicable MAMP will have to be strictly complied
with under all circumstances
• Eligible borrowers under the ECB framework, who are participating in the Corporate
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Insolvency Resolution Process under Insolvency and Bankruptcy Code, 2016 as resolution applicants,
can raise ECB from all recognised lenders, except foreign branches/subsidiaries of Indian banks, for
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repayment of Rupee term loans of the target company. Such ECB will be considered under the
approval route, procedure of which is given ‘Procedure for Raising ECB’ above.
• Dissemination of information: For providing greater transparency, information with regard to
the name of the borrower, amount, purpose and maturity of ECB under both Automatic and
Approval routes are put on the RBI’s website, on a monthly basis.
• Compliance with the guidelines: The primary responsibility for ensuring that the borrowing is
in compliance with the applicable guidelines is that of the borrower concerned. Any contravention of
the applicable provisions of ECB guidelines will invite penal action under the FEMA. The designated
AD Category I bank is also expected to ensure compliance with applicable ECB guidelines by their
constituents.
Abbreviations used in the chapter :

FCCB – Foreign Currency Convertible Bond
FCEB – Foreign Currency Exchangeable Bond
FDI – Foreign Direct Investment
FCY – Foreign Currency
FATF – Financial Action Task Force
IOSCO – International Organization of Securities Commission
DSIM – Department of Statistics and Information Management
LRN – Loan Registration Number
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SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992

I.Unit 1 – Introduction, Basics and Penalties
OBJECTS OF THE SEBI ACT

(a)Protection of the interest of investors
(b) Promoting orderly and healthy growth
(c) Regulation of the securities market
(d) Promoting the fair dealings by the issuer of securities
ensuring a market place where they can raise funds at a
relatively low cost.
(e) Regulating and developing a code of conduct and fair
practices by intermediaries like brokers, merchant bankers
etc. With a view to making them more competitive and
professional.
(f) Monitoring the activities of stock exchange, mutual funds and merchant bankers etc.
ESTABLISHMENT OF SEBI (Sec.3)

• CG is empowered to set up SEBI by issuing a notification.
• SEBI has been established as a body corporate having perpetual succession ad a common seal. It
has powers to acquire, hold and dispose of property, both movable and immovable, to contract and
to sue or be sued.
• The head office of the Board is at Mumbai.
• Further the Board may establish offices at other places in India.
MANAGEMENT OF SEBI (Sec. 4)

1.Constitution
Members shall be appointed by CG.
SEBI shall consist of following:
(a)a Chairman
(b)two members from amongst the officials of the Ministry of CG
(c) one member from amongst the officials of the RBI
(d) five other members of whom at least three shall be whole time members
2.Management:
The general superintendence, direction and management of the affairs of the SEBI shall vest in a
Board of Members may exercise all powers and do all acts and things which may be exercised or done
by the SEBI.
3.Chairman:
• Shall also have powers of general superintendence and direction of the affairs.
• Members shall be persons of ability, integrity and standing who have shown capacity in dealing
with problems relating to securities market or have special knowledge or experience in the opinion of
CG, shall be useful to SEBI.
* Power of SEBI to Regulate or Prohibit Issue of Prospectus, Offer Document or

Advertisement Soliciting Money for Issue of Securities [Sec. 11A]
- Power to Regulate issue & Transfer of Securities & Disclosure Requirements.
232
- Power to prohibit issue of Prospectus, Offer document etc.

- Power to specify Requirements for listing etc.
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* Powers of SEBI to order Investigation? [Sec. 11C]

1. Powers of the Investigating Authority:-
→ Power to Retain Books etcs:-
- For 6 Months
- The Investigating Authority may again call for such books etc.
- Where any person Producing Books Requires certified copies, Investigating Authority shall give
certified copies of such books etc. to him.
→ Power to Examine on Oath:-

Any Officer or Employee of any Intermediary or any Person associated with Securities market.
→ Power to take Notes on Examination:

- Notes on any Examination on oath shall be made in writing.
- The Notes shall be Read over to the person Examined and Signed by him.
- The Notes may be used in Evidence against such person in the lead proceedings.
Seizure of Documents by the Investigating Authority:-

a Application by Investigating Authority for Seizure of Books and Papers;
- An Application to the Magistrate of the first class for an order for the seizure of Books & Papers.
- An Application may be made if the Investigating Authority has Reasonable ground to believe
that Books, Registers, Other Documents and Record of, or Relating to, any Intermediary or any
person Associated with Securities market may be destroyed, mutilated, altered, falsified or
secreted.
b Magistrate’s Power:
After considering the application and hearing the Investigating Authority, the Magistrate may
Authorise the Investigating Authority –
- To Enter, with such Assistance as may be Required
- To Search those Places
- To Seize such books etc.
c Return of Books & Papers:-

- Investigating Authority may keep the books etc. till the conclusion of the Investigation.
- Investigating Authority shall inform the Magistrate when it Returns the books etc.
- Before Returning the Books etc. the Investigating Authority may place Identification marks on
them.
* Cease stop & Desist Proceedings (Sec. 11D)

- SEBI is Empowered to pass an order requiring a person to Cease & Desist from committing or
causing the violation of the Act or Rules made there under.
- In case of Public Co. or about to get listed Co., SEBI has cease & Desist the Proceedings only if
– Insider Trading
Price Manipulation.
* Procedure for Adjudication:-

233
- An Adjudicating officer shall be appointed by SEBI, such officer shall not be a person below the
Rank of a Divisional Chief.
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- The A.O. shall before passing an order provide an OOBH to the Party.
- CG is Empowered to Establish Securities Appellate Tribunal [S.A.T.] by Issuing Notification.
- The Party Convicted by the order of Adjudicating Authority shall file an Appeal to S.A.T. within
45 days. S.A.T. may condone the delay for sufficient Reasons.
- Such Appeal must be filed in 3 copies + Additional copy for each Additional Respondent. (for
every other party to Appeal.)
- After the order of S.A.T. The Aggrieved Party shall file an Appeal to SC only in case of Que. of
law within a period of 60 days from the order of SAT.
- SC may condone the delay (maximum Additional 60 days) for sufficient Reason.
- The order of S.C. shall be Final & Binding.
→ S.A.T. is treated at Part with H.C.
Hence, Direct Appeal to S.C.
* Composition of Certain Offences:-

- Offences Punishable with fine or Imprisonment or Both are the only offences which can be
compounded.
- Such offence can be compounded at any time (i.e. Either during or after Prosecution)
- S.A.T. or the court before which Proceedings are pending may compound the offence
- Compounding is allowed only once in 3 years.
* Powers of SEBI to Prevent Undesirable Transactions in Securities:

Power to call for periodical Returns or Direct Enquiries to be made
Power to approve the bye laws of Stock Exchange.
Power of SEBI to make or amend bye-laws of Recognized Stock Exchange.
Licensing of Dealers in Securities in Certain Areas.
Power to compel listing of Securities by Public Companies.
* Power of Granting Immunity :

- Such power is with C.G. only.
- CG may Exercise these powers only if SEBI has made a Recommendation in writing for granting
immunity.
- If CG satisfied that the Person Convicted has made full & True Disclosure only then C.G. may
grant Immunity subject to certain conditions.
- Immunity may be granted only if the proceedings have not been instituted
→ C.G. may also withdraw the Immunity if –

a. Such person did not comply with the condition prescribed.
b. had Produced false Evidence.
c. The consequences may be as follows:
- Such person may be tried for such offence.
- He shall be liable to the Penalty to which he would have been liable if the Immunity was not
granted.
Section 12 - Registration of stock-brokers, sub-brokers, share transfer agents, etc.—

234
(1) No stock-broker, sub-broker, share transfer agent, banker to an issue, trustee of trust deed,
registrar to an issue, merchant banker, underwriter, portfolio manager, investment adviser and such
other intermediary who may be associated with securities market shall buy, sell or deal in securities
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except under, and in accordance with, the conditions of a certificate of registration obtained from the
Board in accordance with the regulations made under this Act:
Provided that a person buying or selling securities or otherwise dealing with the securities market as a
stock-broker, sub-broker, share transfer agent, banker to an issue, trustee of trust deed, registrar to an
issue, merchant banker, underwriter, portfolio manager, investment adviser and such other
intermediary who may be associated with securities market immediately before the establishment of
the Board for which no registration certificate was necessary prior to such establishment, may continue
to do so for a period of three months from such establishment or, if he has made an application for
such registration within the said period of three months, till the disposal of such application:
Provided further that any certificate of registration, obtained immediately before the commencement
of the Securities Laws (Amendment) Act, 1995, shall be deemed to have been obtained from the
Board in accordance with the regulations providing for such registration.
Depository, participant, custodian of securities, foreign institutional investor, credit rating agency or
any other intermediary associated with the securities market as the Board may by notification in this
behalf specify, shall buy or sell or deal in securities except under and in accordance with the condi-
tions of a certificate of registration obtained from the Board in accordance with the regulations made
under this Act:
Provided that a person buying or selling securities or otherwise dealing with the securities market as a
depository, participant, custodian] of securities, foreign institutional investor or credit rating agency
immediately before the commencement of the Securities Laws (Amendment) Act, 1995, for which no
certificate of registration was required prior to such commencement, may continue to buy or sell
securities or otherwise deal with the securities market until such time regulations are made under
section 30(2)(d).
(1B) No person shall sponsor or cause to be sponsored or carry on or cause to be carried on any
venture capital funds or collective investment scheme including mutual funds, unless he obtains a
certificate of registration from the Board in accordance with the regulations:
Provided that any person sponsoring or cause to be sponsored, carrying or causing to be carried on
any venture capital funds or collective investment scheme operating in the securities market
immediately before the commencement of the Securities Laws (Amendment) Act, 1995 for which no
certificate of registration was required prior to such commencement, may continue to operate till such
time regulations are made under clause (d) of sub-section (2) of section 30.]
(2) Every application for registration shall be in such manner and on payment of such fees as may be
determined by regulations.
(3) The Board may, by order, suspend or cancel a certificate of registration in such manner as may be
determined by regulations:
Provided that no order under this sub-section shall be made unless the person concerned has been
given a reasonable opportunity of being heard.
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PENALTIES -
Section Nature of contravention Quantum of penalty
15A (a) Failure to furnish any document, return or report Lower of –
to SEBI Rs. 1 Lakh per day; or Rs. 1
(b) Failure to file any return or furnish any crore
information, books or other documents to SEBI.
(c) Failure to maintain the books of accounts or records.
15B Failure by an intermediary to enter into an Lower of –
agreement with his client. Rs. 1 Lakh per day; or Rs. 1
crore
15C If any listed company or any person who is registered as Lower of –
an intermediary, after having been called upon by the Rs. 1 Lakh per day; or Rs. 1
Board in writing including by any means of electronic crore
communication, to redress the grievances of investors,
fails to redress such grievances within the time specified
by the Board, such company or intermediary
15D (a) Carrying on any collective investment scheme Lower of –
Without obtaining certificate of registration Rs. 1 Lakh per day; or Rs. 1
(b) A person registered with the SEBI to carry on crore
collective investment scheme, makes an of the
following defaults:
i) Failure to comply with the terms and conditions of
certificate of registration.
ii) Failure to make an application for listing of its
schemes.
Failure to dispatch unit certificates of any scheme.
Failure to refund the application monies paid by the
investors.
Failure to invest money collected by it.
15E Failure by any asset management Co. of a mutual fund to Lower of –
comply with any of the regulations providing for Rs. 1 Lakh per day; or Rs. 1
restrictions on the activities of asset management crore
companies.
15EA Sec. 15EA : Where any person fails to comply shall be liable to penalty
with the regulations made by the Board in which shall not be less
respect of alternative investment funds, than one lakh rupees but
infrastructure investment trusts and real estate which may extend to one
investment trusts or fails to comply with the lakh rupees for each day
directions issued by the Board, such person during which such failure
continues subject to a
maximum of one crore
rupees or three times the
amount of gains made out
of such failure, whichever is
higher.
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15EB Where an investment adviser or a research shall be liable to penalty

analyst fails to comply with the regulations which shall not be less
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made by the Board or directions issued by the than Rs. 100,000 but
Board, such investment adviser or research which may extend to Rs.
analyst 100,000 for each day
during which such failure
continues subject to a
maximum of Rs. 1 Crore
15F A registered stock broker fails to deliver any security or Lower of –
fails to make payment of the amount due to the investor Rs. 1 Lakh per day; or Rs. 1
crore
15F A registered stock broker fails to issue contract notes in Min. Rs. 1,00,000 upto
the form and in the manner specified by the stock
exchange Max. Rs. 1 Crore
15F A registered stock broker charges brokerage in excess of Higher of –
the brokerage specified in the regulations Rs. 1 lakh, or
5 times the amount of
excess brokerage charged
15G (a) Where an insider deal in securities of a body Higher of –
corporate listed on any stock exchange on the basis of Rs. 25 crores; or
any unpublished price sensitive information 3 times the amount of
(b) Where an insider communicates any unpublished profits made out of such
price sensitive information to any person except as Default
required in the ordinary course of business or under any
law.
(c) Where an insider counsels, or procures for any other
person to deal in any securities of anybody corporate on
the basis of unpublished price sensitive information.
15H (a) Failure to disclose of his shareholding in the body Higher of –
corporate before he acquires any shares of that body Rs. 25 crores; or
corporate. 3 times the amount of
(b) Failure to make a public announcement to profits made out of such
acquire shares at a minimum price Default
(c) Failure to make a private placement by sending letter
of offer to the shareholders of the concerned Co.
(d) Failure to make payment of consideration to the
shareholders who sold their shares pursuant to letter
of offer.
Higher of –
15HA Where a person indulges in fraudulent and unfair trade Rs. 25 crores; or
practices relating to securities. 3 times the amount of
profits made out of such
Default
15HAA Penalty for alteration destruction, etc., of records and shall be liable to a penalty which
failure to protect the electronic database of Board shall not be less than one lakh
Any person, who-- rupees but which may extend to
(a) knowingly alters, destroys, mutilates, conceals, ten crore rupees or three times
falsifies, or makes a false entry in any information, the amount of profits made out
record, document (including electronic records), which is of such act, whichever is higher.
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required under this Act or any rules or regulations made

there under, so as to impede, obstruct, or influence the
investigation, inquiry, audit, inspection or proper
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administration of any matter within the jurisdiction of the

Board.
Explanation.--For the purposes of this clause, a person

shall be deemed to have altered, concealed or destroyed
such information, record or document, in case he
knowingly fails to immediately report the matter to the
Board or fails to preserve the same till such information
continues to be relevant to any investigation, inquiry,
audit, inspection or proceeding, which may be initiated
by the Board and conclusion thereof;
(b) without being authorised to do so, access or tries to

access, or denies of access or modifies access parameters,
to the regulatory data in the database;
(c) without being authorised to do so, downloads,

extracts, copies, or reproduces in any form the regulatory
data maintained in the system database;
(d) knowingly introduces any computer virus or other

computer contaminant into the system database and
brings out a trading halt;
(e) without authorisation disrupts the functioning of

system database;
(f) knowingly damages, destroys, deletes, alters,

diminishes in value or utility, or affects by any means, the
regulatory data in the system database; or
(g) knowingly provides any assistance to or causes any

other person to do any of the acts specified in clauses (a)
to (f),
Explanation.--In this section, the expressions "computer
contaminant", "computer virus" and "damage" shall have
the meanings respectively assigned to them under section
43 of the Information Technology Act, 2000 .
15HB Where a person fails to comply with any provision of this Maximum Rs. 1Cr
Act, rules or regulations made thereunder or directions
issued by SEBI for which no separate penalty has been
provided.
24 Where a person fails to pay the penalty imposed by the Imprisonment for not less than
Adjudicating Officer or fails to comply with any of his 1 month, but upto 10 years; or
directions or orders. Fine upto Rs. 25 crores; or
Both
Some Extra Points to Ponder

Power to adjudicate (Section 15-I):
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(1) For the purpose of adjudging under Sections 15A, 15B, 15C, 15D, 15E, 15F, 15G, 15H,15HA and
15HB, the Board shall appoint any of its officers not below the rank of Division Chief to be an
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adjudicating officer for holding an inquiry in the prescribed manner after giving any person concerned
a reasonable opportunity of being heard for the purpose of imposing any penalty.
(2)The adjudicating officer shall have power to summon and enforce the attendance of any person
acquainted with the facts and circumstances of the case and if on such inquiry, he is satisfied that the
person has failed to comply with the provisions of sections specified in subsection (1), he may impose
such penalty as he thinks fit in accordance with the provisions of any of those sections.
(3) The Board may call for and examine the record of any proceedings under this section and if it
considers that the order passed by the adjudicating officer is erroneous to the extent it is not in
theinterests of the securities market, it may, after making or causing to be made such inquiry as it deems
necessary, pass an order enhancing the quantum of penalty, if the circumstances of the case so justify:
Provided that no such order shall be passed unless the person concerned has been given an opportunity
of being heard in the matter.
Provided further that nothing contained in this sub-section shall be applicable after an expiry of a period
of three months from the date of the order passed by the adjudicating officer or disposal of the appeal
under section 15T, whichever is earlier.
Factors to be taken into account by the adjudicating officer (Section 15J) :

While adjudging thequantum of penalty under Section 15I, the adjudicating officer shall have due regard
to the following factors, namely:
(a) the amount of disproportionate gain or unfair advantage, wherever quantifiable, made as a result, of
the default;
(b)the amount of loss caused to an investor or group of investors as a result of the default;
(c)the repetitive nature of the default.
Appellate Tribunal
Establishment of Securities Appellate Tribunals (Section 15K):
The Central Government shall bynotification, establish one or more Appellate Tribunals to be known
as the Securities Appellate Tribunal to exercise the jurisdiction, powers and authority conferred on such
Tribunal by or under this Act or any other law for the time being in force.
The Central Government shall also specify in the notification referred above the matters and places in
relation to which the Securities Appellate Tribunal may exercise jurisdiction.
Composition of Securities Appellate Tribunal (Section 15L):

A Securities Appellate Tribunal shall consistof a Presiding Officer and two other members, to be
appointed, by notification, by the Central Government.
Qualification for appointment as Presiding Officer or Member of Securities Appellate

Tribunal (Section 15M):
A person shall not be qualified for appointment as the Presiding Officer of theSecurities Appellate
Tribunal unless he -
(a) is a sitting or retired Judge of the Supreme Court or a sitting or retired Chief Justice of a High Court;
or
(b)is a sitting or retired Judge of a High Court who has completed not less than seven years of service
asa Judge in a High Court.
The Presiding Officer of the Securities Appellate Tribunal shall be appointed by the Central
Government in consultation with the Chief Justice of India or his nominee.
A person shall not be qualified for appointment as member of a Securities Appellate Tribunal unless
he is a person of ability, integrity and standing who has shown capacity in dealing with problems relating
to securities market and has qualification and experience of corporate law, securities laws, finance,
239
economics or accountancy.
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A member of the Board or any person holding a post at senior management level equivalent to
Executive Director in the Board shall not be appointed as Presiding Officer or Member of a Securities
Appellate Tribunal during his service or tenure as such with the Board or within two years from the
date on which he ceases to hold office as such in the Board.
Tenure of office of Presiding Officer and other Members of Securities Appellate

Tribunal (Section 15N):
The Presiding Officer and every other Member of a SAT shall hold office for a term of five years from
the date on which he enters upon his office and shall be eligible for re-appointment.
No person shall hold office as the Presiding Officer of the Securities Appellate Tribunal after he has
attained the age of 68 years.
No person shall hold office as a Member of the Securities Appellate Tribunal after he has attained the
age of 62 years.
Orders constituting Appellate Tribunal to be final and not to invalidate its proceedings (Section 15R):
No order of the Central Government appointing any person as the Presiding Officer or a Member of a
Securities Appellate Tribunal shall be called in question in any manner, and no act or proceeding before
a Securities Appellate Tribunal shall be called in question in any manner on the ground merely of any
defect in the constitution of a Securities Appellate Tribunal.
Establishment of Special Courts (Section 26A):

(1)The Central Government may, for the purpose of providing speedy trial of offences under this Act,
by notification, establish or designate as many Special Courts as may be necessary.
(2) A Special Court shall consist of a single judge who shall be appointed by the Central Government
with the concurrence of the Chief Justice of the High Court within whose jurisdiction the judge to be
appointed is working.
(3)A person shall not be qualified for appointment as a judge of a Special Court unless he is, immediately
before such appointment, holding the office of a Sessions Judge or an Additional Sessions Judge, as the
case may be.
Offences triable by Special Courts (Section 26B):

Notwithstanding anything contained in the Codeof Criminal Procedure, 1973, all offences under this
Act committed prior to the date of commencement of the Securities Laws (Amendment) Act, 2014 or
on or after the date of such commencement, shall be taken cognizance of and tried by the Special Court
established for the area in which the offence is committed or where there are more Special Courts than
one for such area, by such one of them as may be specified in this behalf by the High Court concerned.
ISSUE OF SPECIFIED SECURITIES BY SMALL AND MEDIUM ENTERPRISES

Applicability
(1)An issuer whose post-issue face value capital does not exceed ten crore rupees shall issue its
specified securities in accordance with provisions of this Chapter.
(2)An issuer, whose post issue face value capital is more than ten crore rupees and upto twenty five
crore rupees, may also issue specified securities in accordance with provisions of this Chapter.
(3)The provisions of these regulations, in respect of the matters not specifically dealt or excluded
under this Chapter, shall mutatis mutandis apply to any issue of specified securities under this
Chapter:
Provided that provisions of sub-regulations (1), (2) and (3) of regulation 6, regulation 7, regulation 8,
regulation 9, regulation 10, regulation 25, regulation 26, regulation 27 and sub-regulation (1) of
regulation 49 of these regulations shall not apply to an issue of specified securities made under this
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Chapter.
Definitions
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(1)In this Chapter, unless the context otherwise requires, -

(a)Main Board means a recognised stock exchange having nationwide trading terminals, other than SME
exchange;
(b)nominated investor‖ means a qualified institutional buyer or private equity fund, who enters into an
agreement with the merchant banker to subscribe to the issue in case of under-subscription or to receive
or deliver the specified securities in the market-making process;
Explanation: ―private equity fund‖ means a fund registered with any regulatory authority or a fund
established by any person registered with any regulatory authority;
(c)SME exchange means a trading platform of a recognised stock exchange having nationwide trading
terminals permitted by the Board to list the specified securities issued in accordance with thisChapter
and includes a stock exchange granted recognition for this purpose but does not include the Main
Board;
(1) All other words and expression used in this Chapter but not defined under sub-regulation
(2) shall derive their meaning from regulation 2 of these regulations.
Filing of offer document and due diligence certificate

(1)The issuer making a public issue or rights issue of specified securities under this Chapter shall not
file the draft offer document with the Board:
Provided that the issuer shall file a copy of the offer document with the Board through a merchant
banker, simultaneously with the filing of the prospectus with the SME exchange and the Registrar of
Companies or letter of offer with the SME Exchange:
Provided further that the Board shall not issue any observation on the offer document.
(2)The merchant banker shall submit a due-diligence certificate as per Form A of Schedule VI including
additional confirmations as provided in Form H of Schedule VI alongwith the offer document to the
Board.
(3)The offer document shall be displayed from the date of filing in terms of subregulation:
(a) on the websites of the Board, the issuer, the merchant banker and
(b) the SME exchange where the specified securities offered through the offer document are
proposed to be listed.
Underwriting by merchant bankers and underwriters.

(1)The issue made under this Chapter shall be hundred per cent underwritten.
Explanation: The underwriting under this regulation shall be for the entire hundred percent of the offer
through offer document and shall not be restricted upto the minimum subscription level.
(2)The merchant banker/s shall underwrite at least fifteen per cent of the issue size on his/ their own
account/s.
(3)The issuer in consultation with merchant banker may appoint underwriters in accordance with
Securities and Exchange Board of India (Underwriters) Regulations, 1993 and the merchant banker
may enter into an agreement with nominated investor indicating therein the number of specified
securities which they agree to subscribe at issue price in case of under-subscription.
(4)If other underwriters fail to fulfill their underwriting obligations or other nominated investors fail to
subscribe to unsubscribed portion, the merchant banker shall fulfill the underwriting obligations.
(5)The underwriters other than the merchant banker and the nominated investors, who have entered
into an agreement for subscribing to the issue in case of under-subscription, shall not subscribe to the
issue made under this Chapter in any manner except for fulfilling their obligations under their respective
agreements with the merchant banker in this regard.
(6)All the underwriting and subscription arrangements made by the merchant banker shall be disclosed
in the offer document.
(7)The merchant banker shall file an undertaking to the Board that the issue has been hundred per cent
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underwritten along with the list of underwriters and nominated investors indicating the extent of
underwriting or subscription commitment made by them, one day before the opening of issue.
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Minimum Application Value.

The issuer shall stipulate in the offer document, the minimum application size in terms of number of
specified securities which shall not be less than one lakh rupees per application.
Minimum Number of Allottees.

No allotment shall be made pursuant to any initial public offer made under this Chapter, if the number
of prospective allottees is less than fifty.
Listing of specified securities.

(1)Specified securities issued in accordance with this Chapter shall be listed on SME exchange.
(2)Where any listed issuer issues specified securities in accordance with provisions of this Chapter it
shall migrate the specified securities already listed on any recognized stock exchange/s to the SME
exchange.
Migration to SME exchange.

A listed issuer whose post-issue face value capital is less than twenty five crore rupees may migrate its
specified securities to SME exchange if its shareholders approve such migration by passing a special
resolution through postal ballot to this effect and if such issuer fulfils the eligibility criteria for listing laid
down by the SME exchange: Provided that the special resolution shall be acted upon if and only if the
votes cast by shareholders other than promoters in favour of the proposal amount to at least two times
the number of votes cast by shareholders other than promoter shareholders against the proposal.
Migration to Main Board.

(1)An issuer, whose specified securities are listed on a SME Exchange and whose post issue face value
capital is more than ten crore rupees and upto twenty five crore rupees, may migrate its specified
securities to Main Board if its shareholders approve such migration by passing a special resolution
through postal ballot to this effect and if such issuer fulfils the eligibility criteria for listing laid down by
the Main Board:
Provided that the special resolution shall be acted upon if and only if the votes cast by shareholders
other than promoters in favour of the proposal amount to at least two times the number of votes cast
by shareholders other than promoter shareholders against the proposal.
(2)Where the post issue face value capital of an issuer listed on SME exchange is likely to increase
beyond twenty five crore rupees by virtue of any further issue of capital by the issuer by way of rights
issue, preferential issue, bonus issue, etc. the issuer shall migrate its specified securities listed on SME
exchange to Main Board and seek listing of specified securities proposed to be issued on the Main
Board subject to the fulfillment of the eligibility criteria for listing of specified securities laid down by
the Main Board: Provided that no further issue of capital by the issuer shall be made unless –
(a) the shareholders of the issuer have approved the migration by passing a special resolution through
postal ballot wherein the votes cast by shareholders other than promoters in favour of the proposal
amount to at least two times the number of votes cast by shareholders other than promoter
shareholders against the proposal;
(b) the issuer has obtained in- principle approval from the Main Board for listing of its entire specified
securities on it.
Market Making
(1)The merchant banker shall ensure compulsory market making through the stock brokers of SME
exchange in the manner specified by the Board for a minimum period of three years from the date of
listing of specified securities issued under this Chapter on SME exchange or from the date of migration
from Main Board in terms of regulation 106T, as the case may be.
(2) The merchant banker may enter into agreement with nominated investors for receiving or
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delivering the
specified securities in the market making subject to the prior approval by the SME exchange where the
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specified securities are proposed to be listed.

(3)The issuer shall disclose the details of arrangement of market making in the offer document.
(4)The specified securities being bought or sold in the process of market making may be transferred to
or from the nominated investor with whom the merchant banker has entered into an agreement for the
market making:
Provided that the inventory of the market maker, as on the date of allotment of the specified securities,
shall be at least 5% of the specified securities proposed to be listed on SME exchange.
(5)The market maker shall buy the entire shareholding of a shareholder of the issuer in one lot, where
value of such shareholding is less than the minimum contract size allowed for trading on the SME
exchange:
Provided that market maker shall not sell in lots less than the minimum contract size allowed for trading
on the SME exchange.
(6)Market maker shall not buy the shares from the promoters or persons belonging to promoter group
of the issuer or any person who has acquired shares from such promoter or person belonging to
promoter group, during the compulsory market making period laid down under sub-regulation (1).
(7)The promoters‘ holding shall not be eligible for offering to the market maker under this Chapter
during the period specified in sub-regulation (1):
Provided that the promoters‘ holding which is not locked-in as per these regulations can be traded with
prior permission of the SME exchange, in the manner specified by the Board.
(8)Subject to the agreement between the issuer and the merchant banker/s, the merchant banker/s who
have the responsibility of market making may be represented on the board of the issuer.
Section 28C - Powers of Board not to apply to International Financial Services Centre: (wef –
1/10/2020)
Notwithstanding anything contained in any other law for the time being in force, the powers
exercisable by the Board under this Act,—
a) shall not extend to an International Financial Services Centre set up under section 18(1) of the
Special Economic Zones Act, 2005;
b) shall be exercisable by the International Financial Services Centres Authority established under
sub-section (1) of section 4 of the International Financial Services Centres Authority Act, 2019, in so
far as regulation of financial products, financial services and financial institutions that are permitted in
the International Financial Services Centres are concerned.
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II. Unit 2 – SEBI (LISTING OBLIGATIONS AND DISCLOSURE

REQUIREMENTS) REGULATIONS, 2015
The 2015 Regulations are applicable to any entity (whether a company or not) accessing the
stockexchange, for listing equity shares,debt securities, preference shares, depository receipts,
securitized debt instruments, mutual fund units, and other securities as may be specified by SEBI.
INTRODUCTION
The latest set of norms provides broad principles for periodic disclosures by listed entities.
These regulations shall apply to the listed
entity who has listed any of the following designated securities on recognized stock exchange(s):
• Specified securities listed on main board or SME Exchange or Institutional trading platform;
• Non-convertible debt securities, non-convertible redeemable preference Shares, perpetualdebt
instrument, perpetual non-cumulative preference Shares;
• Indian depository receipts;
• Securitized debt instruments;
• Units issued by mutual funds;
• Any other securities as may be specified by the Board.
Features of the SEBI (LODR) Regulations, 2015: (key : T-COOP)

1. Transition Period :
Time Limit to comply with other provisions of the regulations has been given for 90 Daysi.e.it became
effective from 1st December, 2015
2. Companies Act,2013:
The Regulations have been structured and designed in such a way so that they are alignedwith
Companies Act, 2013.
3.OECD
The regulations have provided broad principles for periodic disclosures by the listedentities and also
have incorporated the principles for corporate governance they havebeen formed on the lined with
OECD(Organization for Economic Co-operation and Development).
4. Obligations:
Obligations which are applicable to specific types of securities have been incorporated in separate
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chapters.
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5. Pre and Post Listing :

In order to avoid any sort of confusion or overlapping, pre-listing as well as post listingrequirements
have been incorporated in the Listing Regulations.
COMMON OBLIGATIONS OF LISTED

ENTITIES
This part deals with the obligations and responsibilities
upon all the listed entities.
A responsibility has been cast upon Key Managerial
Personnel (KMP’S), Directors, and Promoters that they
shall comply with responsibilities or obligations assigned to
them under the regulations.
The following are the common obligations on Listed entities:-

1. Regulation 6: Compliance Officer And his Obligations
A listed entity shall appoint a qualified Company Secretary as the Compliance Officer.
The Compliance officer so appointed shall be responsible for ensuring conformity with regulatory
compliance, co-ordination and reporting to the Board, ensuring that correct procedures have been
followed that would result in correctness of information filed by listed entity under the regulations and
monitoring email address of grievance redressal division.
2. Regulation 7: Share Transfer Agent

The listed entity shall appoint a share transfer agent or manage the share transfer facility in house.
QUARTERLY COMPLIANCES– Listed Entity

A. Regulation 13(3):- Grievance Redressal
Mechanism
The listed entity shall file with the recognized stock
exchange(s) on a quarterly basis, within 21 days from the end
of each quarter, a statement disclosing :
i) the number of investor complaints
ii) pending at the beginning of the quarter + those received
during the quarter,
iii) disposed of during the quarter + those remaining
unresolved at the end of the quarter.
B. Regulation 27(2):- Other Corporate Governance Requirements

A listed entity quarterly compliance report on corporate governance in the format as specified by the
Board from time to time to the recognized stock exchange(s), Within 15 days from close of quarter.
C. Regulation 31(1): Holding of Specified Securities and Shareholding Pattern.

A listed entity submit a statement showing holding of securities and shareholding pattern
separately for each class of securities :-
(a) One day prior to listing of its securities on the stock exchange(s);
(b) On a quarterly basis, within 21 days from the end of each quarter; and,
(c) Within 10 days of any capital restructuring of the listed entity resulting in a changeexceeding 2% of
the total paid-up share capital.
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D. Regulation 33(3): Financial Results

The listed entity submit quarterly and year-to-date standalone financial results to the stock
exchange within 45 days of end of each quarter, other than the last quarter.
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E. Regulation 32(1): Statement of Deviation(S) Or Variation(S)

A listed entity shall submit to the stock exchange the following statement(s) on a quarterly basis for
public issue, rights issue, preferential issue etc. ,-
(a) indicating deviations, if any, in the use of proceeds from the objects stated in the offer document or
explanatory statement to the notice for the general meeting, as applicable;
(b) indicating category wise variation(capital expenditure, sales and marketing, working capital etc.)
between projected utilization of funds made by it in its offer document or explanatory statement to the
notice for the general meeting, as applicable and the actual utilization of funds.
PRIOR INTIMATION OF BOARD MEETING
A. Regulation 29(1): Financial Results

At least 5 days in advance (excluding date of meeting and
date of intimation).
B. Other Matters Regulation 29(2)

For following purposes Intimation shall be required to be
made at least 2 working days in advance, excluding the date
of the intimation and date of the meeting:-
• Proposal for Voluntary Delisting by the listed entity from the stock exchange(s);
• Fund raising by way of further public offer, rights issue, American Depository Receipts/Global
Depository Receipts/Foreign Currency Convertible Bonds, qualified institutions placement, debt
issue, preferential issue or any other method and for determination of issue price.
• Declaration/recommendation of dividend, issue of convertible securities including convertible
debentures or of debentures carrying a right to subscribe to equity shares or the passing over of
dividend
• The proposal for declaration of bonus securities where such proposal is communicated to the
board of directors of the listed entity as part of the agenda papers;
• Proposal for Buyback of Securities.
C. Regulation 29(3): Prior Intimation

The listed entity shall give intimation to the stock exchange(s) at least 11 working daysbefore any of
the following proposal is placed before the board of directors about any alteration in the–
• form or nature of any of its securities that are listed on the stock exchange or in the rights or
privileges of the holders thereof.
• date on which, the interest on debentures or bonds, or the redemption amount of redeemable
shares or of debentures or bonds, shall be payable.
D. Regulation 42(2): Record Date or Date of Closure of Transfer Books

A listed entity shall give notice in to stock exchange(s) of record date specifying thepurpose of the
recorddate, at least 7 working days (excluding the date of intimation andthe record date).
E. Regulation 42(3): Dividend

A listed entity shall recommend or declare all dividend and/or cash bonuses atleast 5 working days
(excluding the date of intimation and the record date) before the record date.
F. Regulation 46(3):- Website

A listed entity shall update any change in the content of its website within 2 working daysfrom the date
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of such change in content.

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ANNUAL / YEARLY COMPLIANCES

The annual/yearly compliances that have to be followed are as follows:
A. Regulation 33(3): Financial Results
Listed entity shall submit audited standalone financial results for the financial year, along with the
audit report and either Form A (for audit report with unmodified opinion) or Form B (for audit
report with modified opinion) within 60 days from end of Financial Year.
B. Regulation 34: Annual Report

A listed entity shall submit the annual report to the stock exchange within 21 working days of it being
approved and adopted in the Annual General Meeting as per the provisions of the Companies Act,
2013.
C. Regulation 36(2): Documents & Information to Shareholders:

A listed entity shall send annual report to the holders of securities not less than 21 days before the
Annual General Meeting.
CORPORATE GOVERNANCE
• Approval for related party transactions through a resolution.
• All existing material related party contracts / arrangements, prior to

the date of notification of these Regulations, and which may continue
beyond, to be placed for approval of the shareholders in first General
Meeting subsequent to notification of these Regulations.
Compliance Report on Corporate Governance

The following reports are submitted to Stock Exchange:-
• Quarterly Compliance Report – to be submitted within 15 days from end of quarter
• Compliance Report to be submitted within 6 months from the end of financial year – may be
submitted along with second quarter report.
• Annual Compliance Report.
TYPES OF COMMITTEES UNDER LODR REGULATIONS

A. Audit Committee:
Refer provision u/s 177 of Companies Act, 2013,
Meetings of Audit Committee: Refer provision u/s 173 and 174 of Companies Act, 2013 from
textbook & then go through the table given at the end of this chapter.
B. Nomination and Remuneration Committee:

Refer provision u/s 178 of Companies Act, 2013 and go through the table given at the end of this
chapter.
C. Stakeholders Relationship Committee:

Refer provision u/s 178 of Companies Act, 2013 and go through the table given at the end of this
chapter.
D. Risk Management Committee

• The Board of directors shall constitute a Risk Management Committee.
• The majority of members of Risk Management Committee shall consist of board members.
• The Chairperson of the Risk management committee shall be a member of the board of directors
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and senior executives of the listed entity may be members of the committee.
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• The Board of directors shall define the role and responsibility of the Risk Management Committee
and may delegate monitoring and reviewing of the risk management plan to the committee and such
other functions as it may deem fit.
• The provisions of this regulation regarding risk management committee shall be applicable to top
100 listed entities, determined on the basis of market capitalization, as at the end of the immediate
previous financial year.
ROLE OF COMPLIANCE OFFICER

The role of a Compliance Officer is as follows:
• Listed Company shall ensure KMP, Directors, Promoters complies with obligations
• Compliance Officerensure listed Company confirms with regulatory provisions in letter and spirit.
• Co-ordination with – Board and Stock Exchange
• Report to – Board and Stock Exchange.
• Ensure – Correct, Authentic, Comprehensive info is filed.
• Monitor email id for grievance redressal.
• Determining materiality of information to be reported to stock exchange.
• Report to Board about compliance.
• Ensure compliance with SS 1(Board Meeting) and SS 2(General Meeting)
•To provide guidance to director about their Duties.
•To assist board in conduct of affairs of the Company.
•Assist and Advice board in complying with CG and best practices.
•Facilitate meeting / represent company etc…
Amendment:
(1) Top 1000 companies to appoint one woman independent director by April 01, 2020 on its Board
of Directors.
(2) Quorum for BM :

Quorum of Top 1000 listed entities with effect from April 1, 2019 and of the Top 2000 listed entities
with effect from April 1, 2020 shall be :-
HIGHER of :-
(a) 1/3rd of its total strength or
(b) 3 directors,
including at least 1 independent director.
Explanation I – For removal of doubts, it is clarified that the participation of the directors by video
conferencing or by other audio-visual means shall also be counted for the purposes of such quorum.
(3) A person will not hold directorship position in more than seven listed firms from 2020.
(4) A person who is serving as a WTD/MD in any listed entity will not serve as an Independent
Director in more than three listed entity.
(5) A person will not serve as an independent director in more than seven listed entities.
(6) Any person or entity belonging to the promoter group of the listed entity and holding atleast 20
percent stake in the listed firm will be deemed to be a related party.
(7) Shareholder approval will be needed for making royalty or brand payments to related parties
exceeding 2 percent of consolidated turnover.
(8) Companies are now required to disclose details about utilisation of funds raised through qualified
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institutional placement (QIP) and preferential issues in their annual reports.
(9) Further, companies will have to make disclosure about auditor credentials, audit fees and any
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material change in such fee as well as detailed reasons for resignation of auditor.
(10) The approval of shareholders by passing an SR will be required every year in cases where the
annual remuneration payable to a single non- executive director exceeds 50% of the total annual
remuneration payable to all non-executive directors.
(11) Further, shareholders' approval will be needed if the annual fee payable to executive director,
who is part of promoter entity, exceeds Rs 5 crore or 2.5 percent of the net profits of the listed entity.
(12) Approval is also required in case if there is more than one such director and the aggregate annual
fee to such directors is more than 5 percent of the net profits of the listed entity.
(13) Top 100 listed entities by market capitalization, determined as on March 31st of every financial
year, shall hold their annual general meetings within a period of five months from the date of closing
of the financial year. (Market Cap. = Market Price/Share * No. of Shares)
(14) The quorum for every board meeting of top 2,000 listed entities from April 1, 2020 will be one-
third of its total strength or three directors, whichever is higher, including at least one independent
director.
(15) Special Resolution would be must for non-executive directors over 75 years of age.
(16) Top 500 listed companies also need to have a risk management committee for cyber security.
(17) With effect from October 1, 2018, all credit ratings obtained by the entity for all its outstanding
instruments, updated immediately as and when there is any revision in any of the ratings.
(18) These amended regulations also cover issues in accounting and auditing practices by listed
companies in order to improve effectiveness of board evaluation practices.
(19) With effect from April 1, 2022, the top 500 listed entities shall ensure that the Chairperson of the
board of such listed entity shall -
(a) be a non-executive director;
(b) not be related to the Managing Director or the Chief Executive Officer as per the definition of the
term “relative” defined under the Companies Act, 2013:
(20) For the top 1000 listed entities based on market capitalization (calculated as on March 31 of
every financial year), business responsibility report describing the initiatives taken by them from an
environmental, social and governance perspective, in the format as specified by the Board from time
to time:
Provided that listed entities other than top 1000 listed companies based on market capitalization and
listed entities which have listed their specified securities on SME Exchange, may include these
business responsibility reports on a voluntary basis in the format as specified.
(21) Number of Directors :

Top 2000 listed entities (w.e.f from April 1, 2020) shall comprise of not less than 6 directors on
BOD.
(22) Age limit of NED :

No listed entity shall appoint a person or continue the directorship of any person as a non-executive
director who has attained the age of 75 years unless a SPECIAL RESOLUTION is passed.
(23) High Remuneration to Promoter ED :

The fees or compensation payable to executive directors who are promoters or members of the
promoter group, shall be subject to the approval of the shareholders by SPECIAL RESOLUTION in
249
general meeting, if:

If there is 1 such Director - Remuneration > Higher of {Rs. 5 crore or 2.5% of Profit u/s 198}
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If there is more than 1 such Director - Remuneration > 5% of Profit u/s 198
Provided that the approval of the shareholders under this provision shall be valid only till the expiry of
the term of such director.
(24) AGM Notice

The notice being sent to shareholders for an AGM, where the statutory auditor(s) is/are proposed to
be appointed/re-appointed shall include the following disclosures as a part of the explanatory
statement to the notice:
(a) Proposed fees payable to the statutory auditor(s) along with terms of appointment and in case of a
new auditor, any material change in the fee payable to such auditor from that paid to the outgoing
auditor along with the rationale for such change;
(b) Basis of recommendation for appointment including the details in relation to and
CREDENTIALS of the statutory auditor(s) proposed to be appointed.
(25) Secretarial Audit :

Every listed entity and its material unlisted subsidiaries incorporated in India shall undertake
secretarial audit and shall annex with its annual report, a secretarial audit report, given by a company
secretary in practice, in such form as may be specified with effect from the year ended March 31,
2019.
(26) Management & Discussion Analysis – Extra Disclosure of change in Ratios

a) Details of significant changes (i.e. change of 25% or more as compared to the immediately previous
financial year) in key financial ratios, along with detailed explanations for the same, including:
(i) Debtors Turnover
(ii) Inventory Turnover
(iii) Interest Coverage Ratio
(iv) Current Ratio
(v) Debt Equity Ratio
(vi) Operating Profit Margin (%)
(vii) Net Profit Margin (%), as applicable.
b) Details of any change in Return on Net Worth as compared to the immediately previous financial
year along with a detailed explanation thereof.
Agreement for profit sharing from securities dealings :
No employee including KMP or director or promoter of a listed entity shall enter into any agreement
for himself or on behalf of any other person, with any shareholder or any other third party with regard
to compensation or profit sharing in connection with dealings in the securities of such listed entity,
unless prior approval for the same has been obtained from the Board of Directors as well as public
shareholders by way of an ORDINARY RESOLUTION.
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Given below is the table showcasing the Difference/Additional points in various Committees
as per SEBI LODR when compared to Companies Act Section 177 & 178.
Particulars Audit Committee NRC SRC Risk
Management
Applicability All Listed Entities All Listed Entities All Listed Entities Top 100 Listed
Entities
Min. No. Of Atleast 3 Atleast 3 Atleast 3 Atleast 3

Members
Kind of Directors Both Only NED Both Both

(ED / NED)
No. of ID Atleast 2/3rd of Atleast 50% of No such criteria No such criteria

Required Members shall be Members shall be ID.
ID.
Chairperson CHAIRPERSON CHAIRPERSON CHAIRPERSON Shall CHAIRPERSON

shall be Shall be Independent be a non-executive shall be a
Independent. and also that director and may or member of the
CHAIRPERSON of may not be board of directors
Company shall not Independent Director. and senior
chair the Committee. executives of the
listed entity may
be members of
the committee
Presence at AGM CHAIRPERSON of CHAIRPERSON may No Such criteria. No Such criteria.

ACM shall be be present at AGM
present at AGM.
Other Members – – The Board shall Board shall

decide composition of decide
other members of the composition of
Committee other members of
the
Committee But
majority shall be
members of the
Board
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PREVENTION OF MONEY LAUNDERING ACT, 2002
1 Major Definitions
(a) Money – Laundering
(b) Proceeds of crime
(c) Property
(d) Payment System
Actually to understand the meaning of money – laundering it is essential to define proceeds of crime,
property and scheduled offence. And infact, all the above definitions have to be read together.
Clause (p) of sub section (1) of section 2 provides that"money-laundering" has the meaning assigned to
it in section 3. Moving to section 3, it is observed that whosoever directly or indirectly attempts to indulge
or knowingly assists or knowingly is a party or is actually involved in any process or activity connected
with the proceeds of crime including its concealment, possession, acquisition or use and projecting or
claiming it as untainted property shall be guilty of offence of money laundering.
Section 2(1)(u) defines "proceeds of crime" as any property derived or obtained, directly or indirectly,
by any person as a result of criminal activity relating to a scheduled offence or the value of any such
property. In terms of clause (v) of sub – section (1) of section 2, "property" means any property or assets
of every description, whether corporeal or incorporeal, movable or immovable, tangible or intangible
and includes deeds and instruments evidencing title to, or interest in, such property or assets, wherever
located.
In terms of clause (rb) of sub – section (1) of section 2 "payment system" means a system that enables
payment to be effected between a payer and a beneficiary, involving clearing, payment or settlement
service or all of them. It includes the systems enabling credit card operations, debit card operations,
smart card operations, money transfer operations or similar operations;
2 Punishment for the Offence of Money Laundering

Chapter II comprises of Sections 3 and 4. Section 3 deals with the offence of money laundering which
has been discussed in the definition part above. Section 4 provides for the punishment for Money-
Laundering. Whoever commits the offence of money-laundering shall be punishable with rigorous
imprisonment for a term which shall not be less than three years but which may extend to seven years
and shall also be liable to fine. But where the proceeds of crime involved in money-laundering relate to
any offence specified under paragraph 2 of Part A of the Schedule, the maximum punishmentmay
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extend to ten years instead of seven years.

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Significance and Aim of Prevention of Money Laundering Act, 2002: The preamble to the Act provides
thatit aims to prevent money–laundering and to provide for confiscation of property derived from, or
involved in, money–laundering and for matters connected therewith or incidental thereto.
In order to further strengthen the existing legal framework and to effectively combat money laundering,
terror financing and cross-border economic offences, an Amendment Act, 2009 was passed. The new
law seeks to check use of black money for financing terror activities.
Financial intermediaries like full-fledged money changers, money transfer service providers and credit
card operators have also been brought under the ambit of The Prevention of Money-Laundering Act.
Consequently, these intermediaries, as also casinos, have been brought under the reporting regime of
the enforcement authorities. It also checks the misuse of promissory notes by FIIs, who would now be
required to furnish all details of their source.
The new law would check misuse of “proceeds of crime” be it from sale of banned narcotic substances
or breach of the Unlawful Activities (Prevention) Act. The passage of the Prevention of Money
Laundering (Amendment), 2009 have enabled India’s entry into Financial Action Task Force (FATF),
an inter-governmental body that has the mandate to combat money laundering and terrorist financing.
3 Obligation of Banking Companies, Financial Institutions and Intermediaries

or a person carrying on a designated business or profession
Section 12 provides for the obligation of Banking Companies, Financial Institutions and Intermediaries
or aperson carrying on a designated business or profession. According to sub- section (1), every banking
Co., financial institution and intermediary or a person carrying on a designated business or profession
shall –
(a) maintain a record of all transactions, including information relating to transactions covered under
clause (b), in such manner as to enable it to reconstruct individual transactions;
(b) furnish to the Director within such time as may be prescribed, information relating to such
transactions, whether attempted or executed, the nature and value of which may be prescribed;
(c) verify the identity of its clients in such manner and subject to such conditions, as may be prescribed;
(d) identify the beneficial owner, if any, of such of its clients, as may be prescribed;
(e) maintain record of documents evidencing identity of its clients and beneficial owners as well as
account files and business correspondence relating to its clients.
Every information maintained, furnished or verified, save as otherwise provided under any law for the
time being in force shall be kept confidential.
The records referred to in clause (a) of sub-section (1) shall be maintained for a period of five years
from the date of transaction between a client and the reporting entity.
The records referred to in clause (e) of sub-section (1) shall be maintained for a period of five years after
the business relationship between a client and the reporting entity has ended or the account has been
closed, whichever is later.
The Central Government may, by notification, exempt any reporting entity or class of reporting entities
from any obligation under this chapter.
Access to information (Section 12A): (i) The Director may call for from any reporting entity any of the
records referred to in sub-section (1) of section 12 and any additional information as he considers
necessary for the purposes of this Act.
(ii) Every reporting entity shall furnish to the Director such information as may be required by him
under sub-section (1) within such time and in such manner as he may specify.
(iii) Save as otherwise provided under any law for the time being in force, every information sought by
the Director under sub-section (1), shall be kept confidential.
Section 12AA- ENHANCED DUE DILIGENCE (New Section inserted as per Finance Act,2019)
253
(1) Every reporting entity shall, prior to the commencement of each specified transaction,-
(a) authenticate the identity of the clients undertaking such specified transaction in such manner and
subject to such conditions as may be prescribed;
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(b) take additional steps to examine the ownership and financial position, including sources of funds of
the client, in such manner as may be prescribed;
(c) take additional steps as may be prescribed to record the purpose behind conducting the specified
transaction and the intended nature of the relationship between the transaction parties.
(2) Where the client fails to fulfil the conditions laid down under subsection (1), the reporting entity
shall not allow the specified transaction to be carried out.
(3) Where any specified transaction or series of specified transactions undertaken by a client is
considered suspicious or likely to involve proceeds of crime, the reporting entity shall increase the
future monitoring of the business relationship with the client, including greater scrutiny or transactions
in such manner as may be prescribed.
Explanation.––
For the purpose of this section, “authentication” means the process as defined under sub-section (c) of
section 2 of the Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services)
Act, 2016.
(4) The information obtained while applying the enhanced due diligence measures under sub-section
(1) shall be maintained for a period of five years from the date of transaction between a client and the
reporting entity.’.
Example: Specified transaction means – withdrawal / deposit in cash, exceeding such amount;
transaction in For Example, exceeding such amount; transaction in any high value imports or
remittances; such other transactions in the interest of revenue or where there is a high risk of money
laundering or terrorist financing.
Section 13 deals with the powers of the Director. The Director may, either of his own motion or on an
application made by any authority, officer or person, may make such inquiry or cause such inquiry to
be made, as he thinks fit to be necessary, with regard to the obligations of the reporting entity, under this
chapter. If at any stage of inquiry or any other proceedings before him, the Director having regard to
the nature and complexity of the case, is of the opinion that it is necessary to do so, he may direct the
concerned reporting entity to get its records, as may be specified, audited by an accountant from amongst
a panel of accountants, maintained by the Central Government for this purpose.
The expenses of, and incidental to, any audit specified above shall be borne by the Central
Government.
If the Director, in the course of any inquiry, finds that a reporting entity or its designated director on the
Board or any of its employees has failed to comply with the obligations under this Chapter, then, without
prejudice to any other action that may be taken under any other provisions of this Act, he may
(a) issue a warning in writing; or
(b) direct such reporting entity or its designated director on the Board or any of its employees, to comply
with specific instructions; or
(c) direct such reporting entity or its designated director on the Board or any of its employees, to send
reports at such interval as may be prescribed on the measures it is taking; or
(d) by an order, impose a monetary penalty on such reporting entiy or its designated director on the
Board or any of its employees, which shall not be less than ten thousand rupees but may extend to one
lakh rupees for each failure.
The Director shall forward a copy of the order passed under sub-section (2) to every banking Co.,
financial institution or intermediary or person who is a party to the proceedings under that sub-section.
For the purpose of this section, "accountant" shall mean a chartered accountant within the meaning of
the Chartered Accountants Act, 1949.
Section 14 Gives immunity to reporting entity, its directors and employees etc., against civil or criminal
proceedings for furnishing information under clause (b) of sub-section (1) of section 12.
254
Section 15 Provides for prescribing the procedure and manner of furnishing information by reporting
entities. The Central Government may, in consultation with the Reserve Bank of India, prescribe the
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procedure and the manner of maintaining and furnishing information under sub-section (1) of section
12 for the purpose of implementing the provisions of this Act.
4 Appeals to Appellate Tribunal & High Court

1.Adjudicating Authority / 2.Director of Money
Laundering giving their decisions in case of:
1. Individuals
2. Banks
Satisfied? Yes END
NO
Appeal to Appellate Tribunal within 45 Days from

Order of Adjudicating Authority/Director
Order of Appellate Tribunal
Satisfied? Yes END
NO
Whether Question of Fact or Question of Law
Appeal to High court within 60 days

From the order of Appellate tribunal
Order of High Court = Final and

Binding on all the parties to appeal
5 SPECIAL COURTS (Section 43)

1. Power of CG to designate Special Court(s) [Sec. 43 (1)]
CG in consultation with the Chief Justice of the High Court, shall for trial of offence punishable u/s 4
by notification designate one or more Court of Session as Special Court or Special Courts for such area
or areas or for such case of class or group of cases as may be specified in the notification.
2. Power of Special Court to try any other offence [Sec. 43(2)]

While trying an offence under this Act, a Special Court shall also try an offence, other than an offence
referred to in sub-section(1) with which the accused may, under the CrPC, 1973, be charged at the same
255
trial.
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6 OFFENCES TO BE COGNIZABLE AND NON-BAILABLE (Section 45)

Section 45 provides that the offences under the Act shall be cognizable and non -bailable.
Notwithstanding anything contained in the CrPC, 1973, no person accused under this act shall be
released on bail or on his own bond unless -
(i) The Public Prosecutor has been given an opportunity to oppose the application for such release and
(ii) Where the Public Prosecutor opposes the application, the court is satisfied that there are reasonable
grounds for believing that he is not guilty of such offence and that he is not likely to commit any offence
while on bail.
In case of any person who is under the age of 16 years or in case of a woman or in case of a sick or
infirm person, or is accused either on his own or along with other co-accused of money-laundering a
sum of less than Rs. 1 Crore, the Special Court can direct the release of such person on bail. The Special
Court cannot take cognizance of any offence under the Act, unless a complaint in writing is made by:-
(a) The Director or
(b) Any officer of the Central Government or a State Government authorised in writing in this behalf by
the Central Government by a general or special order made in this behalf by that Government.
Notwithstanding anything contained in the CrPC, 1973, or any other provision of this Act, no police
officer shall investigate into an offence under this Act unless specifically authorised, by the Central
Government by a general or special order, and, subject to such conditions as may be prescribed.
7 Disclosure of Information (Section 66)

The Director or any other authority specified by him by a general or special or der in this behalf may
furnish or cause to be furnished to -
(i)any officer, authority or body performing any functions under any law relating to imposition of any
tax, duty or cess or to dealings in foreign exchange, or prevention of illicit traffic in the narcotic drugs
and psychotropic substances under the Narcotic Drugs and Psychotropic Substances Act, 1985 or
(ii)If the Director or other authority specified under sub-section (1) is of the opinion, on the basis of
information or material in his possession, that the provisions of any other law for the time being in force
are contravened, then the Director or such other authority shall share the information with the
concerned agency for necessary action.
8 Recovery of fine or penalty (Section 69)

Where any fine or penalty imposed on any person under section 13 or section 63 is not paid within six
months from the day of imposition of fine or penalty, the Director or any other officer authorised by
him in this behalf may proceed to recover the amount from the said person in the same manner as
prescribed in Schedule II of the Income-tax Act, 1961 for the recovery of arrears and he or any officer
authorised by him in this behalf shall have all the powers of the Tax Recovery Officer mentioned in the
said Schedule for the said purpose. 256
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Overview of Insolvency and Bankruptcy Code, 2016
Applicability Extent and Commencement of the Code: (Section 1)

→ Structure of the Code :
Part I – (Sec 1-3) – Preliminary
Part II- (Sec 4-77) - Insolvency Resolution and Liquidation for Corporates
Part III- (Sec 78-187) – Insolvency resolution and Bankruptcy for Partnership Firms and
Individuals
Part IV – (Sec 188-223) – IPA’s and IU’s
Part V – (Sec 224-255) – Miscellaneous Provisions
→ Extent of Applicability of the code :

• Whole of India
The Insolvency and Bankruptcy Code, it extends to the whole of India except Part III (Insolvency
Resolution and Bankruptcy for Individuals and Partnership Firm) which excludes the state of Jammu
and Kashmir.
The Code shall apply for insolvency, liquidation, voluntary liquidation or bankruptcy of the following
entities:-
(a) Any company incorporated under the Companies Act, 2013 or under any previous law.
(b) Any other company governed by any special act for the time being in force, except in so far as the
said
provision is inconsistent with the provisions of such Special Act.
(c) Any Limited Liability Partnership under the LLP Act, 2008.
(d) Any other body incorporated under any law for the time being in force, as the Central Government
may by notification specify in this behalf.
257
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Intention and Purpose behind enactment of Insolvency and Bankruptcy Code,

2016
Intention:–
- To strike the right balance
- of interests of all stakeholders of the business enterprise
- so that the corporates and other business entities enjoy availability of credit
- and at the same time the creditor do not have to bear the losses on account of default.
Purpose:–
(a) To consolidate and amend the laws relating to reorganisation and insolvency resolution of corporate
persons, partnership firms and individuals.
(b) To fix time periods for execution of the law in a time bound manner.
(c) To maximize the value of assets of interested persons.
(d) To promote entrepreneurship.
(e) To increase availability of credit.
(f) To balance the interests of all the stakeholders including alteration in the order of priorityofpayment
of Government dues.
(g) To establish an Insolvency and Bankruptcy Board of India as a regulatory body for insolvency and
bankruptcy Law.
Need for a New Law

It takes an average of 4 to 5 years in insolvency resolution process in India.
The main reason behind such delay in the legal process is the existence of overlapping legislations and
adjudicating authorities dealing with insolvency of companies and individuals in India.
Distinguishing features of Code :

(i) Comprehensive Law:
Insolvency Code is a comprehensive law which envisages and regulates the process of insolvency and
bankruptcy of all persons including corporates, partnerships, LLPs and individuals.
(ii) Withering away of Multiplicity of Laws:
The Code has withered away the multiple laws covering the recovery of debts and insolvency and
liquidation process and presents singular platform for all the reliefs relating to recovery of debts and
insolvency.
(iii) Low Time Resolution:
The Code provides a low time resolution and defines fixed time frames for insolvency resolution of
companies and individuals. The process is mandated to be completed within 180 days, extendable by
maximum of 90 days. Further, for a speedier process there is provision for fast-track resolution of
corporate insolvency within 90 days. If insolvency cannot be resolved, the assets of the borrowers may be
sold to repay creditors.
(iv) One Window Clearance:
The Code has been drafted to provide one window clearance to the applicant whereby he gets the
appropriate relief by the same authority.
(v) Clarity in Process:
There is a clear and unambiguous process to be followed by all stakeholders. There is also shift of control
from shareholders and promoters to creditors.
(vi) One Chain of Authority:
There is one chain of authority under the Code. It does not even allow the Civil Courts to interfere with
the application pending before the adjudicating authority, thereby reducing the multiplicity of litigations.
258
The National Company Law Tribunal (NCLT) will adjudicate insolvency resolution for companies. The
Debt Recovery Tribunal (DRT) will adjudicate insolvency resolution for individuals.
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(vii) Protects the Interests of Workmen and Employees:

The Code also protects the interests of workmen and employees. It excludes dues payable to workmen
under provident fund, pension fund and gratuity fund from the debtor’s assets during liquidation.
(viii) New Regulatory Authority :
It provides for constitution of a new regulatory authority, ‘Insolvency and Bankruptcy Board of
India’ to regulate professionals, agencies and information utilities engaged in resolution of insolvencies of
companies, partnership firms and individuals. The Board has already been established and has started
functioning.
Establishment of Information Utilities (IUs):

-A unique feature of code is establishment of Information Utilities (IUs) which are intended to function
as a databank to collect, collate and disseminate financial information and to facilitate insolvency
resolution.
-It is envisioned that in the long run, IUs will have data on debts and credits of all the business houses
and it will be able to create an automatic trigger in case of default by any debtor and the authority may
initiate the insolvency process as required.
-Such a system will reduce the risk of credit in the economy.
→ Applicability of the Code : (Sec 2)

The provisions of this Code shall apply to—
(a) any company incorporated under the Companies Act, 2013 or under any previous company law;
(b) any other company governed by any special Act for the time being in force, except in so far as the
said provisions are inconsistent with the provisions of such special Act;
(c) any Limited Liability Partnership incorporated under the Limited Liability Partnership Act, 2008;
(d) such other body incorporated under any law for the time being in force, as the Central Government
may, by notification, specify in this behalf; and
(e) Personal guarantors to corporate debtors;
(f) partnership firms or proprietorship firms; and
(g) individuals, other than persons referred to in clause (e)
Exception : Code is NA to Banks , Insurance Co. , PFI
Important Definitions [Sections 3 and 5]:

(1) Corporate Person means
(a) a company as defined under section 2(20) of the Companies Act, 2013;
(b) a Limited Liability Partnership as defined in 2(1)(n) of Limited Liability Act, 2008; or,
(c) any other person incorporated with limited liability under any law for the time being in force but shall
not include any financial service provider. [Section 3(7)]
(2) Corporate Debtor means a corporate person who owes a debt to any person. [Section 3(8)]
(2A) “base resolution plan” means a resolution plan provided by the corporate debtor under clause (c)
of ub-section (4) of section 54A
(3) Creditor means any person to whom a debt is owed and includes a financial creditor, an
operationalcreditor, a secured creditor, an unsecured creditor and a decree holder. [Section 3(10)]
(4) Debt means a liability or obligation in respect of a claim which is due from any person and includes
afinancial debt and operational debt. [Section 3(11)]
(5) Claim means a right to payment or right to remedy for breach of contract if such breach gives riseto a
right to payment whether or not such right is reduced to judgment, fixed, matured, unmatured, disputed,
undisputed, legal, equitable, secured or unsecured. [Section 3(6)]
(6) Default means non-payment of debt when whole or any part or instalment of the amount of debt has
become
259
due and payable and is not paid by the debtor or the corporate debtor, as the case may be. [Section 3(12)]
(7) Financial information, in relation to a person, means one or more of the following categories of
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information, namely:—
(a) records of the debt of the person;

(b) records of liabilities when the person is solvent;
(c) records of assets of person over which security interest has beencreated;
(d) records, if any, of instances of default by the person against anydebt;
(e) records of the balance sheet and cash-flow statements of the person; and
(f) such other information as may be specified. [Section 3(13)]
(8) A person includes:-
• an individual
• a Hindu Undivided Family
• a company
• a trust
• a partnership
• A limited liability partnership, and
• any other entity established under a Statute.
And includes a person resident outside India [Section 3(23)]
(9) Secured creditor means a creditor in favour of whom security interest is created; [Section 3(30)]
(10) Security Interest means right, title or interest or a claim to property, created in favour of, or provided
for a secured creditor by a transaction which secures payment or performance of an obligation and
includes mortgage, charge, hypothecation, assignment and encumbrance or any other agreement or
arrangement securing payment or performance of any obligation of any person. [Section 3(31)]
(11) A transaction includes an agreement or arrangement in writing for transfer of assets, or funds, goods
or services, from or to the corporate debtor. [Section 3(33)]
(12) Transfer includes sale, purchase, exchange, mortgage, pledge, gift, loan or any other form of transfer
of right, title, possession or lien. In case of property- transfer of property means transfer of any property.
[Section 3(34)]
(13) Transfer of property means transfer of any property and includes a transfer of any interest in the
property and creation of any charge upon such property; [Section 3(35)]
(14) Adjudicating Authority, for the purposes of this Part II (Insolvency Resolution and Liquidation for
corporate persons), means National Company Law Tribunal constituted under section 408 of the
Companies Act, 2013. [Section 5(1)]
(15) Corporate applicant means—
(a) corporate debtor; or
(b) a member or partner of the corporate debtor who is authorised to make an application for the
corporate insolvency resolution process or the pre-packaged insolvency resolution process under the
constitutional document of the corporate debtor; or
(c) an individual who is in charge of managing the operations and resources of the corporate debtor; or
(d) a person who has the control and supervision over the financial affairs of the corporate debtor;
[Section 5(5)]
Sec 5A - "corporate guarantor" means a corporate person who is the surety in a contract of guarantee to a
corporate debtor;’
(16) Dispute includes a suit or arbitration proceedings relating to-
(a) existence of the amount of debt;
(b) the quality of goods or service; or
(c) the breach of a representation or warranty; [Section5(6)]
(17) Financial creditor means any person to whom a financial debt is owed and includes a person to
whom such debt has been legally assigned or transferred to; [Section 5(7)]
(18) Financial position, in relation to any person, means the financial information of a person as on a
certain date; [Section 5(9)]
260
(19) Initiation date means the date on which a financial creditor, corporate applicant or operational
creditor, as the case may be, makes an application to the Adjudicating Authority for initiating corporate
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insolvency resolution process or the pre-packaged insolvency resolution process; [Section 5(11)]
(20) Insolvency commencement date means the date of admission of an application for initiating
corporate insolvency resolution process by the Adjudicating Authority under sections 7, 9 or section 10,
as the case may be; [Section5(12)]
(21) Insolvency resolution process period or by the corporate debtor during the pre-packaged insolvency
resolution process period, as the case may be means the period of one hundred and eighty days beginning
from the insolvency commencement date and ending on one hundred and eightieth day; [Section 5(14)]
(22) Liquidation commencement date means the date on which proceedings for liquidation commence
in accordance with section 33 or section 59, as the case may be; [Section 5(17)]
(23) Operational creditor means a person to whom an operational debt is owed and includes any person
towhom such debt has been legally assigned or transferred; [Section 5(20)]
(24) Related party, in relation to a corporate debtor, means—
(a) a director or partner or a relative of a director or partner of the corporate debtor;
(b) a key managerial personnel or a relative of a key managerial personnel of the corporate debtor;
(c) a limited liability partnership or a partnership firm in which a director, partner, or manager of the
corporate debtor or his relative is a partner;
(d) a private company in which a director, partner or manager of the corporate debtor is a director and
holds along with relatives, more than two percent of its share capital;
(e) a public company in which a director, partner or manager of the corporate debtor is a director and
holds along with relatives, more than two percent of its paid-up share capital;
(f) anybody corporate whose board of directors, managing director or manager, in the ordinary courseof
business, acts on the advice, directions or instructions of a director, partner or manager of the corporate
debtor;
(g) any limited liability partnership or a partnership firm whose partners or employees in the ordinary
course of business, acts on the advice, directions or instructions of a director, partner or manager of the
corporate debtor;
(h) any person on whose advice, directions or instructions, a director, partner or manager of the corporate
debtor is accustomed to act;
(i) a body corporate which is a holding, subsidiary or an associate company of the corporate debtor, or a
subsidiary of a holding company to which the corporate debtor is a subsidiary;
(j) any person who controls more than twenty percent of voting rights in the corporate debtor on account
of ownership or a voting agreement;
(k) any person in whom the corporate debtor controls more than twenty percent of voting rights on
account of ownership or a voting agreement;
(l) any person who can control the composition of the board of directors or corresponding governing
body of the corporate debtor;
(m) any person who is associated with the corporate debtor on account of –
(i) participation in policy making processes of the corporate debtor; or,
(ii) having more than two directors in common between the corporate debtor and such person; or
(iii) interchange of managerial personnel between the corporate debtor and such person; [Section5(24)]
(24A) "related party", in relation to an individual, means—

(a) a person who is a relative of the individual or a relative of the spouse of the individual;
(b) a partner of a limited liability partnership, or a limited liability partnership or a partnership firm, in
which the individual is a partner;
(c) a person who is a trustee of a trust in which the beneficiary of the trust includes the individual, or the
terms of the trust confers a power on the trustee which may be exercised for the benefit of the individual;
(d) a private company in which the individual is a director and holds along with his relatives, more than
two per cent. of its share capital;
(e) a public company in which the individual is a director and holds along with relatives, more than two
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per cent. of its paid-up share capital;

(f) a body corporate whose board of directors, managing director or manager, in the ordinary course of
business, acts on the advice, directions or instructions of the individual;
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(g) a limited liability partnership or a partnership firm whose partners or employees in the ordinary course
of business, act on the advice, directions or instructions of the individual;
(h) a person on whose advice, directions or instructions, the individual is accustomed to act;
(i) a company, where the individual or the individual along with its related party, own more than fifty per
cent. of the share capital of the company or controls the appointment of the board of directors of the
company.
Explanation.— For the purposes of this clause,—
(a) "relative", with reference to any person, means anyone who is related to another,
in the following manner, namely:—
(i) members of a Hindu Undivided Family, (ii) husband, (iii) wife, (iv) father, (v) mother, (vi) son, (vii)
daughter,
(viii) son's daughter and son,
(ix) daughter's daughter and son,
(x) grandson's daughter and son,
(xi) granddaughter's daughter and son,
(xii) brother,
(xiii) sister,
(xiv) brother's son and daughter,
(xv) sister's son and daughter,
(xvi) father's father and mother,
(xvii) mother's father and mother,
(xviii)father's brother and sister,
(xvix)mother's brother and sister, and
(b) wherever the relation is that of a son, daughter, sister or brother, their spouses
shall also be included;'
(25) Resolution applicant means a person, who individually or jointly with any other person, submits a
resolution plan to the resolution professional pursuant to the invitation made under clause (h) of sub-
section (2) of section 25
(26) Resolution professional, for the purposes of this Part, means an insolvency professional appointed
to conduct the corporate insolvency resolution process or the pre-packaged insolvency resolution process
and includes an interim resolution professional;
[Section 5(27)]
(27) Voting share means the share of the voting rights of a single financial creditor in the committee of
creditors which is based on the proportion of the financial debt owed to such financial creditor in relation
to the financial debt owed by the corporate debtor.
(28) Sec 5(15)

“interim finance” means any financial debt raised by the resolution professional during the insolvency
resolution process period or by the corporate debtor during the pre-packaged insolvency resolution
process period, as the case may be and such other debt as may be notified
In exercise of the powers conferred by clause (15) of section 5 of the Insolvency and Bankruptcy Code,
2016, the Central Government hereby notifies a debt raised from the Special Window for Affordable
and Middle-Income Housing Investment Fund I, for the purposes of the said clause.
Explanation.—For the purposes of this notification, the expression “Special Window for Affordable and
Middle-Income Housing Investment Fund I” shall mean the fund sponsored by the Central Government
for providing priority debt financing for stalled housing projects, as an alternate investment fund and
registered with the Securities and Exchange Board of India, established under sub-section (1) of section
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3 of the Securities and Exchange Board of India Act, 1992 , to provide financing for the completion of
stalled housing projects that are in the affordable and middle-income housing sector.
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Section 5(23A) “preliminary information memorandum” means a memorandum submitted by the

corporate debtor under clause (b) of sub-section (1) of section 54G;
(23B)“pre-packaged insolvency commencement date” means the date of admission of an application for
initiating the pre-packaged insolvency resolution process by the Adjudicating Authority under clause (a)
of sub-section (4) of section 54C;
(23C) “pre-packaged insolvency resolution process costs” means—
(a) the amount of any interim finance and the costs incurred in raising such finance;
(b) the fees payable to any person acting as a resolution professional and any expenses incurred by him
for conducting the pre-packaged insolvency resolution process during the prepackaged insolvency
resolution process period, subject to sub-section (6) of section 54F;
(c) any costs incurred by the resolution professional in running the business of the corporate debtor as a
going concern pursuant to an order under sub-section (2) of section 54J;
(d) any costs incurred at the expense of the Government to facilitate the pre-packaged insolvency
resolution process; and
(e) any other costs as may be specified;
(23D) “pre-packaged insolvency resolution process period” means the period beginning from the pre-
packaged insolvency commencement date and ending on the date on which an order under sub-section
(1) of section 54L, or sub-section (1) of section 54N, or sub-section (2) of section 54-O, as the case may
be, is passed by the Adjudicating Authority;’;
1. Insolvency and Bankruptcy Board of India-

The Code provides for establishment of a Regulator who will oversee these entities and to perform
legislative, executive and quasi-judicial functions with respect to the Insolvency Professionals, Insolvency
Professional Agencies and Information Utilities. The Insolvency and Bankruptcy Board of India was
established on October 1, 2016. The head office of the Board is located at New Delhi.
2. Insolvency Professional Agencies-
It is a body of insolvency professionals as its members are appointed in accordance with The IBC, 2016.
3. Insolvency Professionals-
The Code provides for insolvency professionals as intermediaries who would play a key role in the
efficient working of the bankruptcy process.
In the resolution process, the insolvency professional verifies the claims of the creditors, constitutes a
creditors committee, runs the debtor's business during the moratorium period and helps the creditors in
reaching a consensus for a revival plan.
In liquidation, the insolvency professional acts as a liquidator and bankruptcy trustee.
4. Information Utilities-
A notable feature of the Code is the creation of information utilities to collect, collate, authenticate and
disseminate financial information of debtors in centralized electronic database.
The Code requires creditors to provide financial information of debtors to multiple utilities on an ongoing
basis. Such information would be available to creditors, resolution professionals, liquidators and other
stakeholders in insolvency and bankruptcy proceedings.
The purpose of the same is to remove information dependency on the debtor's management for critical
information that is needed to swiftly resolve the state of insolvency.
5. Adjudicating Authority-
The adjudicating authority for corporate insolvency and liquidation is the NCLT. Appeals arising out of
NCLT orders lie to the National Company Law Appellate Tribunal and, thereafter, to the Supreme Court
of India.
Civil Courts have been prohibited to interfere in the matters related with application pending before the
adjudicating authority.
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No injunction shall be granted by any Court, Tribunal or Authority in respect of any action taken by the
NCLT. For individuals and other persons, the adjudicating authority is the DRT.
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Appeals arising out of DRT orders lie to the Debt Recovery Appellate Tribunal and thereafter, to the
Supreme Court.
Objectives: A sound legal framework of bankruptcy law is required for achieving the following
objectives:-
• Improved handling of conflicts between creditors and the debtor: It can provide procedural certainty
about the process of negotiation, in such a way as to reduce problems of common property and reduce
Information Asymmetry for all economic participants.
• Avoid destruction of value: It can also provide flexibility for parties to arrive at the most efficient
solution to maximise value during negotiations. The bankruptcy law will create a platform for negotiation
between creditors and external financiers which can create the possibility of such rearrangements.
• Drawing the line between malfeasance and business failure: Under a weak insolvency regime, the
stereotype of “rich promoters of defaulting entities” generates two strands of thinking:
(a) the idea that all default involves malfeasance and
(b) the idea that promoters should be held personally financially responsible for defaults of the firms
that they control.
• Clearly allocate losses in macro-economic downturns: With a sound bankruptcy framework, these
losses are clearly allocated to some people. Loss allocation could takeplace through taxes, inflation,
currency depreciation, expropriation, or wage or consumptionsuppression. These could fall upon foreign
creditors, small business owners, savers, workers,owners of financial and non-financial assets, importers,
exporters.
• The following benefits are expected from the new Law:-

• Asset stripping by promoters is controlled after and before default.
• The promoters can make a proposal that involves buying back the company for a certain price,
alongside a certain debt restructuring.
• Others in the economy can make proposals to buy the company at a certain price, alongside a certain
debt restructuring.
• All parties knows that if no deal is struck within the stipulated period, the company will go into
liquidation. This will help avoid delaying tactics.
• The inability of promoters to steal from the company, owing to the supervision of the IP, also helps
reduce the incentive to have a slow lingering death.
The Code seeks to provide an effective legal framework for timely resolution of insolvency and
bankruptcy which would support development of credit markets and encourage entrepreneurship, and
facilitate more investments leading to higher economic growth and development.
Principles governing registration of Insolvency Professional Agency

1. to promote the professional development of and regulation of insolvency professionals.
2. to promote the services of competent insolvency professionals to cater to the needs of debtors,
creditors and such other persons as may be specified.
3. to promote good professional and ethical conduct amongst insolvency professionals.
4. to protect the interests of debtors, creditors and such other persons as may be specified.
5. to promote the growth of insolvency professional agencies for the effective resolution of insolvency
and bankruptcy processes under this Code.
Obligations of Information Utility:

An information utility shall provide such services as may be specified including core services to any
person if such person complies with the terms and conditions as may be specified by regulations. For
the purposes of providing core services to any person, every information utility shall—
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(a) create and store financial information in a universally accessible format;

(b) accept electronic submissions of financial information from persons who are under obligations to
submit financial information
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(c) accept, in specified form and manner, electronic submissions of financial information from persons
who intend to submit such information;
(d) meet such minimum service quality standards as may be specified by regulations;
(e) get the information received from various persons authenticated by all concerned parties before
storing such information;
(f) provide access to the financial information stored by it to any person who intends to access such
information in such manner as may be specified by regulations;
(g) publish such statistical information as may be specified by regulations;
(h) have inter-operatability with other information utilities.
Composition of the Board

(a) 1 Chairperson;
(b) 3 members from amongst the officers of the CG not below the rank of Joint Secretary or equivalent,
one each to represent the Ministry of Finance, the Ministry of Corporate Affairs and Ministry of Law,
ex-officio;
(c) 1 member to be nominated by the RBI, ex officio ;
(d) 5 other members to be nominated by the CG, of whom at least three shall be the whole-time
members
Corporate Insolvency Resolution Process [Sections 4, 6- 32]

Provisions related to Insolvency Resolution and Liquidation process for Corporate Persons are covered
in Part II of the Code.
Corporate Insolvency Resolution is a process during which financial creditors assess whether the debtor's
business is viable to continue and the options for its rescue and revival.
If the insolvency resolution process fails or financial creditors decide that the business of debtor cannot
be carried on profitably and it should be wound up, the debtor will undergo liquidation process and the
assets of the debtor are realized and distributed by the liquidator.
This is a significant departure from the existing legal framework under which the primary onus to initiate
a reorganization process lies with the debtor, and lenders may pursue distinct actions for recovery, security
enforcement and debt restructuring.
(1) Applicability of this Part II on the commitment of default:

The process of insolvency is triggered by occurrence of default.
Section 3(12) of the Code says that, default means non-payment of debt when whole or any part or
installment of the amount of debt has become due and payable and is not repaid by the debtor or the
corporate debtor.
The provisions relating to the insolvency and liquidation of corporate debtors shall be applicable only
when the amount of the default is Rs.1 Crore or more for normal companies and Min. Rs. 10 Lakh for
MSMEs falling under chapter III-A. [Section 4]
(2) Persons who may initiate corporate insolvency resolution process: [Section 6]
Where any corporate debtor commits a default, following persons:
(A) a financial creditor,
(B) an operational creditor, or
(C) the corporate debtor itself
-may initiate corporate insolvency resolution process in respect of such corporate debtor.
(A) Section 7 - Initiation of corporate insolvency resolution process by financial creditor.
(i) Filing of application before adjudicating authority:
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A financial creditor may file an application, either by itself or jointly with other financial creditors for
initiating corporate insolvency resolution process against a corporate debtor before the Adjudicating
Authority when a default has occurred.
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A default includes a default in respect of a financial debt owed not only to the applicant financial creditor
but to all other financial creditors, or any other person on behalf of the financial creditor, as may be
notified by the Central Government of the corporate debtor.
Provided that for the financial creditors, referred to in clauses (a) and (b) of sub-section (6A) of section
21, an application for initiating corporate insolvency resolution process against the corporate debtor shall
be filed jointly by not less than one hundred of such creditors in the same class or not less than ten per
cent. of the total number of such creditors in the same class, whichever is less:
Provided further that for financial creditors who are allottees under a real estate project, an application
for initiating corporate insolvency resolution process against the corporate debtor shall be filed jointly by
not less than 100 of such allottees under the same real estate project or not less than 10% of the total
number of such allottees under the same real estate project, whichever is less:
Provided also that where an application for initiating the corporate insolvency resolution process against
a corporate debtor has been filed by a financial creditor referred to in the first and second provisos and
has not been admitted by the Adjudicating Authority before the commencement of the Insolvency and
Bankruptcy Code (Amendment) Act, 2020, such application shall be modified to comply with the
requirements of the first or second proviso within thirty days of the commencement of the said Act, failing
which the application shall be deemed to be withdrawn before its admission.
(ii) Furnishing of information:

The financial creditor shall, along with the application furnish—
(a) record of the default recorded with the information utility or such other record or evidence ofdefault
as may be specified;
(b) the name of the resolution professional proposed to act as an interim resolution professional; and
(c) any other information as may be specified by the Board.
(iii) Time period for determination of default:

The Adjudicating Authority shall, within 14 days of the receipt of the application, ascertain the existence
of a default from the records of information utility
or
on the basis of other evidence furnished by the financial creditor.
(iv) Order: Where the Adjudicating Authority is satisfied that—

(a) a default has occurred and the application is complete and there is no disciplinary proceeding pending
against the proposed resolution professional, it may, by order, admit such application; or
(b) default has not occurred or the application is incomplete or any disciplinary proceeding is pending
against the proposed resolution professional, it may, by order, reject such application.
Provided that the Adjudicating Authority shall, before rejecting the application, give a notice to the
applicant to rectify the defect in his application within seven days of receipt of such notice from the
Adjudicating Authority.
(v) Commencement of corporate insolvency resolution process:

The corporate insolvency resolution process shall commence from the date of admission of the
application.
(vi) Communication of Order:

The Adjudicating Authority shall communicate-
(1)the order to the financial creditor and the corporate debtor;
(2) the order to the financial creditor, within 7 days of admission or rejection of such application, as the
case may be. [Section 7]
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(B) Sction 8 - Insolvency resolution by operational creditor:

(i) Serving of demand Notice:
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On the occurrence of default, an operational creditor shall first send a demand notice and a copy of
invoice to the corporate debtor.
"Demand notice" means a notice served by an operational creditor to the corporate debtor demanding
repayment of the operational debt in respect of which the default has occurred.
(ii) On receipt of demand notice by corporate debtor:

The corporate debtor shall, within a period of 10 days of the receipt of the demand notice or copy of the
invoice bring to the notice of the operational creditor about-
1) existence of dispute, if any, and record of the pendency of the suit or arbitration proceedings filed
before the receipt of such notice or invoice in relation to such dispute;
2) payment of unpaid operational debt—
(i) by sending an attested copy of the record of electronic transfer of the unpaid amount from the bank
account of the corporate debtor;or
(ii) by sending an attested copy of record that the operational creditor has encashed a cheque issued by
the corporate debtor. [Section 8]
Application for initiation of corporate insolvency resolution process by operational

creditor:
(i) Filing of application by operational creditor:
After the expiry of the period of 10 days from the date of delivery of the notice or invoice demanding
payment-
if the operational creditor does not receive payment from the corporate debtor or notice of the dispute,
the operational creditor may file an application before the Adjudicating Authority for initiating corporate
insolvency resolution process.
(ii) Providing of documents/ information:

The operational creditor shall, along with the application furnish the following documents—
(a) a copy of the invoice demanding payment or demand notice delivered by the operational creditor to
the corporate debtor;
(b) an affidavit to the effect that there is no notice given by the corporate debtor relating to a dispute of
the unpaid operational debt;
(c) a copy of the certificate from the financial institutions maintaining accounts of the operational creditor
confirming that there is no payment of an unpaid operational debt by the corporate debtor; and
(d) Copy of any record with IU confirming that no payment is done by CD (If any)
(e) such other information as may be specified.
(iii) An operational creditor propose for an interim resolution professional during the
resolution process:
An operational creditor initiating a corporate insolvency resolution process, may propose a resolution
professional to act as an interim resolution professional.
(iv) Order of an adjudicating authority:

The Adjudicating Authority shall, within fourteen days of the receipt of the application, by an order—
(1) admit the application and communicate such decision to the operational creditor and the corporate
debtor if,
(a) the application made is complete;
(b) there is no repayment of the unpaid operational debt;
(c) the invoice or notice for payment to the corporate debtor has been delivered by the operational
creditor;
(d) no notice of dispute has been received by the operational creditor or there is no record of dispute in
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the information utility; and

(e) there is no disciplinary proceeding pending against any resolution professional proposed, if any.
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(2) reject the application and communicate such decision to the operational creditor and the corporate
debtor, if :
(a) the application made is incomplete;
(b) there has been repayment of the unpaid operational debt;
(c) the creditor has not delivered the invoice or notice for payment to the corporate debtor;
(d)notice of dispute has been received by the operational creditor or there is a record of dispute in the
information utility; or
(e)any disciplinary proceeding is pending against any proposed resolution professional:
**Adjudicating Authority, shall before rejecting an incomplete application, give a notice to the applicant
to rectify the defect in his application within 7 days of the date of receipt of such notice from the
adjudicating Authority.
(v)Commencement of insolvency resolution process:

application. [Section 9]
(C) Section 10 - Initiation of corporate insolvency resolution process by corporate applicant.

(i)Commission of default:
Where a corporate debtor has committed a default, the corporate applicant thereof may file an
application for initiating corporate insolvency resolution process with the Adjudicating Authority.
(ii) Furnishing of information: The corporate applicant shall, along with the application furnish –
(a) the information relating to its books of account and such other documents for such period as may be
specified;
(b) the information relating to the resolution professional proposed to be appointed as an interim
resolution professional; and
(c) the SR passed by shareholders of the corporate debtor or the resolution passed by atleast 3/4 of the
total number of partners of the corporate debtor, as the case may be, approving filing of the application
(iii) Admission/rejection of application: The Adjudicating Authority shall, within a period of 14 days of
the receipt of the application, by an order—
(a) admits the application, if it is complete; or
(b) rejects the application, if it is incomplete:
**Adjudicating Authority shall, before rejecting an application, gives a notice to the applicant to rectify
the defects in his application within 7 days from the date of receipt of such notice from the Adjudicating
Authority.
(iv) Commencement of insolvency resolution process: [Section 10]

application under sub-section (4) of this section.
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Who can make an Application?
Financial Creditor Operational Creditor Corporate Debtor
1. Any person to whom 1. Any person to whom

a Financial Debt is a Operational Debt is A Corporate
owed & owed &
Person who owes a
debt to any person
2. Includes a person to 2. Includes a person to
whom such debt is whom such debt is
legally assigned or legally assigned or
(2A) Section 10A- Suspension of initiation of corporate insolvency resolution process.

Notwithstanding anything contained in sections 7, 9 and 10, no applicationfor initiation of corporate
insolvency resolution process of a corporate debtorshall be filed, for any default arising on or after 25th
March, 2020 for aperiod of six months or such further period, not exceeding one year fromsuch date,
as may be notified in this behalf:
Provided that no application shall ever be filed for initiation of corporateinsolvency resolution process
of a corporate debtor for the said defaultoccurring during the said period.
Explanation. -For the removal of doubts, it is hereby clarified that the provisionsof this section shall not
apply to any default committed under the saidsections before 25th March, 2020.
(3) Persons not entitled to make application: [Section 11]

The following persons shall not be entitled to make an application to initiate corporate insolvency
resolution process or a prepackaged insolvency resolution process under this Chapter, namely: -
(a) a corporate debtor undergoing a corporate insolvency resolution process; or
(aa) a financial creditor or an operational creditor of a corporate debtor undergoing a prepackaged
insolvency resolution process
(b) a corporate debtor having completed corporate insolvency resolution process twelve months
preceding the date of making of the application; or
(ba) a corporate debtor in respect of whom a resolution plan has been approved under Chapter III-A,
twelve months preceding the date of making of the application; or
(c) a corporate debtor or a financial creditor who has violated any of the terms of resolution plan which
was approved twelve months before the date of making of an application under this Chapter; or
(d) a corporate debtor in respect of whom a liquidation order has been made.
Explanation 1 - For the purposes of this section, a corporate debtor includes a corporate applicant in
respect of such corporate debtor.
Explanation II.- For the purposes of this section, it is hereby clarified that nothing in this section shall
prevent a corporate debtor referred to in clauses (a) to (d) from initiating corporate insolvency resolution
process against another corporate debtor.
(3A) Section 11A. –

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(1) Where an application filed under section 54C is pending, the Adjudicating Authority shall pass
applications under section an order to admit or reject such application, before 54C and under considering
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any application filed under section 7 or section 7 or section 9 or section 10 during the pendency of such
section 9 or application under section 54C, in respect of the same section 10. corporate debtor.
(2) Where an application under section 54C is filed within fourteen days of filing of any application under
section 7 or section 9 or section 10, which is pending, in respect of the same corporate debtor, then,
notwithstanding anything contained in sections 7, 9 and 10, the Adjudicating Authority shall first dispose
of the application under section 54C.
(3) Where an application under section 54C is filed after fourteen days of the filing of any application
under section 7 or section 9 or section 10, in respect of the same corporate debtor, the Adjudicating
Authority shall first dispose of the application under sections 7, 9 or 10.
(4) The provisions of this section shall not apply where an application under section 7 or section 9 or
section 10 is filed and pending as on the date of the commencement of the Insolvency and Bankruptcy
Code (Amendment) Ordinance, 2021.
(4) Time-limit for completion of insolvency resolution process: (Section 12)

(1) Period for completion of insolvency process:
Maximum 180 days + Extension 90 days But can be extended upto Maximum 330 days from
commencement of CIRP including the extension if granted and the time taken in legal proceedings in
relation to such resolution process of the corporate debtor.
Provided that if any CIRP is pending and has exhausted the period of 180+90 days as provided before
amendment, shall be now completed within a period of 90 days from the date of commencement of the
Insolvency and Bankruptcy Code (Amendment) Act, 2019.
(2) Filing of application for extension of period: The resolution professional shall file an application to
the Adjudicating Authority to extend the period of the corporate insolvency resolution process, if
instructed to do so by a resolution passed at a meeting of the committee of creditors by a vote of 66% of
the voting shares.
(3) Period of extension: On receipt of an application, if the Adjudicating Authority is satisfied that the
subject matter of the case is such that corporate insolvency resolution process cannot be completed within
180 Days, it may by order extend the duration of such process beyond 180 Days by such further period
as it thinks fit, but not exceeding 90 days.
Provided that any extension of the period of corporate insolvency resolution process under this section
shall not be granted more than once. [section 12]
Sec. 12A : Withdrawal of application admitted u/s 7/9/10 :

AA may allow to withdraw the applications on an application made by the applicant with approval of 90%
of voting share of CoC.
(5) Withdrawal of application admitted under section 7, 9 or 10

The Adjudicating Authority may allow the withdrawal of application admitted under section 7 or section
9 or section 10, on an application made by the applicant with the approval of ninety percent voting share
of committee of creditors, in such manner as may be prescribed. [Section 12A]
(6) Declaration of moratorium and public announcement:

The Adjudicating Authority, after admission of the application, shall, by an order—
(a) declare a moratorium;
(b) cause a public announcement of the initiation of corporate insolvency resolution process and call for
the submission of claims , and
(c) appoint an interim resolution professional in the manner as laid down in section 16.
**The public announcement as referred above, shall be made immediately after the appointment of the
interim resolution professional. [Section 13]
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Section 14: Moratorium:

(1) Subject to provisions of sub-sections (2) and (3), on the insolvency commencement date, the
Adjudicating Authority shall by order declare moratorium for prohibiting all of the following, namely: -
(a) the institution of suits or continuation of pending suits or proceedings against the corporate debtor
including execution of any judgement, decree or order in any court of law, tribunal, arbitration panel or
other authority;
(b)transferring, encumbering, alienating or disposing off by the corporate debtor any of its assets or any
legal right or beneficial interest therein;
(c) any action to foreclose, recover or enforce any security interest created by the corporate debtor in
respect of its property including any action under the SARFAESI Act, 2002;
(d) the recovery of any property by an owner or lessor where such property is occupied by or in the
possession of the corporate debtor.
Explanation.-For the purposes of this sub-section, it is hereby clarified that notwithstanding anything
contained in any other law for the time being in force, a licence, permit, registration, quota, concession,
clearance or a similar grant or right given by the Central Government, State Government, local authority,
sectoral regulator or any other authority constituted under any other law for the time being in force, shall
not be suspended or terminated on the grounds of insolvency, subject to the condition that there is no
default in payment of current dues arising for the use or continuation of the license or a similar grant or
right during moratorium period;
(2) The supply of essential goods or services to the corporate debtor as may be specified shall not be
terminated or suspended or interrupted during moratorium period.
(2A) Where the interim resolution professional or resolution professional, as the case may be, considers
the supply of goods or services critical to protect and preserve the value of the corporate debtor and
manage the operations of such corporate debtor as a going concern, then the supply of such goods or
services shall not be terminated, suspended or interrupted during the period of moratorium, except where
such corporate debtor has not paid dues arising from such supply during the moratorium period or in
such circumstances as may be specified.
(3) The provisions of sub-section (1) shall not apply to —

(a) such transactions, agreements or other arrangement as may be notified by the Central Government in
consultation with any financial sector regulator or any other authority;
(b) a surety in a contract of guarantee to a corporate debtor.
(7) Appointment, tenure and Power of interim resolution professional:

The Adjudicating Authority shall appoint an interim resolution professional on insolvency
commencement date.
As per section 16 of the Code, following is the process for the appointment of interim resolution
professional-
Process of appointment of Interim resolution professional –

(i) Where the application for corporate insolvency resolution process is made by a financial creditor or
the corporate debtor, as the case may be, the resolution professional, asproposed in the application shall
be appointed as the interim resolution professional, if no disciplinary proceedings are pending against
him.
(ii) Where the application for corporate insolvency resolution process is made by an operational
creditor and—
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(a) no proposal for an interim resolution professional is made, the Adjudicating Authority shall make
areference to the Board for the recommendation of an insolvency professional who may act as an interim
resolution professional;
(b) a proposal for an interim resolution professional is made, the resolution professional as proposed,
shall be appointed as the interim resolution professional, if no disciplinary proceedings are pending
against him.
The Board shall, within 10 days of the receipt of a reference from the Adjudicating Authority, recommend
the name of an insolvency professional to the Adjudicating Authority against whom no disciplinary
proceedings are pending.
Term of appointment
The term of the interim resolution professional shall be Until the date of appointment of RP u/s 22
Section 18 - The key roles of an Interim Resolution Professional are:-

(a) Issuance of public notice of the Corporate Insolvency Resolution process
(b) Collation of claims received
(c) Constitution of the Committee of Creditors
(d) Conduct of the first meeting of the Committee of Creditors
(e) File information collected with the information utility
(f) Control on assets over which corporate debtor has ownership rights
(g) Perform other duties as specified by the Board
Section 19: Personnel to extend cooperation to IRP:

(1) The personnel of the corporate debtor, its promoters or any other person associated with the
management of the corporate debtor shall extend all assistance and cooperation to the IRP as may be
required by him in managing the affairs of the corporate debtor otherwise IRP may make an application
to the Adjudicating Authority for necessary directions.
Section 20: Management of operations of corporate debtor as going concern:

(1) The IRP shall take every step to protect and preserve the value of the property of the corporate debtor
and manage the operations of the corporate debtor as a going concern.
For eg.
(a) to appoint accountants, legal or other professionals as may be necessary;
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(b) to enter into contracts on behalf of the corporate debtor

(c) to raise interim finance etc.
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Powers of Interim Resolution Professional:

As per Section 17 of the Code, the interim resolution professional shall have following powers:-
(a) Management of Affairs:The management of the affairs of the corporate debtor shall vest in the
interim resolution professional from the date of his appointment.
(b) Exercise of Power of BoD/ partners: The powers of the board of directors or the partners of the
corporate debtor, as the case may be, shall stand suspended and be exercised by the interim resolution
professional.
(c) Reporting of officers/managers: The officers and managers of the corporate debtor shall report to
the interim resolution professional and provide access to such documents and records of the corporate
debtor as
may be required by the interim resolution professional.
(d) Instructions to financial institutions:The financial institutions maintaining accounts of the corporate
debtor shall act on the instructions of the interim resolution professional in relation to such accounts and
furnish all information relating to the corporate debtor available with them to theinterim resolution
professional in relation to such accounts and furnish all information relating to the corporate debtor
available with them to the interim resolution professional.
(e) be responsible for complying with the requirements under any law for the time being in force on behalf
of the corporate debtor.
(8) Public Announcement:

Interim Resolution Professional shall make the Public Announcement immediately after his
appointment. “Immediately” refers to not more than three days from the date of appointment of the
Interim Resolution Professional.
As per Section 15 of the Code, public announcement shall include the following:-
(a) Name & Address of Corporate Debtor under the Corporate Insolvency Resolution Process.
(b) Name of the authority with which the corporate debtor is incorporated or registered.
(c) Details of interim resolution Professional who shall be vested with the management of the Corporate
Debtor and be responsible for receiving claims.
(d) Penalties for false or misleading claims.
(e) The last date for the submission of the claims.
(f) The date on which the Corporate Insolvency Resolution Process ends.
The expenses of public announcement shall be borne by the applicant which may be reimbursed by the
Committee of Creditors, to the extent, it ratifies them.
#Refer chart on next page for easier understanding !
The chart below explains the flow of interim resolution professional

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(9) Committee of creditors: (Sec. 21)

The committee of creditors shall comprise all financial creditors of the corporate debtor:
Provided that a financial creditor or the authorised representative of the financial creditor referred to in
sub-section (6) or sub-section (6A) or sub-section (5) of section 24, if it is a related party of the corporate
debtor, shall not have any right of representation, participation or voting in a meeting of the committee
of creditors:
Provided further that the first proviso shall not apply to a financial creditor, regulated by a financial
sector regulator, if it is a related party of the corporate debtor solely on account of conversion or
substitution of debt into equity shares or instruments convertible into equity shares or completion of
such transactions as may be prescribed, prior to the insolvency commencement date.
Constitution of Committee of creditors:

(i) The committee of creditors shall comprise of all financial creditors of the corporate debtor. Provided
that a related party to whom a corporate debtor owes a financial debt shall not have any right of
representation,
participation or voting in a meeting of the committee of creditors.
(ii) Where the corporate debtor owes financial debts to two or more financial creditors as part of a
consortium or agreement, each such financial creditor shall be part of the committee of creditors and
their voting share shall be determined on the basis of the financial debts owed to them.
(iii) Where any person is a financial creditor as well as an operational creditor,—
(a) such person shall be a financial creditor to the extent of the financial debt owed by the corporate
debtor, and shall be included in the committee of creditors, with voting share proportionate to the extent
of financial debts owed to such creditor;
(b) such person shall be considered to be an operational creditor to the extent of the operational debt
owed by the corporate debtor to such creditor.
(iv) Where an operational creditor has assigned or legally transferred any operational debt to a financial
creditor, the assignee or transferee shall be considered as an operational creditor to the extent of such
assignment or legal transfer.
(v) Where the terms of the financial debt extended as part of a consortium arrangement or syndicated
facility or issued as securities provide for a single trustee or agent to act for all financial creditors,each
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financial creditor may—

(a) authorise the trustee or agent to act on his behalf in the committee of creditors to the extent of his
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voting share;
(b) represent himself in the committee of creditors to the extent of his votingshare;
(c) appoint an insolvency professional (other than the resolution professional) at his own cost to represent
himself in the committee of creditors to the extent of his voting share; or
(d) exercise his right to vote to the extent of his voting share with one or more financial creditors jointly
or severally.
(vi) The Board may specify the manner of determining the voting share in respect of financial debts issued
as securities.
(vii) All decisions of the committee of creditors shall be taken by a vote of not less than 51% of voting
share of the financial creditors.
Provided that where a corporate debtor does not have any financial creditors, the committee of creditors
shall be constituted and comprise of such persons to exercise such functions in such manner as may be
specified by the Board.
(viii) The committee of creditors shall have the right to require the resolution professional to furnish any
financial information in relation to the corporate debtor at any time during the corporate insolvency
resolution process.
(ix) The resolution professional shall make available any financial information so required by
thecommittee of creditors within a period of seven days of such requisition.
(x) The first meeting of the committee of creditors shall be held within seven days of the constitution of
the committee of creditors.(Section 22)
After the collation of all claims received against the corporate debtor and determination of the financial
position of the corporate debtor, the interim resolution professional shall constitute a committee of
creditors.
The composition of the committee shall be as follows:-

1. Where Financial Creditors exist: The Committee of creditors shall comprise of all financial creditors
of a corporate debtor. The Resolution Professional shall identify the financial creditors and constitutes a
creditors committee. The resolution professional shall conduct all the meetings of the Committee of
Creditors. After the constitution of committee of creditors, the interim resolution professional is
required to file a report certifying the constitution of the committee to the Adjudicating Authority. The
report shall be filed on or before the expiry of thirty days from the date of appointment of the interim
resolution professional.
2. Where Financial Creditors don’t exist: As per Regulation 16 of the Insolvency and Bankruptcy
(Insolvency Resolution) Regulations, 2016, where the corporate debtor has no financial debt or where
all financial creditors
are related parties of the corporate debtor, the committee shall be formed comprising of following
members:-
(a) 18 largest operational creditors by value.
(b) 1 representative elected by all workmen
(c) 1 representative elected by all employees.
Where the number of operational creditors is less than 18, the committee shall include all such
operational creditors.
Meeting of committee of creditors.:

Section 24 specifies the conduct of meeting of Committee of creditors.
Conduct of meeting:The members of the committee of creditors may meet in person or by suchelectronic
means as may be specified.
All meetings of the committee of creditors shall be conducted by the resolution professional. The
resolution professional shall give notice of each meeting of the committee of creditors to—
(a) members of Committee of creditors including the authorised representatives;
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(b) members of the suspended Board of Directors or the partners of the corporate persons, as the case
may be;
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(c) operational creditors or their representatives if the amount of their aggregate dues is not less than 10%
of the debt.
The directors, partners and one representative of operational creditors, may attend the meetings of
committee of creditors, but shall not have any right to vote in such meetings.
Provided that the absence of any such director, partner or representative of operational creditors, as the
case may be, shall not invalidate proceedings of such meeting.
Quorum for the Meeting

1. A meeting of committee of creditors shall quorate if members of the committee of creditors
representing at least 33% of the voting rights are present either in personor by video/audio means.
2. If the requisite quorum for committee of creditors is not fulfilled the meeting cannot beheld and the
meeting shall automatically stand adjourned at the same time and place on thenext day.
3. The adjourned meeting shall quorate with the members of the committee attending the meeting.
Section 25A which deals with the Rights and duties of authorized representative of
financial creditors.
(1) Right to participate and Vote on behalf of FC:
The authorized representative(AR) under section 21(6) & 21(6A) or section 24(5) shall have the right to
participate and vote in meetings of the committee of creditors on behalf of the financial creditor(FC) he
represents in accordance with the prior voting instructions of such creditors obtained through physical
or electronic means.
(2) Duty of AR to circulate agenda & minutes to FC:

It shall be the duty of the authorised representative to circulate the agenda and minutes of the meeting
of the committee of creditors to the financial creditor he represents.
(3) The authorised representative shall not act against the interest of the financial creditor he represents
and shall always act in accordance with their prior intructions:
Provided that if the authorised representative represents several financial creditors, then he shall cast his
vote in respect of each financial creditor in accordance with instructions received from each financial
creditor, to the extent of his voting share:
Provided further that if any financial creditor does not give prior instructions through physical or
electronic means, the authorised representative shall abstain from voting on bealf of such creditor.
(3A) Notwithstanding anything to the contrary contained in sub-section (3), the authorised
representative under sub-section (6A) of section 21 shall cast his vote on behalf of all the financial
creditors he represents in accordance with the decision taken by a vote of more than 50% of the voting
share of the financial creditors he represents, who have cast their vote:
Provided that for a vote to be cast in respect of an application under section 12A, the authorised
representative shall cast his vote in accordance with the provisions of sub-section (3).
(4) To ensure recording of instruction by IRP/RP:

The authorised representative shall file with the committee of creditors any instructions received by way
of physical or electronic means, from the financial creditor he represents, for voting in accordance
therewith, to ensure that the appropriate voting instructions of the financial creditor he represents is
correctly recorded by the interim resolution professional or resolution professional, as the case may be.
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Appointment of insolvency professional to represent creditor in a meeting of the

committee of creditors:
Any creditor who is a member of the committee of creditors may appoint an insolvency professional
other than the resolution professional to represent such creditor in a meeting of the committee of
creditors:
Provided that the fees payable to such insolvency professional representing any individual creditor will be
borne by such creditor.
Right to vote to creditor: Each creditor shall vote in accordance with the voting share assigned tohim
based on the financial debts owed to such creditor.
The resolution professional shall determine the voting share to be assigned to each creditor in the manner
The meetings of the committee of creditors shall be conducted in such manner as may be specified.
(10) Appointment and functions of resolution professional:

According to Section 22 of the Code, the committee of creditors, may, in the first meeting, by a majority
vote of not less than 66 % of the voting share of the financial creditors, either resolve to appoint the
interim resolution professional as a resolution professional subject to written consent of IRP or to replace
the interim resolution professional by another resolution professional subject to written consent of
Proposed RP.
Functions of Resolution professional:

Section 23 states the following functions of resolution professional-
(i)The resolution professional shall conduct the entire corporate insolvency resolution process and
manage the operations of the corporate debtor during the corporate insolvency resolution process period.
Provided that the resolution professional shall continue to manage the operations of the corporate debtor
after the expiry of the corporate insolvency resolution process period, until an order approving the
resolution plan under Section 31(1) or appointing a liquidator under section 34 is passed by the
(ii)The resolution professional shall exercise powers and perform duties as are vested or conferred on
the interim resolution professional.
(iii)In case of any appointment of a resolution professional, the interim resolution professional shall
provide all the information, documents and records pertaining to the corporate debtor in his possession
and knowledge to the resolution professional.
The Resolution Professional's primary function is to take over the management of the corporate borrower
and operate its business as a going concern under the broad directions of committee of creditors even
after resolution plan is submitted, until the order of AA.
The thrust of the Code is to allow a shift of control from the defaulting debtor's management to its
creditors, where the creditors drive the business of the debtor with the Resolution Professional acting as
their agent.
(11) Replacement of resolution professional by committee of creditors:

Section 27 provides manner of replacement of resolution professional with another resolution
professional by committee of creditors.
Process of replacement of resolution professional is as follows:
(i) Committee of creditors is of the opinion that a resolution professional as appointed, is required to be
replaced, it may replace him with another resolution professional.
(ii) By majority: The committee of creditors may, at a meeting, by a vote of 66% of voting shares, propose
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to replace the resolution professional appointed with another resolution professional subject to a consent
from the proposed Resolution professional.
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(iii) Forwarding of name to Adjudicating Authority: The committee of creditors shall forward the name
of the insolvency professional proposed by them to the Adjudicating Authority.
(iv) Further forwarding name to Board: The Adjudicating Authority shall forward the name of the
proposed resolution professional to the Board for its confirmation and a resolution professional shall be
appointed in the same manner as laid down in section 16.
(v) Continuation of office: Where any disciplinary proceedings are pending against the proposed
resolution professional, the resolution professional appointed shall continue till the appointment of
another resolution professional under this section.
(12) Approval of committee of creditors for certain actions of resolution professional,

during the corporate insolvency resolution process:
The resolution professional, during the corporate insolvency resolution process, shall not take any of
thefollowing actions without the prior approval of the committee of creditors—
(a) raise any interim finance in excess of the amount as may be decided by the committeein their meeting;
(b) create any security interest over the assets of the corporatedebtor;
(c) change the capital structure of the corporate debtor, including by way of issuance of additional
securities, creating a new class of securities or buying back or redemption of issued securities in case the
corporate debtor is a company;
(d) record any change in the ownership interest of the corporate debtor;
(e) give instructions to financial institutions maintaining accounts of the corporate debtor for a debit
transaction from any such accounts in excess of the amount as may be decided by the committee of
creditors in their meeting;
(f) undertake any related party transaction;
(g) amend any constitutional documents of the corporate debtor;
(h) delegate its authority to any other person;
(i) dispose of or permit the disposal of shares of any shareholder of the corporate debtor or their
nominees to third parties;
(j) make any change in the management of the corporate debtor or itssubsidiary;
(k) transfer rights or financial debts or operational debts under material contracts otherwise than in the
ordinary course of business;
(l) make changes in the appointment or terms of contract of such personnel as specified by the committee
of creditors; or
(m) make changes in the appointment or terms of contract of statutory auditors or internal auditors of the
corporate debtor.
Approval of the committee of creditors [Section 28]

The resolution professional shall convene a meeting of the committee of creditors and seek the vote of
the creditors prior to taking any of the actions.
No action shall be approved by the committee of creditors unless approved by a vote of 66% of the voting
shares. Where any action is taken by the resolution professional without seeking the approval of the
committee of creditors in the manner as required in this section, such action shall be void.
Report the actions of the resolution professional to the Board: [Section 28]
The committee of creditors may report the actions of the resolution professional to the Board for taking
necessary actions against him under this Code.
(13) Preparation of information memorandum:

According to section 29 of the code, the resolution professional shall prepare an information
memorandum containing such relevant information as may be specified by the Board for formulating a
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resolution plan.
The resolution professional shall provide to the resolution applicant access to all relevant information in
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physical and electronic form.

"Relevant information" means the information required by the resolution applicant to make the resolution
plan for the corporate debtor, which shall include the financial position of the corporate debtor, all
information related to disputes by or against the corporate debtor and any other matter pertaining to the
corporate debtor as may be specified.
Resolution plan: Section 30 to 31 of the Code deals with resolution plan. Resolution professional shall
prepare an Information Memorandum which shall contain information for preparing resolution plan.
Submission of resolution plan: A resolution applicant may submit a resolution plan along with an affidavit
stating that he is eligible under section 29A to the resolution professional prepared on the basis of the
information memorandum.
Examination of Resolution Plan: The resolution professional shall examine each resolution plan received
by him to confirm that each resolution plan—
(a) provides for the payment of insolvency resolution process costs in a manner specified by the Board
in priority to the repayment of other debts of the corporate debtor;
(b) provides for the payment of the debts of operational creditors in such manner as may be specified by
the Board which shall not be less than the amount to be paid to the operational creditors in the event of
a liquidation of the corporate debtor under section 53;
(c) provides for the management of the affairs of the Corporate debtor after approval of the resolution
plan;
(d) the implementation and supervision of the resolution plan;
(e) does not contravene any of the provisions of the law for the time being in force;
(f) conforms to such other requirements as may be specified by the Board.
Approval from Committee of creditors:

The committee of creditors may approve a resolution plan by a vote of not less than 66% of voting
share of the financial creditors, after considering its feasibility and viability, and such other requirements
as may be specified by the Board.
Provided that the committee of creditors shall not approve a resolution plan, submitted before the
commencement of the Insolvency and Bankruptcy Code Ord. 7 of (Amendment) Ordinance, 2017,
where the resolution applicant is ineligible under 2017. Section 29A and may require the resolution
professional to invite a fresh resolution plan where no other resolution plan is available with it.
Provided further that where the resolution applicant referred to in the first proviso is ineligible under
clause (c) of section 29A, the resolution applicant shall be allowed by the committee of creditors such
period, not exceeding thirty days, to make payment of overdue amounts in accordance with the proviso
to clause (c) of section 29A.
"Provided also that the eligibility criteria in section 29A as amended by the Insolvency and Bankruptcy
Code (Amendment) Ordinance, 2018 shall apply to the resolution applicant who has not submitted
resolution plan as on the date of commencement of the Insolvency and Bankruptcy Code (Amendment)
Ordinance, 2018
Right of resolution applicant to attend the meeting of the committee of creditors: The resolution applicant
may attend the meeting of the committee of creditors in which the resolution plan of the applicant is
considered.
Provided that the resolution applicant shall not have a right to vote at the meeting of the committee of
creditors unless such resolution applicant is also a financial creditor.
Submission of approved resolution plan to adjudicating authority: The resolution professional shall
submit the resolution plan as approved by the committee of creditors to the Adjudicating Authority.
Note: Sec 30(2)(b) : The payment of debts of operational creditors in such manner as may be specified
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by the Board which shall not be less than—

(i) the amount to be paid to such creditors in the event of a liquidation of the corporate debtor under
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section 53; or
(ii) the amount that would have been paid to such creditors, if the amount to be distributed under the
resolution plan had been distributed in accordance with the order of priority in sub-section (1) of section
53, whichever is higher, and provides for the payment of debts of financial creditors, who do not vote in
favour of the resolution plan, in such manner as may be specified by the Board, which shall not be less
than the amount to be paid to such creditors in accordance with sub-section (7) of section 53 in the event
of a liquidation of the corporate debtor.
Approval of resolution plan adjudicating authority: [Section 31]

If the Adjudicating Authority is satisfied that the resolution plan as approved by the committee of creditors
meets the requirements, it shall by order approve the resolution plan which shall be binding on the
corporate debtor and its employees, members, creditors, guarantors and other stakeholders involved in
the resolution plan.
"Provided that the Adjudicating Authority shall, before passing an order for approval of resolution plan
under this sub-section, satisfy that the resolution plan has provisions for its effective implementation.
The resolution applicant shall, pursuant to an approved resolution plan obtain the necessary approval
required under any law for the time being in force within a period of one year from the date of approval
of the resolution plan by the Adjudicating Authority or within such period as provided for in such law,
whichever is later:
Provided that where the resolution plan contains a provision for combination, as referred to in section 5
of the Competition Act, 2002, the resolution applicant shall obtain the approval of the Competition
Commission of India under that Act prior to the approval of such resolution plan by the committee of
creditors.
Where the Adjudicating Authority is satisfied that the resolution plan does not confirm to the
requirements, it may, by an order, reject the resolution plan.
After the order of approval of resolution plan—
(a) the moratorium order passed by the Adjudicating Authority shall cease to have effect; and
(b) the resolution professional shall forward all records relating to the conduct of the corporate insolvency
resolution process and the resolution plan to the Board to be recorded on its database. [Section 31]
Consequences of non-submission of a Resolution Plan:

When the Resolution Plan is not filed within 180 days of the Commencement date or such other
extended period the Adjudicating Authority may pass orders for the liquidation of the corporate debtor.
Section 29A. A person shall not be eligible to submit a resolution plan, if such person, or any other
person acting jointly or in concert with such person—
(a) is an undischarged insolvent;
(b) is a willful defaulter in accordance with the guidelines of the Reserve Bank of India issued under the
Banking Regulation Act, 1949;
(c) Classified as non-performing asset and at least a period of 1 year has lapsed from the date of such
classification till the date of commencement of the CIRP of the CD
Provided that the person shall be eligible to submit a resolution plan if such person makes payment of
all overdue amounts with interest thereon and charges relating to non-performing asset accounts before
submission of resolution plan;
Exception – NA where applicant is a financial entity and is not a RP to the CD
Explanation I– For the purposes of this proviso, the expression “related party” shall not include a
financial entity, regulated by a financial sector regulator, if it is a financial creditor of the corporate
debtor and is a related party of the corporate debtor solely on account of conversion or substitution of
debt into equity shares or instruments convertible into equity shares or completion of such transactions
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as may be prescribed, prior to the insolvency commencement date.

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(d) has been convicted for any offence punishable with imprisonment for two years or more under the
12th Schedule of this Act or for 7 years or more under any law for the time being in force.
Exception – NA to a person after expiry of 2years after his release.
(e) is disqualified to act as a director under the Companies Act, 2013;
(f) is prohibited by the Securities and Exchange Board of India from trading in securities or accessing
the securities markets;
(g) has been a promoter or in the management or control of a corporate debtor in which a preferential
transaction, undervalued transaction, extortionate credit transaction or fraudulent transaction has taken
place and in respect of which an order has been made by the Adjudicating Authority under this Code;
Exception – NA is such transaction has taken place prior to the acquisition by the of CD by resolution
applicant and such applicant was not involved in such transaction .
Section 32A : Liability for prior Acts

(1) Notwithstanding anything to the contrary contained in this Code or any other law for the time being
in force, the liability of a corporate debtor for an offence committed prior to the commencement of the
corporate insolvency resolution process shall cease, and the corporate debtor shall not be prosecuted
for such an offence from the date the resolution plan has been approved by the Adjudicating Authority
under section 31, if the resolution plan results in the change in the management or control of the
corporate debtor to a person who was not-
(a) a promoter or in the management or control of the corporate debtor or a related party of such a
person; or
(b) a person with regard to whom the relevant investigating authority has, on the basis of material in its
possession, reason to believe that he had abetted or conspired for the commission of the offence, and
has submitted or filed a report or a complaint to the relevant statutory authority or Court:
Provided that if a prosecution had been instituted during the corporate insolvency resolution process
against such corporate debtor, it shall stand discharged from the date of approval of the resolution plan
subject to requirements of this sub-section having fulfilled:
Provided further that every person who was a “designated partner” as defined in clause (j) of section 2
of the Limited Liability Partnership Act, 2008 or an “officer who is in default”, as defined in clause (60)
of section 2 of the Companies Act, 2013, or was in any manner in-charge of, or responsible to the
corporate debtor for the conduct of its business or associated with the corporate debtor in any manner
and who was directly or indirectly involved in the commission of such offence as per the report
submitted or complaint filed by the investigating authority, shall continue to be liable to be prosecuted
and punished for such an offence committed by the corporate debtor notwithstanding that the
corporate debtor’s liability has ceased under this sub-section.
(2) No action shall be taken against the property of the corporate debtor in relation to an offence
committed prior to the commencement of the corporate insolvency resolution process of the corporate
debtor, where such property is covered under a resolution plan approved by the Adjudicating Authority
under section 31, which results in the change in control of the corporate debtor to a person, or sale of
liquidation assets under the provisions of Chapter III of Part II of this Code to a person, who was not –
(i) a promoter or in the management or control of the corporate debtor or a related party of such a
person; or
(ii) a person with regard to whom the relevant investigating authority has, on the basis of material in its
possession, reason to believe that he had abetted or conspired for the commission of the offence, and
has submitted or filed a report or a complaint to the relevant statutory authority or Court.
Explanation.- For the purposes of this sub-section, it is hereby clarified that,-
(i) an action against the property of the corporate debtor in relation to an offence shall include the
attachment, seizure, retention or confiscation of such property under such law as may be applicable to
the corporate debtor;
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(ii) nothing in this sub-section shall be construed to bar an action against the property of any person,
other than the corporate debtor or a person who has acquired such property through corporate
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insolvency resolution process or liquidation process under this Code and fulfils the requirements
specified in this section, against whom such an action may be taken under such law as may be
applicable.
(3) Subject to the provisions contained in sub-sections (1) and (2), and notwithstanding the immunity
given in this section, the corporate debtor and any person, who may be required to provide assistance
under such law as may be applicable to such corporate debtor or person, shall extend all assistance and
co-operation to any authority investigating an offence committed prior to the commencement of the
corporate insolvency resolution process.
FAST TRACK INSOLVENCY RESOLUTION FOR CORPORATE PERSONS

A fast track insolvency resolution, as the name suggests, is a process wherein the insolvency resolution
process shall be completed in an expeditious manner i.e., with 90 (ninety) days from the insolvency
commencement date. The provisions of the Insolvency and Bankruptcy Board of India (Insolvency
Resolution Process for Corporate Persons) Regulations, 2016 shall, mutatis mutandis, apply to the
conduct of a fast track corporate insolvency resolution process.
Who may apply?

An application under this category can be made by any corporate debtor falling under any of the below
mentioned category:-
(a) a corporate debtor with assets and income below a level as may be notified by the Central
Government; or
(b) a corporate debtor with such class of creditors or such amount of debt as may be notified by the
Central Government; or
(c) such other category of corporate persons as may be notified by the Central Government.
Time period for completion of fast track corporate insolvency resolution process:
The fast track corporate insolvency resolution process shall be completed within a period of 90days
from the insolvency commencement date.
Extension: The Adjudicating Authority may extend time period for fast track corporate insolvency
resolution process. The aggrieved may make an application to the Adjudicating Authority and it is
satisfied that the fast track corporate insolvency resolution process cannot be completed within a period
of ninety days, it may, by order, extend the duration of such process to a further period which shall not
be exceeding 45 days.
The extension of the fast track corporate insolvency resolution process under this section shall not be
granted more than once.
Liquidation Process:- (Section 33 to 54)

Corporate Debtors = Committed defaulted in payment of debts = this code is attracted.
-The corporate debtor initially puts into resolution mode.
-The process is called the corporate insolvency resolution process.
-However, if attempts to resolve the insolvency of the corporate debtor fail, then only the liquidation
provisions of the Code are triggered.
-Either where no plan is presented or
-where the plan presented is not approved by the AdjudicatingAuthority,
- it shall pass an order requiring the Corporate Debtor to be liquidated
- in the manner as laid down in this chapter of the Act.
(1) (a)Initiation of liquidation: Section 33

Provisions state that where the Adjudicating Authority — Not received a Resolution plan:
Before the expiry of the insolvency resolution process period or
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the maximum period permitted for completion of the corporate insolvency resolution process or the fast
track corporate insolvency resolution process, as the case may be, does not receive a resolution plan; or
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(b) rejects the resolution plan for the non-compliance of the requirements specified therein, it shall—
(i)pass an order requiring the corporate debtor to be liquidated in the manner as laid down in this Chapter;
(ii)issue a public announcement stating that the corporate debtor is in liquidation; and require such order
to be sent to the authority with which the corporate debtor is registered.
Intimation of the decision of the committee of creditors to liquidate to Adjudicating

authority:
Where the resolution professional, at any time during the corporate insolvency resolution process but
before confirmation of resolution plan, intimates the Adjudicating Authority of the decision of the
committee of creditors to liquidate the corporate debtor, the Adjudicating Authority shall pass a
liquidation order.
Contravention of resolution plan as approved by the Adjudicating Authority:

Where the resolution plan approved by the Adjudicating Authority is contravened by the concerned
corporate debtor, any person other than the corporate debtor, whose interests are prejudicially affected
by such contravention, may make an application to the Adjudicating Authority for a liquidation order.
Determination of contravention the provisions of the resolution plan:

On receipt of an application, if the Adjudicating Authority determines that the corporate debtor has
contravened the provisions of the resolution plan, it shall pass a liquidation order.
Bar to filing of suits and legal proceedings:

Subject to section 52, when a liquidation order has been passed, no suit or other legal proceeding shall
be instituted by or against the corporate debtor: Provided that a suit or other legal proceeding may be
instituted by the liquidator, on behalf of the corporate debtor, with the prior approval of the Adjudicating
Authority.
Restrictions on filing of suits and legal proceedings shall not apply to legal proceedings in relation to such
transactions as may be notified by the Central Government in consultation with any financial sector
regulator.
Order to be deemed to be notice of discharge:

The order for liquidation under this section shall be deemed to be a notice of discharge to the officers,
employees and workmen of the corporate debtor, except when the business of the corporate debtor is
continued during the liquidation process by the liquidator.
Hence, from above it can be concluded that under the Code, a corporate debtor may be put into
liquidation in the following scenarios:
(i) A 66% majority of the creditor's committee resolves to liquidate the corporate debtor at any time during
the insolvency resolution process;
(ii) The creditor's committee does not approve a resolution plan within 180 days (or within the extended
90 days);
(iii)The NCLT rejects the resolution plan submitted to it on technical grounds;or
(iv) The debtor contravenes the agreed resolution plan and an affected person makes an application to
the NCLT to liquidate the corporate debtor.
(2) Appointment of liquidator: Section 34

Resolution professional to act as liquidator:
It states that where the Adjudicating Authority passes an order for liquidation of the corporate debtor, the
resolution professional appointed for the corporate insolvency resolution process or for the pre-packaged
insolvency resolution process, shall act as the liquidator for the purposes of liquidation unless replaced
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by the Adjudicating Authority.

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Powers of Board of Director (BOD)/Key Managerial Personnel (KMP) vested with

liquidator:
On the appointment of a liquidator, all powers of the BOD, KMP and the partners of the corporate
debtor, as the case may be, shall cease to have effect and shall be vested with the liquidator.
Personnel to extend cooperation to liquidator:

-The personnel of the corporate debtor
-shall extend all assistance and cooperation to the liquidator
-as may be required by him
-in managing the affairs of the corporate debtor
-in relation to voluntary liquidation process
-as they apply in relation to liquidation process with the substitution of references to the liquidator for
references to the interim resolution professional.
Order to replace the resolution professional :

The Adjudicating Authority shall by order replace the resolution professional, if—
(a) the resolution plan submitted by the resolution professional was rejected for failure to meet the
requirements; or
(b)the Board recommends the replacement of a resolution professional to the Adjudicating Authority for
reasons to be recorded in writing.
(c) RP Fails to give his consent in Writing
On rejection of resolution plan due to failure to meet the requirements, the Adjudicating Authority may
direct the Board to propose the name of another insolvency professional to be appointed as a liquidator.
The Board shall propose the name of another insolvency professional within ten days of the direction
issued by the Adjudicating Authority.
Unless Replaced by A.A., the R.P. shall act as O.L. (subject to his consent in writing)
Adjudicating Authority to appoint insolvency professional as the liquidator: The Adjudicating

Authority shall, on receipt of the proposal of the Board for the appointment of an insolvency professional
as liquidator, by an order appoint such insolvency professional as the liquidator.
Charge of fees for conduct of liquidation proceedings: An insolvency professional proposed to

be appointed as a liquidator shall charge such fee for the conduct of the liquidation proceedings and in
such proportion to the value of the liquidation estate assets, as may be specified by the Board.
Payment of fees: The fees for the conduct of the liquidation proceedings shall be paid to the liquidator
from the proceeds of the liquidation estate.
(3) Powers and duties of liquidator: Section 35

(a) to verify claims of all the creditors;
(b) to take into his custody or control all the assets, property, effects and actionable claims of the corporate
debtor;
(c) to evaluate the assets and property of the corporate debtor in the manner as may be specified by the
Board and prepare a report;
(d) to take such measures to protect and preserve the assets and properties of the corporate debtor as
he considers necessary;
(e) to carry on the business of the corporate debtor for its beneficial liquidation as he considers necessary;
(f) to sell the immovable and movable property and actionable claims of the corporate debtor in
liquidation by public auction or private contract, with power to transfer such property to any person or
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body corporate, or to sell the same in parcels in such manner as may be specified; (sell to any person
except those ineligible to act as resolution applicant u/s 29A)
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(g) to draw, accept, make and endorse any negotiable instruments including bill of exchange, hundi
orpromissory note in the name and on behalf of the corporate debtor, with the same effect with respect
to the liability as if such instruments were drawn, accepted, made or endorsed by or on behalf of the
corporate debtor in the ordinary course of its business;
(h) to take out, in his official name, letter of administration to any deceased contributory and to do in his
official name any other act necessary for obtaining payment of any money due and payable from a
contributory or his estate which cannot be ordinarily done in the name of the corporate debtor, and in
allsuch cases, the money due and payable shall, for the purpose of enabling the liquidator to take out the
letter of administration or recover the money, be deemed to be due to the liquidator himself;
(i) to obtain any professional assistance from any person or appoint any professional, in discharge of his
duties, obligations and responsibilities;
(j) to invite and settle claims of creditors and claimants and distribute proceeds in accordance with
theprovisions of this Code;
(k) to institute or defend any suit, prosecution or other legal proceedings, civil or criminal, in the name
of on behalf of the corporate debtor;
(l) to investigate the financial affairs of the corporate debtor to determine undervalued or preferential
transactions;
(m) to take all such actions, steps, or to sign, execute and verify any paper, deed, receipt document,
application, petition, affidavit, bond or instrument and for such purpose to use the common seal, if any,
as may be necessary for liquidation, distribution of assets and in discharge of his duties and obligations
and functions as liquidator;
(n) to apply to the Adjudicating Authority for such orders or directions as may be necessary for
theliquidation of the corporate debtor and to report the progress of the liquidation process in a manner
asmay be specified by the Board; and
(o) to perform such other functions as may be specified by the Board.
The liquidator shall have the power to consult any of the stakeholders entitled to a
distribution of proceeds:
Provided that any such consultation shall not be binding on the liquidator.
Provided further that the records of any such consultation shall be made available to all other stakeholders
not so consulted, in a manner specified by the Board.
Powers of liquidator to access information: Section 37

The liquidator shall have the power to access any information systems for the purpose of admission and
proof of claims and identification of the liquidation estate assets relating to the corporate debtor.
The creditors may require the liquidator to provide them any financial information relating to the
corporate debtor. The liquidator shall provide information to such creditors who have requested for such
information within a period of 7 days from the date of such request or provide reasons for not providing
such information.
Liquidation estate: Section 36

The liquidator shall form an estate of the assets, which will be called the liquidation estate in relation to
the corporate debtor.
The liquidator shall hold the liquidation estate as a fiduciary for the benefit of all the creditors.
Comprising of liquidation estate: The liquidation estate shall comprise of all liquidation estate assets
which shall include the following:—
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(a) any assets over which the corporate debtor has ownership rights, including all rights and interests
therein as evidenced in the balance sheet of the corporate debtor or an information utility or records
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in the registry or any depository recording securities of the corporate debtor or by any other means
as may be specified by the Board, including shares held in any subsidiary of the corporate debtor;
(b) assets that may or may not be in possession of the corporate debtor including but not limited to
encumbered assets;
(c) tangible assets, whether movable or immovable;
(d) intangible assets including but not limited to intellectual property, securities (including shares held in
a subsidiary of the corporate debtor) and financial instruments, insurance policies, contractual rights;
(e) assets subject to the determination of ownership by the court or authority;
(f) any assets or their value recovered through proceedings for avoidance of transactions in accordance
with this Chapter;
(g) any asset of the corporate debtor in respect of which a secured creditor has relinquished security
interest;
(h) any other property belonging to or vested in the corporate debtor at the insolvency
commencementdate; and
(i) all proceeds of liquidation as and when they are realized.
Exceptions to the assets from inclusion in the liquidation estate assets:

The following shall not be included in the liquidation estate assets and shall not be used for recovery in
the liquidation:—
(a)assets owned by a third party which are in possession of the corporate debtor, including—
(i) assets held in trust for any third party;
(ii) bailment contracts;
(iii) all sums due to any workman or employee from the provident fund, the pension fund and the gratuity
fund;
(iv) other contractual arrangements which do not stipulate transfer of title but only use of the assets; and
(v) such other assets as may be notified by the Central Government in consultation with any financial
sector regulator;
(b) assets in security collateral held by financial services providers and are subject to netting and set-off in
multi-lateral trading or clearing transactions;
(c) personal assets of any shareholder or partner of a corporate debtor as the case may be provided such
assets are not held on account of avoidance transactions that may be avoided under this Chapter;
(d) assets of any Indian or foreign subsidiary of the corporate debtor; or
(e) any other assets as may be specified by the Board, including assets which could be subject to set-off
on account of mutual dealings between the corporate debtor and any creditor.
Consolidation of claims: Section 38

Section 38 of the Code deals with provisions related to the consolidation of claims. Accordingly,
(1) Collection of claims by liquidator: The liquidator shall receive or collect the claims of creditors
within a
period of 30 days from the date of the commencement of the liquidation process.
(2) Submission of claims: A financial creditor may submit a claim to the liquidator by providing a record
of such claim with an information utility.
Provided that where the information relating to the claim is not recorded in the information utility, the
financial creditor may submit the claim in the same manner as provided for the submission of claims
for the operational creditor.
(3) Supportive documents: An operational creditor may submit a claim to the liquidator in such form
and in such manner and along with such supporting documents required to prove the claim as may be
(4) Amount of claims to be submitted: A creditor who is partly a financial creditor and partly an
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operational creditor shall submit claims to the liquidator to the extent of his financial debt and to the
extent of his operational debt.
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(5) Alteration in claim: A creditor may withdraw or vary his claim under this section within fourteen days
of its submission.
Verification of claims: Section 39

The liquidator shall verify the claims submitted within such time as specified by the Board. The
liquidator may
require any creditor or the corporate debtor or any other person to produce any other document or
evidence which he thinks necessary for the purpose of verifying the whole or any part of the claim.
Admission or rejection of claims: Section 40

The liquidator may, after verification of claims, either admit or reject the claim, in whole or in part, as
the case may be. Provided that where the liquidator rejects a claim, he shall record in writing the reasons
for such rejection.
The liquidator shall communicate his decision of admission or rejection of claims to the creditor and
corporate debtor within seven days of such admission or rejection of claims.
Determination of valuation of claims: Section 41

The liquidator shall determine the value of claims admitted in such manner as may be specified by the
Board.
Appeal against the decision of liquidator: Section 42

A creditor may appeal to the Adjudicating Authority against the decision of the liquidator
rejecting/accepting the claims within fourteen days of the receipt of such decision.
Preferential transactions & Extortionate Credit Transactions:

(1) According to section 50 of the Code, where the corporate debtor has been a party to an extortionate
credit transaction involving the receipt of financial or operational debt during the period within two years
preceding the insolvency commencement date, the liquidator or the resolution professional as the case
may be, may make an application for avoidance of such transaction to the Adjudicating Authority if the
terms of such transaction required exorbitant payments to be made by the corporate debtor.
(2) The Board may specify the circumstances in which the said transactions shall be considered as an
extortionate credit transaction as given under the above provision.
Exception: Where any debt extended by any person providing financial services which is in compliance
with any law for the time being in force in relation to such debt shall in no event be considered as an
extortionate credit transaction.
Order of Adjudicating authority: As per Section 51 of the Code, if an Adjudicating Authority after
examining the application is satisfied that the terms of a credit transaction required exorbitant payments
to be made by the corporate debtor, it shall, by an order:-
(a) Restore the position as it existed prior to such transaction;
(b) Set aside the whole or part of the debt created on account of the extortionate credit transaction;
(c) Modify the terms of the transaction;
(d) Require any person who is, or was, a party to the transaction to repay any amount received by such
person; or
(e) Require any security interest that was created as part of the extortionate credit transactionto be
relinquished in favour of the liquidator or the resolution professional, as the case may be.
According to section 43 of the Code, where the liquidator or the resolution professional (RP), is of the
opinion that the corporate debtor has at a relevant time given a preference in such transactions to any
of the following persons:
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(a) A related party (other than by reason only of being an employee), during the period of two years
preceding the insolvency commencement date.
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(b) A person other than a related party during the period of one year preceding the insolvency
commencement date. [Sub-section (4)]
In such case, the liquidator or RP shall apply to the Adjudicating Authority for avoidance of preferential
transactions and for, one or more of the orders referred to in section 44.
Circumstances under which transactions will be Circumstances under which transactions will not be
referred to as preferential transactions referred to as preferential transactions
A corporate debtor shall be deemed to have Following transfers shall not be referred
given a preference in the following circumstances:- to as a preference transaction:-
a) If there is a transfer of property or an interest a) The transfer made in the ordinary course of the
thereof of the corporate debtor for the benefit of a business or financial affairs of the corporate debtor
creditor or a surety or a guarantor for or on or the transferee.
account
of an antecedent financialdebt or operational debt b) Any transfer creating a security interest in property
or other liabilities owed by the corporate debtor. acquired by the corporate debtor to the extent that-
b) If the transfer has the effect of puttingsuch (i) such security interest secures new value and was
creditor or a surety or a guarantor in a beneficial given at the time of or after the signing of a security
position than it would have been in the event of a agreement that contains a description of such
distribution of assets being made in accordance property as security interest and was used by
with Section 53 of the Code. corporate debtor to acquire such property; and
(ii) such transfer was registered with an information

utility on or before thirty days after the corporate
debtor receives possession of such property.
Further, any transfer made inpursuance of the order
of a Court shall not preclude such transfer to be
deemed as giving of preference by the corporate
debtor.
Explanation:- The term “new value” means money or its worth in goods, services, or new credit, or
release by the transferee of property previously transferred to such transferee in a transaction that is
neither void nor voidable by the liquidator or the resolution professional under this Code, including
proceeds of such property, but does not include a financial debt or operational debt substituted for
existing financial debt or operational debt.
Orders in case of preferential transactions

The Adjudicating Authority, may, on an application made by the resolution professional or liquidator,
by an order :
(a) require any property transferred in connection with the giving of the preference to be vested in the
corporate debtor;
(b) require any property to be so vested if it represents the application either of the proceeds of sale of
property so transferred or of money so transferred;
(c) release or discharge (in whole or in part) of any security interest created by the corporate debtor;
(d) require any person to pay such sums in respect of benefits received by him from the corporate
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debtor, such sums to the liquidator or the resolution professional, as the Adjudicating Authority may
direct;
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(e) direct any guarantor, whose financial debts or operational debts owed to any person werereleased or
discharged (in whole or in part) by the giving of the preference, to be under such new or revived financial
debts or operational debts to that person as the Adjudicating Authority deems appropriate;
(f) direct for providing security or charge on any property for the discharge of any financialdebt or
operational debt under the order, and such security or charge to have the same priority as a security or
charge released or discharged wholly or in part by the giving of the preference; and
(g) direct for providing the extent to which any person whose property is so vested in the corporate
debtor, or on whom financial debts or operational debts are imposed by the order, are to be proved in
the liquidation or the corporate insolvency resolution process for financial debts or operational debts
which arose from, or were released or discharged wholly or in part by the giving of the preference:
Provided that an order under this section shall not—

(a) affect any interest in property which was acquired from a person other than the corporate
debtor or any interest derived from such interest and was acquired in good faith and for
value;
(b) require a person, who received a benefit from the preferential transaction in good faith and
for value to pay a sum to the liquidator or the resolution professional. [Section 44]
Avoidance of undervalued transactions:

If the liquidator or the RP, on an examination of the transactions of the corporate debtor, determines
that certain transactions were made during the relevant period were undervalued, he shall make an
application to the Adjudicating Authority to declare such transactions as void and reverse the effect of
such transaction.
A transaction shall be considered undervalued where the corporate debtor —
(a) makes a gift to a person; or
(b) enters into a transaction with a person which involves the transfer of one or more assets by the
corporate debtor for a consideration the value of which is significantly less than the value of the
consideration provided by the corporate debtor,and such transaction has not taken place in the ordinary
course of business of the corporate debtor. [Section 45]
Relevant period for avoidable transactions: In an application for avoiding a transaction at undervalue,
the liquidator or resolution professional shall determine :
(a) That the transaction was entered within the period of one year preceding the insolvency
commencement date; or
(b) That the transaction was made with a related party within a period of two years preceding the
insolvency commencement date. [Section 46]
In case where liquidator or RP has not reported to the adjudicating authority of the undervalued
transaction: Section 47 of the Code states that where an undervalued transaction has taken place and
the liquidator or the resolution professional has not reported it to the Adjudicating Authority, a creditor,
member or a partner of a corporate debtor may make an application to the Adjudicating Authority to
declare such transactions void and reverse their effect.
Where the Adjudicating Authority, after examination of the application made under sub-section (1), is
satisfied that—
(a) undervalued transactions had occurred; and
(b) liquidator or the resolution professional, as the case may be, after having sufficient information or
opportunity to avail information of such transactions did not report such transaction to the Adjudicating
Authority,it shall pass an order—
(a) restoring the position as it existed before such transactions and reversing the effects thereof in the
manner as laid down in section 45 and section 48;
(b) requiring the Board to initiate disciplinary proceedings against the liquidator or the resolution
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professional as the case may be.

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Order in cases of undervalued transactions.

According to section 48 of the Code states that the order of the Adjudicating Authority under sub-section
(1) of section 45 may provide for the following:—
(a) require any property transferred as part of the transaction, to be vested in the corporate debtor;
(b) release or discharge (in whole or in part) any security interest granted by the corporate debtor;
(c) require any person to pay such sums, in respect of benefits received by such person, to the liquidator
or the resolution professional as the case may be, as the Adjudicating Authority may direct; or
(d) require the payment of such consideration for the transaction as may be determined by an
independent expert.
Transactions defrauding creditors: As per section 49 of the Code, where the corporate debtor has
entered into an undervalued transaction under section 45 and the Adjudicating Authority is satisfied that
such transaction was deliberately entered into by such corporate debtor—
(a) for keeping assets of the corporate debtor beyond the reach of any person who is entitledto make a
claim against the corporate debtor; or
(b) in order to adversely affect the interests of such a person in relation to the claim, the Adjudicating
Authority shall make an order—
(i) restoring the position as it existed before such transaction as if the transaction had not been entered
into; and
(ii) protecting the interests of persons who are victims of such transactions:
However, an order passed under this section—

(1) shall not affect any interest in property which was acquired from a person other than the corporate
debtor and was acquired in good faith, for value and without notice of the relevant circumstances, or
affect any interest deriving from such an interest, and
(2) shall not require a person who received a benefit from the transaction in good faith, for value and
without notice of the relevant circumstances to pay any sum unless he was a party to the transaction.
Secured creditor in Liquidation Proceedings:

(i) Rights of secured creditor:
A secured creditor in the liquidation proceedings may—
(a) relinquish its security interest to the liquidation estate and receive proceeds from the sale of assets by
the liquidator , or
(b) realise its security interest in the manner specified in this section.
(ii) To inform the liquidator about realisation of security interest:

Where the secured creditor realises security interest under clause (b) above, he shall inform the
liquidator of such security interest and identify the asset subject to such security interest to be realised.
(iii) Verification by liquidator of security interest:

Before any security interest is realised by the secured creditor under this section, the liquidator shall
verify such security interest and permit the secured creditor to realise only such security interest, the
existence of which may be proved either—
(a) by the records of such security interest maintained by an information utility; or
(b) by such other means as may be specified by the Board
(iv) Rights of secured creditor related to secured assets:

A secured creditor may enforce, realise, settle, compromise or deal with the secured assets in accordance
with such law as applicable to the security interest being realised and to the secured creditor and apply
the proceeds to recover the debts due to it.
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(v) Restriction in realising of secured asset:

If in the course of realising a secured asset, any secured creditor faces resistance from the corporate
debtor or any person connected therewith in taking possession of, selling or otherwise disposing off the
security, the secured creditor may make an application to the Adjudicating Authority to facilitate the
secured creditor to realise such security interest in accordance with law for the time being in force.
(vi) Passing of order by Adjudicating Authority:

The Adjudicating Authority, on the receipt of an application from a secured creditor may pass such order
as may be necessary to permit a secured creditor to realise security interest in accordance with law for the
time being in force.
(vii) Yield of surplus:

Where the enforcement of the security interest yields an amount by way of proceeds which is in excess
of the debts due to the secured creditor, the secured creditor shall—
(a) account to the liquidator for such surplus; and
(b) tender to the liquidator any surplus funds received from the enforcement of such secured assets.
(viii) Amount of insolvency resolution process to be included in the liquidation estate:

The amount ofinsolvency resolution process costs, due from secured creditors who realise their security
interests in the manner provided in this section, shall be deducted from the proceeds of any realisation
by such secured creditors, and they shall transfer such amounts to the liquidator to be included in the
liquidation estate.
(ix) Unpaid debts to be paid by liquidator:

Where the proceeds of the realisation of the secured assets are not adequate to repay debts owed to the
secured creditor, the unpaid debts of such secured creditor shall be paid by the liquidator. [Section 52]
Distribution of assets:
The Code significantly changes the priority waterfall for distribution of liquidation proceeds.
(1)Distribution of proceeds from the sale of the liquidation assets: The proceeds from the sale of the
liquidation assets shall be distributed in the following order of priority —
Priority of Claims:
Sec. 53:- Priority for Distribution under IBC
[The sequence of Pyt. as per the water-fall model]
- The Repyt. of creditors after liquidation shall be done in the following steps:
(1) the insolvency resolution process costs and the liquidation costs paid in full;
(2) the following debts which shall rank equally between and among the following :—
(i) workmen's dues for the period of 24 months preceding the liquidation commencement date; and
(ii) debts owed to a secured creditor in the event such secured creditor has relinquished his security;
(3) wages and any unpaid dues owed to employees other than workmen for the period of 12 months
preceding the liquidation commencement date;
(4) financial debts owed to unsecured creditors;
(5) the following dues shall rank equally between and among the following:—
(i) any amount due to the CG / SG
(ii) debts owed to a secured creditor for any amount unpaid with interest;
(6) any remaining debts and dues;
(2) Disregard of order of priority: Any contractual arrangements between recipients with equal ranking,
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if disrupting the order of priority shall be disregarded by the liquidator.

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(3) Fees to liquidator: The fees payable to the liquidator shall be deducted proportionately from the
proceeds payable to each class of recipients, and the proceeds to the relevant recipient shall be distributed
after such deduction.
Explanation.—For the purpose of this section—

(i) it is hereby clarified that at each stage of the distribution of proceeds in respect of a class of recipients
that rank equally, each of the debts will either be paid in full, or will be paid in equal proportion within
the same class of recipients, if the proceeds are insufficient to meet the debts in full; and
(ii) the term "workmen's dues" shall have the same meaning as assigned to it in section 326 of the
Companies Act, 2013.[ Section 53]
Dissolution of corporate debtor

Application by liquidator dissolution:
Where the assets of the corporate debtor have been completely liquidated, the liquidator shall make an
application to the Adjudicating Authority for the dissolution of such corporate debtor.
Date of dissolution:
The Adjudicating Authority shall on application filed by the liquidator orders that the corporate debtor
shall be dissolved from the date of that order and the corporate debtor shall be dissolved accordingly.
Submission of order copy:

A copy of an order shall within 7 days from the date of such order, be forwarded tothe authority with
which the corporate debtor is registered.
VOLUNTARY LIQUIDATION OF CORPORATE PERSONS [SECTION 59]

(1) A corporate person who intends to liquidate itself voluntarily and has not committed any default
may initiate voluntary liquidation proceedings
(2) The voluntary liquidation of a corporate person shall meet such conditions and procedural
requirements as may be specified by the Board (IBBI).
(3) Conditions of initiation of voluntary liquidation proceedings:
Voluntary liquidation proceedings of a corporate person registered as a company shall meet the
following conditions, namely:—
(a) a declaration from majority of the directors of the company verified by an affidavit stating that—
(i) they have made a full inquiry into the affairs of the company and they have formed
an opinion that either the company has no debt or that it will be able to pay its debts in full from the
proceeds of assets to be sold in the voluntary liquidation; and
(ii) the company is not being liquidated to defraud any person;
(b) the declaration given above shall be accompanied with the following documents,
namely:—
(i) audited financial statements and record of business operations of the company for
the previous two years or for the period since its incorporation, whichever is later;
(ii) a report of the valuation of the assets of the company, if any prepared by a
registered valuer;
(c) within 4 weeks of a declaration, there shall be—

(i) an SR in GM requiring the company to be liquidated voluntarily and appointing an insolvency
professional to act as the liquidator; or
(ii) a resolution of the members of the company in a general meeting requiring the
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company to be liquidated voluntarily as a result of expiry of the period of its duration, if any, fixed by its
articles, or
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(iii) on the occurrence of any event in respect of which the articles provide that the company shall be
dissolved, as the case may be and appointing an insolvency professional to act as the liquidator:
Provided that if the company owes any debt to any person, than the creditors representing two thirds in
value of the debt of the company shall approve the resolution above within 7 days of such resolution.
(4) Notification to Registrar of company and the Board:
The Company shall notify the Registrar of Companies and the Board about the resolution to liquidate
the company within 7 days of such resolution or the subsequent approval by the creditors, as the case
may be.
(5) Commencement of liquidation proceeding: The voluntary liquidation proceedings in respect of a

company shall be deemed to have commenced from the date of passing of the resolution.
(6) Application of provisions of this Code: The provisions of sections 35 to 53 of Chapter III and
Chapter VII shall apply to voluntary liquidation proceedings for corporate persons with such
modifications as may be necessary.
(7) Application to adjudicating authority on complete wound up of the corporate person:

Where the affairs of the corporate person have been completely wound up, and its assets completely
liquidated, the liquidator shall make an application to the Adjudicating Authority for the dissolution of
such corporate person.
(8) Passing of an order of dissolution: The Adjudicating Authority shall on an application filed by the
liquidator, pass an order that the corporate debtor shall be dissolved from the date of that order and the
corporate debtor shall be dissolved accordingly.
(9) Forward of copy of order: A copy of an order shall within fourteen days from the date of such order,
be forwarded to the authority with which the corporate person is registered.
Amendment cum Reference

Vide Notification S.O. 4139(E) dated 18th November, 2019, in exercise of the powers conferred by
section 227 of the Insolvency and Bankruptcy Code, 2016, the Central Government in consultation
with the Reserve Bank of India notifies that the insolvency resolution and liquidation proceedings of the
Non-banking finance companies (which include housing finance companies) with asset size of Rs.500
crore or more, as per last audited balance sheet, shall be undertaken in accordance with the provisions
of the Insolvency and Bankruptcy Code, 2016 read with the Insolvency and Bankruptcy (Insolvency
and Liquidation Proceedings of Financial Service Providers and Application to Adjudicating Authority)
Rules, 2019 and the applicable Regulations.
The amendments aims to provide an efficient alternative insolvency resolution framework for corporate
persons classified as micro, small and medium enterprises (MSMEs) under the Code, for ensuring quicker, cost-
effective and value maximising outcomes for all the stakeholders, in a manner which is least disruptive to the
continuity of MSMEs businesses and which preserves jobs. The initiative is based on a trust model and the
amendments honour the honest MSME owners by trying to ensure that the resolution happens and the
company remains with them.
It is expected that the incorporation of PPIRP for MSMEs in the Code will alleviate the distress faced by MSMEs
due to the impact of the pandemic & the unique nature of their business, duly recognizing their importance in
the economy. It provides an efficient alternative insolvency resolution framework for corporate persons
classified as MSMEs for timely, efficient & cost-effective resolution of distress thereby ensuring positive signal to
debt market, employment preservation, ease of doing business and preservation of enterprise capital. Other
expected impact and benefits of the amendment in Code are lesser burden on Adjudicating Authority, assured
continuity of business operations for corporate debtor (CD), less process costs & maximum assets realization for
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financial creditors (FC) and assurance of continued business relation with CD and rights protection for
operational Creditors (OC).
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CHAPTER III-A
Pre-Packaged Insolvency Resolution Process (PPIRP)
54A - Corporate debtors eligible for PPIRP
(1) An application for initiating PPIRP may be made in respect of a corporate debtor classified as a micro, small
or medium enterprise under sub-section (1) of section 7 of the Micro, Small and Medium Enterprises
Development Act, 2006.
(2) Without prejudice to sub-section (1), an application for initiating PPIRP may be made in respect of a
corporate debtor, who commits a default referred to in section 4, subject to the following conditions, that––
(a) it has not undergone PPIRP or completed corporate insolvency resolution process, as the case may be,
during the period of three years preceding the initiation date;
(b) it is not undergoing a corporate insolvency resolution process;
(c) no order requiring it to be liquidated is passed under section 33;
(d) it is eligible to submit a resolution plan under section 29A;
(e) the financial creditors of the corporate debtor, not being its related parties, representing such number and
such manner as may be specified, have proposed the name of the insolvency professional to be appointed as
resolution professional for conducting the PPIRP of the corporate debtor, and the financial creditors of the
corporate debtor, not being its related parties, representing not less than 66%. in value of the financial debt
due to such creditors, have approved such proposal in such form as may be specified:
Provided that where a corporate debtor does not have any financial creditors, not being its related parties, the
proposal and approval under this clause shall be provided by such persons as may be specified;
(f) the majority of the directors or partners of the corporate debtor, as the case may be, have made a
declaration, in such form as may be specified, stating, inter alia, —
i that the corporate debtor shall file an application for initiating PPIRP within a definite time period not
exceeding 90 days;
ii that the PPIRP is not being initiated to defraud any person; and
iii the name of the insolvency professional proposed and approved to be appointed as RP under clause (e);
(g) the members of the corporate debtor have passed a special resolution, or at least 3/4th of the total number
of partners, as the case may be, of the corporate debtor have passed a resolution, approving the filing of an
application for initiating PPIRP.
(3) The corporate debtor shall obtain an approval from its financial creditors, not being its related parties,
representing not less than 66% in value of the financial debt due to such creditors, for the filing of an
application for initiating PPIRP, in such form as may be specified:
Provided that where a corporate debtor does not have any financial creditors, not being its related parties, the
approval under this sub-section shall be provided by such persons as may be specified.
(4) Prior to seeking approval from financial creditors under sub-section (3), the corporate debtor shall provide
such financial creditors with —
(a) the declaration referred to in clause (f) of sub- section (2);
(b) the special resolution or resolution referred to in clause (g) of sub-section (2);
(c) a base resolution plan which conforms to the requirements referred to in section 54K, and such other
conditions as m ay be specified; and
(d) such other information and documents as may be specified.
54B - Duties of resolution professional before initiation of PPIRP

(1) The insolvency professional, proposed to be appointed as the resolution professional, shall have the
following duties commencing from the date of the approval under clause (e) of sub-section (2) of section 54A,
namely:—
(a) prepare a report in such form as may be specified, confirming whether the corporate debtor meets the
requirements of section 54A, and the base resolution plan conforms to the requirements referred to in clause
(c) of sub-section (4) of section 54A;
(b) file such reports and other documents, with the Board, as may be specified; and
(c) perform such other duties as may be specified.
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(2) The duties of the insolvency professional under sub-section (1) shall cease, if, —
(a) the corporate debtor fails to file an application for initiating PPIRP within the time period as stated under
the declaration referred to in clause (f) of subsection (2) of section 54A; or
(b) the application for initiating PPIRP is admitted or rejected by the Adjudicating Authority, as the case may
be.
(3) The fees payable to the insolvency professional in relation to the duties performed under sub-section (1)
shall be determined and borne in such manner as may be specified and such fees shall form part of the
prepackaged insolvency resolution process costs, if the application for initiation of PPIRP is admitted.
54C - Application to initiate PPIRP

(1) Where a corporate debtor meets the requirements of section 54A, a corporate applicant thereof may file an
application with the Adjudicating insolvency Authority for initiating pre-packaged insolvency resolution
resolution process.
(2) The application under sub-section (1) shall be filed in such form, containing such particulars, in such manner
and accompanied with such fee as may be prescribed.
(3) The corporate applicant shall, along with the application, furnish—
(a) the declaration, special resolution or resolution, as the case may be, and the approval of financial creditors
for initiating PPIRP in terms of section 54A;
(b) the name and written consent, in such form as may be specified, of the insolvency professional proposed to
be appointed as resolution professional, as approved under clause (e) of sub-section (2) of section 54A, and his
report as referred to in clause (a) of sub-section (1) of section 54B;
(c) a declaration regarding the existence of any transactions of the corporate debtor that may be within the
scope of provisions in respect of avoidance of transactions under Chapter III or fraudulent or wrongful trading
under Chapter VI, in such form as may be specified;
(d) information relating to books of account of the corporate debtor and such other documents relating to such
period as may be specified.
(4) The Adjudicating Authority shall, within a period of fourteen days of the receipt of the application, by an
order,––
(a) admit the application, if it is complete; or
(b) reject the application, if it is incomplete:
Provided that the Adjudicating Authority shall, before rejecting an application, give notice to the applicant to
rectify the defect in the application within seven days from the date of receipt of such notice from the
(5) The PPIRP shall commence from the date of admission of the application under clause (a) of sub-section (4).
54D - Time-limit for completion of PPIRP

(1) The PPIRP shall be completed within a period of one hundred and twenty days from the pre-packaged
insolvency commencement date.
(2) Without prejudice to sub-section (1), the resolution professional shall submit the resolution plan, as
approved by the committee of creditors, to the Adjudicating Authority under sub-section (4) or subsection (12),
as the case may be, of section 54K, within a period of ninety days from the pre-packaged insolvency
commencement date.
(3) Where no resolution plan is approved by the committee of creditors within the time period referred to in
sub-section (2), the resolution professional shall, on the day after the expiry of such time period, file an
application with the Adjudicating Authority for termination of the PPIRP in such form and manner as may be
specified.
54E - Declaration of moratorium and public announcement during prepackaged insolvency resolution process
(1) The Adjudicating Authority shall, on the pre-packaged insolvency commencement date, along with the
order of admission under section 54C —
(a) declare a moratorium for the purposes referred to in sub-section (1) read with sub-section (3) of section 14,
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which shall, mutatis mutandis apply, to the proceedings under this Chapter;
(b) appoint a resolution professional —
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(i) as named in the application, if no disciplinary proceeding is pending against him; or

(ii) based on the recommendation made by the Board, if any disciplinary proceeding is pending against the
insolvency professional named in the application.
(c) cause a public announcement of the initiation of the PPIRP to be made by the resolution professional, in
such form and manner as may be specified, immediately after his appointment.
(2) The order of moratorium shall have effect from the date of such order till the date on which the
prepackaged insolvency resolution process period comes to an end.
54F - Duties and powers of resolution professional during PPIRP

(1) The resolution professional shall conduct the PPIRP of a corporate debtor during the PPIRP period.
(2) The resolution professional shall perform the following duties, namely:—
(a) confirm the list of claims submitted by the corporate debtor under section 54G, in such manner as may be
specified;
(b) inform creditors regarding their claims as confirmed under clause (a), in such manner as may be specified;
(c) maintain an updated list of claims, in such manner as may be specified;
(d) monitor management of the affairs of the corporate debtor;
(e) inform the committee of creditors in the event of breach of any of the obligations of the Board of Directors
or partners, as the case may be, of the corporate debtor, under the provisions of this Chapter and the rules and
regulations made thereunder;
(f) constitute the committee of creditors and convene and attend all its meetings;
(g) prepare the information memorandum on the basis of the preliminary information memorandum submitted
under section 54G and any other relevant information, in such form and manner as may be specified;
(h) file applications for avoidance of transactions under Chapter III or fraudulent or wrongful trading under
Chapter VI, if any; and
(i) such other duties as may be specified.
(3) The resolution professional shall exercise the following powers, namely:—
(a) access all books of accounts, records and information available with the corporate debtor;
(b) access the electronic records of the corporate debtor from an information utility having financial
information of the corporate debtor;
(c) access the books of accounts, records and
other relevant documents of the corporate debtor available with Government authorities, statutory auditors,
accountants and such other persons as may be specified;
(d) attend meetings of members, Board of Directors and committee of directors, or partners, as the case may
be, of the corporate debtor;
(e) appoint accountants, legal or other professionals in such manner as may be specified;
(f) collect all information relating to the assets,
finances and operations of the corporate debtor for determining the financial position of the corporate debtor
and the existence of any transactions that may be within the scope of provisions relating to avoidance of
transactions under
Chapter III or fraudulent or wrongful trading under Chapter VI, including information relating to —
(i) business operations for the previous two years from the date of pre-packaged insolvency commencement
date;
(ii) financial and operational payments for the previous two years from the date of prepackaged insolvency
commencement date;
(iii) list of assets and liabilities as on the initiation date; and
(iv) such other matters as may be specified;
(g) take such other actions in such manner as may be specified.
(4) From the date of appointment of the resolution professional, the financial institutions maintaining accounts
of the corporate debtor shall furnish all information relating to the corporate debtor available with them to the
resolution professional, as and when required by him.
(5) The personnel of the corporate debtor, its promoters and any other person associated with the
management of the corporate debtor shall extend all assistance and cooperation to the resolution professional
as may be required by him to perform his duties and exercise his powers, and for such purposes, the provisions
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of sub-sections (2) and (3) of section 19 shall, mutatis mutandis apply, in relation to the proceedings under this
Chapter.
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(6) The fees of the resolution professional and any expenses incurred by him for conducting the prepackaged
insolvency resolution process shall be determined in such manner as may be specified:
Provided that the committee of creditors may impose limits and conditions on such fees and expenses:
Provided further that the fees and expenses for the period prior to the constitution of the committee of
creditors shall be subject to ratification by it.
(7) The fees and expenses referred to in sub-section (6) shall be borne in such manner as may be specified.
54G - List of claims and preliminary information memorandum

(1) The corporate debtor shall, within two days of the pre-packaged insolvency commencement date, submit to
the resolution professional the following information, updated as on that date, in such form and manner as
may be specified, namely:—
(a) a list of claims, along with details of the respective creditors, their security interests and guarantees, if any;
and
(b) a preliminary information memorandum containing information relevant for formulating a resolution plan.
(2) Where any person has sustained any loss or damage as a consequence of the omission of any material
information or inclusion of any misleading information in the list of claims or the preliminary information
memorandum submitted by the corporate debtor, every person who—
(a) is a promoter or director or partner of the corporate debtor, as the case may be, at the time of submission
of the list of claims or the preliminary information memorandum by the corporate debtor; or
(b) has authorised the submission of the list of claims or the preliminary information memorandum by the
corporate debtor, shall, without prejudice to section 77A, be liable to pay compensation to every person who
has sustained such loss or damage.
(3) No person shall be liable under sub-section (2), if the list of claims or the preliminary information
memorandum was submitted by the corporate debtor without his knowledge or consent.
(4) Subject to section 54E, any person, who sustained any loss or damage as a consequence of omission of
material information or inclusion of any misleading information in the list of claims or the preliminary
information memorandum shall be entitled to move a court having jurisdiction for seeking compensation for
such loss or damage.
54H - Management of affairs of corporate debtor

During the PPIRP period,—
(a) the management of the affairs of the corporate debtor shall continue to vest in the Board of Directors or
the partners, as the case may be, of the corporate debtor, subject to such conditions as may be specified;
(b) the Board of Directors or the partners, as the case may be, of the corporate debtor, shall make every
endeavour to protect and preserve the value of the property of the corporate debtor, and manage its
operations as a going concern; and
(c) the promoters, members, personnel and partners, as the case may be, of the corporate debtor, shall exercise
and discharge their contractual or statutory rights and obligations in relation to the corporate debtor, subject to
the provisions of this Chapter and such other conditions and restrictions as may be prescribed.
54-I - Committee of creditors

(1) The resolution professional shall, within seven days of the pre-packaged insolvency commencement date,
constitute a committee of creditors, based on the list of claims confirmed under clause (a) of sub-section (2) of
section 54F:
Provided that the composition of the committee of creditors shall be altered on the basis of the updated list of
claims, in such manner as may be specified, and any such alteration shall not affect the validity of any past
decision of the committee of creditors.
(2) The first meeting of the committee of creditors shall be held within seven days of the constitution of the
committee of creditors.
(3) Provisions of section 21, except sub-section (1) thereof, shall, mutatis mutandis apply, in relation to the
committee of creditors under this Chapter:
Provided that for the purposes of this sub-section, references to the “resolution professional” under subsections
(9) and (10) of section 21, shall be construed as references to “corporate debtor or the resolution professional”.
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54J - Vesting management of corporate debtor with resolution professional

(1) Where the committee of creditors, at any time during the pre-packaged insolvency resolution corporate
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process, by a vote of not less than 66%. of the voting shares, resolves to vest the management of the corporate
debtor with the resolution professional, the resolution professional shall make an application for this purpose
to the Adjudicating Authority, in such form and manner as may be specified.
(2) On an application made under sub-section (1), if the Adjudicating Authority is of the opinion that during
the PPIRP—
(a) the affairs of the corporate debtor have been conducted in a fraudulent manner; or
(b) there has been gross mismanagement of the affairs of the corporate debtor,
it shall pass an order vesting the management of the corporate debtor with the resolution professional.
(3) Notwithstanding anything to the contrary contained in this Chapter, the provisions of —
(a) sub-sections (2) and (2A) of section 14;
(b) section 17;
(c) clauses (e) to (g) of section 18;
(d) sections 19 and 20;
(e) sub-section (1) of section 25;
(f) clauses (a) to (c) and clause (k) of sub- section (2) of section 25; and
(g) section 28,
shall, mutatis mutandis apply, to the proceedings under this Chapter, from the date of the order under
subsection (2), until the PPIRP period comes to an end.
54K - Consideration and approval of resolution plan

(1) The corporate debtor shall submit the base resolution plan, referred to in clause (c) of sub-section (4) of
section 54A, to the resolution professional within two days of the pre-packaged insolvency commencement
date, and the resolution professional shall present it to the committee of creditors.
(2) The committee of creditors may provide the corporate debtor an opportunity to revise the base resolution
plan prior to its approval under sub-section (4) or invitation of prospective resolution applicants under sub-
section (5), as the case may be.
(3) The resolution plans and the base resolution plan, submitted under this section shall conform to the
requirements referred to in sub-sections (1) and (2) of section 30, and the provisions of sub-sections (1), (2) and
(5) of section 30 shall, mutatis mutandis apply, to the proceedings under this Chapter.
(4) The committee of creditors may approve the base resolution plan for submission to the Adjudicating
Authority if it does not impair any claims owed by the corporate debtor to the operational creditors.
(5) Where —
(a) the committee of creditors does not approve the base resolution plan under sub-section (4); or
(b) the base resolution plan impairs any claims owed by the corporate debtor to the operational creditors, the
resolution professional shall invite prospective
resolution applicants to submit a resolution plan or plans, to compete with the base resolution plan, in such
manner as may be specified.
(6) The resolution applicants submitting resolution plans pursuant to invitation under sub-section (5), shall fulfil
such criteria as may be laid down by the resolution professional with the approval of the committee of
creditors, having regard to the complexity and scale of operations of the business of the corporate debtor and
such other conditions as may be specified.
(7) The resolution professional shall provide to the resolution applicants, —

(a) the basis for evaluation of resolution plans
for the purposes of sub-section (9), as approved by the committee of creditors subject to such conditions as
may be specified; and
(b) the relevant information referred to in section 29, which shall, mutatis mutandis apply, to the proceedings
under this Chapter, in such manner as may be specified.
(8) The resolution professional shall present to the committee of creditors, for its evaluation, resolution plans
which conform to the requirements referred to in sub-section (2) of section 30.
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(9) The committee of creditors shall evaluate the resolution plans presented by the resolution professional and
select a resolution plan from amongst them.
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(10) Where, on the basis of such criteria as may be laid down by it, the committee of creditors decides that the
resolution plan selected under sub-section (9) is significantly better than the base resolution plan, such
resolution plan may be selected for approval under subsection (12):
Provided that the criteria laid down by the committee of creditors under this sub-section shall be subject to
such conditions as may be specified.
(11) Where the resolution plan selected under sub-section (9) is not considered for approval or does not fulfil
the requirements of sub-section (10), it shall compete with the base resolution plan, in such manner and subject
to such conditions as may be specified, and one of them shall be selected for approval under subsection (12).
(12) The resolution plan selected for approval under sub-section (10) or sub-section (11), as the case may be,
may be approved by the committee of creditors for submission to the Adjudicating Authority:
Provided that where the resolution plan selected for approval under sub-section (11) is not approved by the
committee of creditors, the resolution professional shall file an application for termination of the PPIRP in such
form and manner as may be specified.
(13) The approval of the resolution plan under sub-section (4) or sub-section (12), as the case may be, by the
committee of creditors, shall be by a vote of not less than 66%. of the voting shares, after considering its
feasibility and viability, the manner of distribution proposed, taking into account the order of priority amongst
creditors as laid down in sub-section (1) of section 53, including the priority and value of the security interest of
a secured creditor and such other requirements as may be specified.
(14) While considering the feasibility and viability of a resolution plan, where the resolution plan submitted by
the corporate debtor provides for impairment of any claims owed by the corporate debtor, the committee of
creditors may require the promoters of the corporate debtor to dilute their shareholding or voting or control
rights in the corporate debtor:
Provided that where the resolution plan does not provide for such dilution, the committee of creditors shall,
prior to the approval of such resolution plan under sub-section (4) or sub-section (12), as the case may be,
record reasons for its approval.
(15) The resolution professional shall submit the resolution plan as approved by the committee of creditors
under sub-section (4) or sub-section (12), as the case may be, to the Adjudicating Authority.
Explanation I.––For the removal of doubts, it is hereby clarified that, the corporate debtor being a resolution
applicant under clause (25) of section 5, may submit the base resolution plan either individually or jointly with
any other person.
Explanation II.––For the purposes of sub - sections (4) and (14), claims shall be considered to be impaired
where the resolution plan does not provide for the full payment of the confirmed claims as per the updated list
of claims maintained by the resolution professional.
54L - Approval of resolution plan

(1) If the Adjudicating Authority is satisfied that the resolution plan as approved by the committee of creditors
under sub-section (4) or sub-section (12) of section 54K, as the case may be, subject to the conditions provided
therein, meets the requirements as referred to in sub-section (2) of section 30, it shall, within thirty days of the
receipt of such resolution plan, by order approve the resolution plan:
Provided that the Adjudicating Authority shall, before passing an order for approval of a resolution plan under
this sub-section, satisfy itself that the resolution plan has provisions for its effective implementation.
(2) The order of approval under sub-section (1) shall have such effect as provided under sub-sections (1), (3)
and (4) of section 31, which shall, mutatis mutandis apply, to the proceedings under this Chapter.
(3) Where the Adjudicating Authority is satisfied that the resolution plan does not conform to the requirements
referred to in sub-section (1), it may, within thirty days of the receipt of such resolution plan, by an order,
reject the resolution plan and pass an order under section 54N.
(4) Notwithstanding anything to the contrary contained in this section, where the Adjudicating Authority has
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passed an order under sub-section (2) of section 54J and the resolution plan approved by the committee of
creditors under sub-section (4) or subsection (12), as the case may be, of section 54K, does not result in the
change in the management or control of the corporate debtor to a person who was not a promoter or in the
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management or control of the corporate debtor, the Adjudicating Authority shall pass an order —
(a) rejecting such resolution plan;

(b) terminating the PPIRP and passing a liquidation order in respect of the corporate debtor as referred to in
subclauses (i), (ii) and (iii) of clause (b) of sub-section (1) of section 33; and
(c) declaring that the PPIRP costs, if any, shall be included as part of the liquidation costs for the purposes of
liquidation of the corporate debtor.
54M - Appeal against order under section 54L

Any appeal from an order approving the resolution plan under sub-section (1) of section 54L, shall be on the
grounds laid down in sub-section (3) of section 61.
54N - Termination of PPIRP

(1) Where the resolution professional files an application with the Adjudicating Authority,—
(a) under the proviso to sub-section (12) of section 54K; or
(b) under sub-section (3) of section 54D, the Adjudicating Authority shall, within thirty days of the date of such
application, by an order, —
(i) terminate the PPIRP; and
(ii) provide for the manner of continuation of proceedings initiated for avoidance of transactions under
Chapter III or proceedings initiated under section 66 and section 67A, if any.
(2) Where the resolution professional, at any time after the pre-packaged insolvency commencement date, but
before the approval of resolution plan under subsection (4) or sub-section (12), as the case may be, of section
54K, intimates the Adjudicating Authority of the decision of the committee of creditors, approved by a vote of
66%. of the voting shares, to terminate the PPIRP, the Adjudicating Authority shall pass an order under sub-
section (1).
(3) Where the Adjudicating Authority passes an order under sub-section (1), the corporate debtor shall bear the
PPIRP costs, if any.
(4) Notwithstanding anything to the contrary contained in this section, where the Adjudicating Authority has
passed an order under sub-section (2) of section 54J and the PPIRP is required to be terminated under sub-
section (1), the Adjudicating Authority shall pass an order —
(a) of liquidation in respect of the corporate debtor as referred to in sub-clauses (i), (ii) and (iii) of clause (b) of
sub-section (1) of section 33; and
(b) declare that the PPIRP costs, if any, shall be included as part of the liquidation costs for the purposes of
liquidation of the corporate debtor.
54-O - Initiation of corporate insolvency resolution process

(1) The committee of creditors, at any time after the pre-packaged insolvency commencement date but before
the approval of resolution plan under sub- section (4) or sub-section (12), as the case may be, of section 54K,
by a vote of 66%. of the voting shares, may resolve to initiate a corporate insolvency resolution process in
respect of the corporate debtor, if such corporate debtor is eligible for corporate insolvency resolution process
under Chapter II.
(2) Notwithstanding anything to the contrary contained in Chapter II, where the resolution professional
intimates the Adjudicating Authority of the decision of the committee of creditors under sub-section (1), the
Adjudicating Authority shall, within thirty days of the date of such intimation, pass an order to —
a. terminate the pre-packaged insolvency
resolution process and initiate corporate insolvency resolution process under Chapter II in respect of the
corporate debtor;
b. appoint the resolution professional referred
to in under clause (b) of sub-section (1) of section 54E as the interim resolution professional, subject to
submission of written consent by such resolution professional to the Adjudicatory Authority in such form as
may be specified; and
c. declare that the pre-packaged insolvency
resolution process costs, if any, shall be included as part of insolvency resolution process costs for the purposes
of the corporate insolvency resolution process of the corporate debtor.
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(3) Where the resolution professional fails to submit written consent under clause (b) of sub-section (2), the
Adjudicating Authority shall appoint an interim resolution professional by making a reference to the Board for
recommendation, in the manner as provided under section 16.
(4) Where the Adjudicating Authority passes an order under sub-section (2) —
(a) such order shall be deemed to be an order of admission of an application under section 7 and shall have the
same effect;
(b) the corporate insolvency resolution process shall commence from the date of such order;
(c) the proceedings initiated for avoidance of
transactions under Chapter III or proceedings initiated under section 66 and section 67A, if any, shall continue
during the corporate insolvency resolution process;
(d) for the purposes of sections 43, 46 and 50, references to “insolvency commencement date” shall mean
“pre-packaged insolvency commencement date”; and
(e) in computing the relevant time or the period for avoidable transactions, the time-period for the duration of
the PPIRP shall also be included, notwithstanding anything to the contrary contained in sections 43, 46 and 50.
54P - Application of provisions of Chapters II, III, VI, and VII to this Chapter
(1) Save as provided under this Chapter, sections 24, 25A, 26, 27, 28, 29A, 32A, 43 to 51, and the provisions
of Chapters VI and VII of this VI, and VII to Part shall, mutatis mutandis apply, to the PPIRP, subject to the
following, namely:―
(a) reference to “members of the suspended Board of Directors or the partners” under clause (b) of sub-section
(3) of section 24 shall be construed as reference to “members of the Board of Directors or the partners,unless
an order has been passed by the Adjudicating Authority under section 54J”;
(b) reference to “clause (j) of sub-section (2) of section 25” under section 26 shall be construed as reference to
“clause (h) of sub-section (2) of section 54F”;
(c) reference to “section 16” under section 27 shall be construed as reference to “section 54E”;
(d) reference to “resolution professional” in sub-sections (1) and (4) of section 28 shall be construed as
“corporate debtor”;
(e) reference to “section 31” under sub-section (3) of section 61 shall be construed as reference to “sub-section
(1) of section 54L”;
(f) reference to “section 14” in sub-sections (1) and (2) of section 74 shall be construed as reference to “clause
(a) of sub-section (1) of section 54E”;
(g) reference to “section 31” in sub-section (3) of section 74 shall be construed as" reference to “section 54L(1)”.
(2) Without prejudice to the provisions of this Chapter and unless the context otherwise requires, where the
provisions of Chapters II, III, VI and VII are applied to the proceedings under this Chapter, references to —
(a) “insolvency commencement date” shall be construed as references to “pre-packaged insolvency
commencement date”;
(b) “resolution professional” or “interim resolution professional”, as the case may be, shall be construed as
references to the resolution professional appointed under this Chapter;
(c) “corporate insolvency resolution process” shall be construed as references to “PPIRP”; and
(d) “insolvency resolution process period” shall be construed as references to “PPIRP period.”.’. 301
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Final Corporate Law and Other Economic Laws Merged

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Final Corporate Law and Other Economic Laws Merged

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CA FINAL Corporate and Economic Laws Prof.

CA Final Group 1 Paper 4

For Nov 10th Official

Revised as per New ICAI Syllabus and Amended as per

This Edition of my book belongs to my Late Grand Mother,

Note from Author

- Prof. Harsh Kachalia

CA Final - Corporate and Economic Laws

APPOINTMENT AND QUALIFICATION OF DIRECTORS

Section 149 - COMPANY TO HAVE BOARD OF DIRECTORS

Public Company = 3 Private Company = 2 One Person Company = 1

(c) Women director: Second Proviso to Section 149(1)

Listed Company Unlisted Public Company Private Company

Always Applicable 2 conditions - If any one satisfied, atleast 1

b. According to Companies (Appointment & Qualification of Director) Rules, 2014 Public

Immediate next Board meeting OR Whichever is later

4.WHO CAN BECOME an INDEPENDENT DIRECTOR: Sec 149(6)

nominee director, and who fulfills the following criteria:

Exception: Holding by relatives upto following limits is allowed:

(5) who, himself—

holding, subsidiary or associate Company amounting to 10 % or more of the gross turnover

(a) listed public company; or

Section 150 - Manner of selection of independent directors and

Section 151 - APPOINTMENT OF DIRECTOR ELECTED BY SMALL

8) DISQUALIFICATION U/S 164:

Section 152 - APPOINTMENT OF DIRECTORS

Specifies name of 1st Director Does not specify name

Person whose name is so Specifies manner Does not specifies

152(6): Retirement & Rotation:

Section 153 - APPLICATION FOR ALLOTMENT OF DIRECTOR

Section 154 - ALLOTMENT OF DIRECTOR IDENTIFICATION

Section 155 - Prohibition to obtain more than one DIN

Section 156 - Director to intimate DIN

Section 157 - Company to inform DIN to Registrar

(ii) If any company fails to furnish the Director Identification Number –

Section 158 - Obligation to indicate DIN

Section 159 - Punishment for contravention

Companies (Appointment and Qualification of Directors) Rules, 2014

2. Conditions for appointment: if he himself or some member intending to propose him as a

Section 161 - Appointment of additional director, alternate director and

Directors at a meeting of the Board which shall be subsequently approved by the

Section 162 - APPOINTMENT OF DIRECTORS TO BE VOTED

Section 163 - OPTION TO ADOPT PRINCIPLE OF PROPORTIONAL

Section 164 - DISQUALIFICATIONS FOR APPOINTMENT OF

(a) he is of unsound mind;

(b) he has been convicted by a court of any offence,

- involving moral turpitude or otherwise, and

Section 165 - NUMBER OF DIRECTORSHIPS

as a director shall not exceed ten.

Section 166 - DUTIES OF DIRECTORS

Section 167 - VACATION OF OFFICE OF DIRECTOR

Section 168 - RESIGNATION OF DIRECTOR

Section 169 - REMOVAL

section and the director concerned makes with respect thereto

to members of the company, the company shall, if the time permits it to do so -

Section 170 - REGISTER OF DIRECTORS AND KEY MANAGERIAL

Government companies in which 100% of PUSC is held by CG/SG/both.

Section 171 - MEMBERS’ RIGHT TO INSPECT

Section 172 - PUNISHMENT

Meetings of Board and its Powers

1. FREQUENCY OF BOARD MEETING:

2. PARTICIPATION IN BOARD MEETING:

financial statement,if any

5) Approval of the matter relating to Merger, Amalgamation, demerger, Acquisition and