Paper-13 Corporate Laws: & Compliance

Paper-13
Corporate Laws
& Compliance
Volume-1
GSC PUBLICATION
CORPORATE LAW GYAN SAGAR CLASSES 9649-221-222
Corporate Laws &

Compliance
For
CMA-Final
By
CS Juhi Chawla Mam
CS
Gyan Sagar Classes

8, Milap Nagar, Near Glass Factory, Behind Kamal
& Co.,Tonk Road, Jaipur
E-mail- gyansagarclassesgsc@gmail.com
Mob. No.:- 9649-221-222, 9649-447-444
www.gyansagarclasses.com
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“Let’s Flow in the Ocean of Gyan with GSC”
Testimonials
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INDEX
S.N. Topic Page No.
01 Introduction 06-45
02 Deposits 46-55
03 Directors 56-109
04 Board Meeting 110-134
05 Loans & Investments 135-140
06 Accounts of Companies 141-164
07 Inspection & Investigation 165-181
08 Divisible Profits & Dividends 182-188
09 Compromise & Arrangements 189-206
10 Winding Up 207-227
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1 INTRODUCTION
Definition of Company [Section 2 (20)] – A Company means a Company formed and
registered under this Companies Act or under any previous laws related to companies.
1. Company is an artificial person which has its own existence and different from its members.
2. A Company is a body corporate and a legal person having status and personality distinct
from its members.
FEATURES OF COMPANY –
1.Separate Legal Entity- A Company has an identity separate from its members it can
acquire/ hold / dispose of any assets on its own.It can sue and can be sued in its own name.
Case: Salomon v/s Salomon co. ltd.
In this case Salomon who carried his own business as leather & boot manufacturer decided to
form a Company. The E.S. capital of such Company was entirely held by salomon and his family
members. Soon the co. fall into difficulties and the receiver was appointed to liquidate the
Company. The debentures issued by the company were held by Salomon himself. At the time
of payment the unsecured creditors contented that the payment must be first made to them
as the entire interest in the company was held by salomon. The house of lords held that as
identity of the Company is separate from its members, the liability and assets of the co. are
in its own name and as the debenture holders are to be paid before such unsecured creditors,
It doesn’t’ matter by whom it is held.
2. Limited liability – It means being legally responsible only to a limited amount for the debts
of the company. the liability of a member is limited up to the amount unpaid on the shares
held by him (in case of Company ltd. By shares). But in case of Company ltd. By guarantee
members are liable for the amount they agreed at the time of becoming member.
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3. Perpetual Succession – An incorporated Company never dies except where it is wound up as
per law. Death, insolvency or insanity of the members of the company does not effect the
existence of company.
4. Transferability of Shares – Generally in Public Co. there is free transferability of shares
but not in private company.
5. Common Seal – since the Company has no physical existence, It cannot sign any document.
For this purpose a Company may have its common seal. The name of the company must be
engraved on it. But now having common seal is not mandatory for companies. If any company
not have common seal than documents will be signed by 2 direcctors or 1 director and 1
company secretary.
6. Capacity to sue & to be sued – The Company can sue another party by its own name and
even can be sued in its own name.
7. Artificial Person – A Company is an artificial person invisible, intangible and existing in the
eyes of law only. It is created by Law and not comes into existence of Natural person.
LIFTING UP OR PIERCING THROUGH CORPORATE VEIL- Separate legal entity of a
company is a special privilege and sometimes Directors or members take illegal advantage of
this feature. If any court or tribunal has reasonable grounds to believe that company is not in
fault than an investigation can be made and corporate veil can be lifted up.
In legal words, Where a fraudulent or dishonest use is made of the separate legal entity of
the Company, the individual concerns will not be allowed to take shelter behind the corporate
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personality. The court shall break through corporate veil and shall apply the principal of
lifting up of corporate veil. In the following circumstances different courts found it necessary
to lift the corporate veil and punish the actual persons who did wrong or unlawful acts under
the name of company:.
1. Protection of Revenue: The Court may ignore the Separate Legal Entity status of a
Company, where it is used for tax invasion or circumventing tax obligation.
2. Determination of enemy character of the Company: Company being an artificial person
cannot be enemy or friend. But during war, it may become necessary to lift the corporate veil
and see the persons behind it to determine whether they are friends or enemy. This is due to
the reason that though a company enjoys Separate Legal Entity but its affairs are run by
individuals. (Daimler Co. Ltd. Vs Continental Tyre & Rubber Co. Ltd.).
3. Prevention of fraud: Where a Company is used for committing frauds or improper
conduct, Court may lift the corporate veil and look at the realities of the situation. (Jones vs
Lipman).
4. Protection of public policy: The Court shall lift the Corporate Veil without any hesitation
to protect the public policy and prevent transaction opposed to public policy.
5. Company mere sham or cloak: Where the Company is a mere sham and was really a ploy
used for committing illegalities and to defraud people, the Court shall lift the Corporate
Veil.(Gilford Motor Company vs Horne).
6. Where a Company acts as an agent of its shareholders: If there is an arrangement
between the shareholders and a Company to the effect that the Company will act as agent of
shareholders for the purpose of carrying on the business, the business is essentially of that
of the shareholders and will have unlimited liability.
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7. Avoidance of Welfare Legislation: Where a Company tries to avoid its legal obligations,
the corporate veil shall be lifted to look at the real picture. (Workmen of Associated Rubber
Industry Ltd. Vs Associated Rubber Industry Ltd.)
8. To punish for contempt of Court: Company being an artificial person cannot disobey the
orders of the Court. Therefore, the persons at fault should be identified.
Classification of Companies – Companies are classified:
On the basis of nature of liability of members:
➢ Co. ltd. by shares [Section 2 (22)] – In such a co. The liability of the members is limited up
to the amount unpaid on the shares held by them.
➢ Co. limited by guarantee [Section 2 (21)] – In these Companies the liability of the members
is limited up to such amount as the members may under take to contribute to the assets of
the co., in the event of co. being wound up. In case such a company is registered with a share
capital the liability of members will also extend to the amount unpaid on the shares held by
them.
➢ Unlimited Company [Section 2 (92)] - In this case the members are liable for the
Companies debts in proportion to their respective interest in the and their liability is
unlimited.
On the basis of membership
Private Company - Section 2 (68):
1. Private company means which by its articles
➢ Restricts the right to transfer its shares.
➢ Limits the number of its member to 200 excluding:
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o The person who are in the employment of the company.
o The person who were formally in the employment of the company, member of the
company at that time and continue to be member after employment cease. Note: in case of
joint shareholders, they will be counted as one member only.
➢ Prohibits any invitation to the public to subscribe for any shares, debenture of the
company.
2. Name of Private Company must ends with Pvt. Ltd.
3. A Private Company must have minimum 2 members.
4. A Private Company must have minimum 2 Directors. (Section 149).
Public Company - Section 2 (71):
➢ Public company means a company which is not a private company.
➢ If a private company which is subsidiary of a public company is also treated as public
company.
➢ Has minimum members 7..
➢ Has minimum directors 3.(Section 149).
➢ The name of the public company ends with “Limited”.
One Person Company- [Section 2 (62)]:
1. Only a single member can incorporate an OPC and he/ she will also be deemed as
director of the Company.
2. The last word in the name must indicate the word OPC Pvt. Ltd. to distinguish it with
other Companies.
3. Only Indian citizen and whether resident in India or otherwise (the term "resident in
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India" means a person who has stayed in India for a period of not less than 120 days
during the immediately preceding financial year) (Means Non-Resident are also allowed)
4. Legal nominee of OPC must also be an Indian citizen and resident.
5. No person can incorporate more than 1 OPC at a time.
6. It needs not to hold AGM.
7. It cannever be converted into a Section 8 company.
8. No such company can convert voluntarily into any kind of company unless two years have
expired from the date of incorporation of OPC, except threshold limit of paid up share
capital is increased beyond Rs 50 lakh or its average annual turnover during the relevant
period exceeds Rs 2 crore rupees. Amendment: Now Voluntary conversion can be done at any
time.
9. No minor can become member of OPC. All the compliance & regulations as applicable to
other companies shall also be applicable to this O.P.C.
On the basis of control:
Holding Company – Section 2(46) defines ‘holding company’ in relation to one or more
other companies, means a company of which such companies are subsidiary companies.
Subsidiary Company - A co. shall be deemed to be a subsidiary of anther co. if.
o That other co. controls the composition of its board of directors.
o That other co. holds more than half in the nominal value of its E.S capital
o The first mentioned co. is a subsidiary of any co. which is that other company’s
subsidiary.
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On the basis of Government Control:
The companies are classified on the basis of the control of the Government over the
company as-
o Government company;
o Non Government company
Government Company:
Section 2(45) defines ‘Government Company’ as any company in which not less than 51% of the
paid up share capital is held by the Central Government, or by any State Government or
Governments, or partly by the Central Government and partly by one or more State
Governments, and includes a company which is a subsidiary company of such a Government
company.
Non Government company:
A company in which either of the Government has no paid up share capital is called as the non
Government company.
Other types of companies
The other types of companies are as follows-
➢ Associate Company;
➢ Banking company;
➢ Foreign company;
➢ One person company;
➢ Small company;
➢ Section 8 company;
➢ Dormant company;
➢ Inactive company;
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➢ Producer company;
➢ Investment company; and
➢ Statutory company.
Associate Company:
Section 2(6) of the Act defines the term ‘Associate Company’ in relation to another company,
a company in which that other company has a significant influence, but which is not a
subsidiary company of the company having such influence. It includes a joint venture company.
The explanation to this section defines the term ‘significant influence’ as control of at least
20% of total share capital or of business decisions under an agreement.
Banking Company:
Section 2(9) defines the term ‘banking company’ as a banking company defined in Section
5(c) of Banking Regulation Act, 1949.
Foreign Company:
Section 2(42) defines ‘foreign company’ as any company or body corporate, incorporated
outside India which-
➢ Has a place of business in India whether by itself or through an agent, physically or
through electronic mode; and
➢ Conduct its business activity in India in any other manner.
One Person Company:
Section 2(62) defines ‘One Person Company’ as a company which has only one person as a
member. It is also considered as a private company.
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Small Company:
Section 2(85) defines ‘small company’ as a company, other than a public company-
➢ paid up share capital of which does not exceed Rs 2 crores rupees or such higher amount as
may be prescribed which shall not be more than Rs 10 crore; and
➢ turnover which is as per its last profit and loss account does not exceed Rs 20 crores
or such higher amount as may be prescribed which shall not be more than Rs 100 crores.
(Amendment in 2021)
Section 8 company:
Such type of company is to be registered with Registrar of Companies and also to obtain
licence from the Central Government. If a person or association of person proposed to be
registered under the Companies Act, 2013 as a limited company-
➢ has its objects the promotion of commerce, art, science, sports, education, research,
socialwelfare, religion, charity, protection of environment or any such other object;
➢ intends to apply its profits, if any, or other income in promoting the objects; and
➢ intends to prohibit the payment of any dividend to its members.
Statutory company:
Companies set up by special Acts of Parliament or State Legislatures are called statutory
companies.
Eg., Reserve Bank of India is set up under the Reserve Bank of India Act. Likewise LIC,UTI
etc., are the examples for statutory company.
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FORMATION OF COMPANY
The Companies Act, 2013 defines the term “Promoter” under section 2(69) which means a
person—
➢ who has been named as such in a prospectus or is identified by the company in the
annual return referred to in section 92; or
➢ who has control over the affairs of the company, directly or indirectly whether as a
shareholder, director or otherwise; or
➢ in accordance with whose advice, directions or instructions the Board of
Directors of the company is accustomed to act.
However, a person who is acting merely in a professional Capacity, shall not be regarded as
promoter [under (c)], e.g., the solicitor, banker, accountant etc. are not regarded as
promoters.
Formation of Company [Section 3]
➢ A company may be formed for any lawful purpose by—
o 7 or more persons, where the company to be formed is to be a public company;
o 2 or more persons, where the company to be formed is to be a private company; or
o 1 person, where the company to be formed is to be One Person Company that is to
say, a private company, by subscribing their names or his name to a memorandum and
complying with the requirements of this Act in respect of registration.
Company Formation Process
➢ Reservation of name by filing e- application
➢ Drafting & signing of MOA & AOA and its submission to ROC. These documents have
to be e-filed and e-stamped.
➢ Consent of persons nominated as directors to act as directors to be submittted
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electronically.
➢ Submission of statutory declaration of compliances and other declarations
➢ Pay fees & amount of stamp duty electronically
➢ Obtain certificate of incorporation digitally signed by ROC
➢ File declaration about address of Registered office.
NOTE:
1. As part of Government of India’s Ease of Doing Business (EODB) initiatives, the
Ministry of Corporate Affairs has notified & deployed a new Web Form ‘SPICe+’
(pronounced ‘SPICe Plus’) replacing the existing SPICe form.
2. It is an integrated process.
Features of SPICE+:
SPICe+ is an integrated Web Form replacing the earlier version of the e-forms, the
form is divided into two parts viz.:
Part A-for Name reservation for new companies (Application for name reservation is done
using SPICE+ and Application for change of name should be done using web service RUN
(Reserve unique name))
Part B - offering a bouquet of services viz.
1. Incorporation
2. DIN allotment
3. Mandatory issue of PAN & TAN
4. Mandatory issue of EPFO registration
5. Mandatory issue of ESIC registration
6. Mandatory issue of Profession Tax registration(Maharashtra)
7. Mandatory Opening of Bank Account for the Company and
8. Allotment of GSTIN (if so applied for)
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PROCESS:
STEP-I-A- Login on MCA Website:
Applicant have to login into their account on MCA Website. (Pro-existing users can use
earlier account or new users have to create a new account.) After Login user have to click
on the icon SPICe+ in MCA Service. An online form shall be open. Applicants have to fill
the information online. (This form cannot be downloaded)
B- Details required to be mentioned in online form:
➢ Type of company
➢ Class of company
➢ Category of company
➢ Sub-Category of company
➢ Main division of industrial activity of the company
➢ Description of the main division.
C. Choose File: This option is available to upload the PDF documents. If applicant want to
attach any file, can be upload at this option.
D. Submission of Form on MCA Website: After completion of above steps user shall
submit the Form with MCA website.
E. Validity of Reserved Name: Reserved name shall be valid for 20 days from the date of
approval of name, in case of change of name for existing company it will be valid for 60
days.
NOTE: 1- Till now, name has been approved through PART – A of SPICE+.
2- Now, details have to be filed in PART – B of SPICE+ in e-form INC-32.
3- But before filing PART-B, following documents must be prepared in advance.
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STEP – II: Preparation of Documents for Incorporation of Company:
After approval of name or for Incorporation of Company applicant have to prepare the
following below mentioned Documents;
➢ INC-9 – Declaration by first Subscriber(s) and Director(s)
➢ Declaration from first Directors along with Copy of Proof of Identity and
residentialaddress.
➢ NOC from the owner of the property.
➢ Proof of Office address (Conveyance/ Lease deed/ Rent Agreement etc. along with
rent receipts);
➢ Copy of the utility bills which should not be older than two months.
➢ In case of subscribers/ Director does not have a DIN, it is mandatory to attach:
Proof of identity and residential address of the subscribers.
➢ All the Subscribers should have Digital Signature.
NOTE: As, user has prepared all the required documents, Now, will file PART – B of
SPICE+ in e-form INC-32.
STEP – III: Certificate of Incorporation:
ROC will check all the filed documents and if gets satisfied then will issue COI.
NOTE:
➢ Every Company must have its registered office within 30 days of Incorporation.
➢ That Company must intimate to ROC about its registered office in E-Form INC-22
and within those 30 days only ROC must verify that address.
STEP – IV: Certificate of Commencement of Business:
➢ Every Company having share capital must obtain Certificate of Commencement of
Business.
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➢ To obtain this certificate 2 declarations must be filed to ROC:
o Declaration by a Director in E-Form INC–20A that subscribers have paid the amount
of shares held by them within 180 days from Receiving COI.
o Declaration that Company has intimated about its registered office to ROC and ROC has
verified the address within 30 days.
NOTE: Above specified process was to incorporate Private and Public Company.
For ONE PERSON COMPANY (OPC) whole process will be same but E-Form INC-3
(consent of legal nominee) will also be attached with INC – 32.
NOTE:
➢ DIN can be taken through this form for maximum of 3 directors.
➢ If more than 3 directors are there at the time of incorporation but DIN is not there
than incorporate Company with 3 directors and increase afterwards.
➢ If capital of Company is not more than Rs. 15 Lakhs than no fees to be paid to ROC but
stamp duty must be paid.
➢ only 1 name can be applied through this E-Form but if that name is available then file
new form with new name.
Section 8 (NPO):
Features:
The following are the features for Section 8 companies:
➢ has its objects the promotion of commerce, art, science, sports, education, research,
socialwelfare, religion, charity, protection of environment or any such other object;
➢ intends to apply its profits, if any, or other income in promoting its objects; and
➢ intends to prohibit the payment of any dividend to its members;
➢ the company registered under this Section shall enjoy all the privileges and be subject
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to allthe obligations of the limited company;
➢ a firm may be a member of the company registered under this section;
➢ a company registered under this Section shall not alter the provisions of its
memorandum and articles except with the previous approval of the Central Government.
➢ a company registered under this section may convert itself into a company of any other
kind only after complying with such conditions as may be prescribed.
License:
To incorporate NPO, application should be made to central government to obtain license to
work as NPO. Application should be filed in form no. INC-12 along with the following
documents:
1. MOA and AOA of the company in form no. IC-13;
2. Declaration by practicing professionals (advocate, CA,CS or CMA) in form no. INC-14
that the draft memorandum and articles of association have been drawn up in conformity
with the provisions of Section 8 and rules made there under and that all the requirements
of the Act and the rules made there under relating to registration of the company under
Section 8 have been complied with;
3. An estimate of the future annual income and expenditure of the company for next
three years, specifying the source of the income and objects of the expenditure;
4. The declaration by each of the persons making the application in Form No. INC-15.
5. If central government (Powers delegated to ROC) gets satisfied that all the necessary
requirements have been fulfilled than central government will give license in form no. INC-
16 to work as NPO which should contain all the terms and conditions must be fulfilled by
company.
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License for existing companies:
1. At the time of making application to central government to obtain license, along with
above said documents, following documents will also be filed:
➢ the financial statements of the previous two financial years;
➢ the Board’s report;
➢ audit reports ; a statement showing in detail the assets with the values and the
liabilities of the company as on the date of the application or within 30 days preceding
that date;
➢ an estimate of the future annual income and expenditure of the company for next three
years specifying the sources of the income and the objects of the expenditure;
➢ the certified copy of the resolutions passed in general/board meetings approving
registration of the company under Section 8.
Note:
1. The company shall, within a week from the date of making the application to the
Registrar, publish a notice at his own expense, and a copy of the published notice shall
be sent to the Registrar in the Form No. INC-26 and shall be published-
➢ at least once in a vernacular newspaper in the principal vernacular language of the
district in which the registered office of the proposed company is to be situated or is
situated and circulating in that district and at least once in English language in an English
newspaper circulating in that district; and
➢ on the websites as may be notified by the Central Government.
2. The Registrar may require the applicant to furnish the approval or concurrent of the
appropriate authority, regulatory body, department of Ministry of Central government or
the State Government.
3. The Registrar shall, after considering the objections, if any, received by it within 30
days from the date of publication of the notice, and after consulting any authority,
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regulatory body, Department or Ministry of the Central Government or the State
Government(s) as it may, in its discretion, decide whether the licence should or should not
be granted.
Revocation of licence:
Section 8(6) provides that the Central Government, by order, revoke the licence granted
to the company registered under this section-
➢ if the company contravenes any of the requirements of this section; or
➢ any of the conditions subject to which a licence is issued; or
➢ the affairs of the company are conducted fraudulently or in a manner violative of the
objects of the company.
The Central Government shall direct the company to convert its status and change its
name to add the words ‘limited’ or ‘private limited’ to its name. No such order will not be
passed without giving opportunity to the company of being heard. A copy of such order
shall be given to the Registrar. The Registrar shall, without prejudice to any action taken,
on application, in the prescribed form register the company accordingly.
Exemptions to Section 8 Company:
➢ Can call its general meeting by giving a clear 14 days notice instead of 21 days.
➢ Requirement of minimum number of directors, independent directors etc. does not
apply.
➢ Need not constitute Nomination and Remuneration Committee and Shareholders
Relationship Committee.
Memorandum of Association
A memorandum is a public document under Section 399 of the Companies Act, 2013.
Consequently, every person entering into a contract with the company is presumed to have
the knowledge of the conditions contained therein
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The memorandum of association is a document, which contains the fundamental provision
of the company’s constitution. It contains the essential conditions upon which alone the
company can be incorporated. In this respect, it is company’s charter of its existence and
operations and is of supreme importance. It not only shows the objects of formation but
also determines the utmost possible scope of its operations beyond which its action cannot
go.
Contents of MOA
Section 4 of the Companies Act provides that the memorandum of association of every
company must contain the following clauses:-
1. Name Clause
The name of the company with the last word “Limited” in the case of a public limited
company, or the last words “Private Limited” in the case of a private limited company. This
clause is not applicable on the companies formed under section 8 of the Act.
The name stated in the memorandum must be after consideration of the restrictions
discussed in Reservation of name while incorporating a company.
Name should not be identical with or resemble to the name of existing company. Use of
any name should not constitute an offence under any law and any name which is in opinion
of CG is undesirable.
After reservation of name it is found that name was applied by furnishing wrong or
incorrect information, then,
If Company is Incorporate Not Yet Incorporated
➢ Roc direct the company to change its ➢ The reserved name shall be cancelled
name. and person making application shall be
➢ Roc take action for striking off. liable up to Rs 1 lakh.
➢ Roc make petition for winding up.
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Where the company has changed its activities which are not reflected in its name, it shall
change its name within a period of 6 months. The change of activities after complying with
all the provisions as applicable to change of name.(Sec 4: Memorandum read with Rule No
8(3)) If a company change his name during last 2 years. It shall affix paint/print its name
along with former name so changed. OPC needs mention to brackets. Below the name
of the company ―The word one person company.
2. Situation or Registered Office Clause
The name of the State in which the registered office of the company is to be situated
must be given in the memorandum. But the exact address of the registered office is not
required to be stated therein.
As per Section 12, a company shall, on and from the 30th day of its incorporation, shall
have a registered office. The company shall furnish to the Registrar verification of its
registered office within a period of 30 days of its incorporation.
3. Objects Clause
This clause is divided into two sub clause
➢ Contains main object of the company to be pursued on its incorporation.
➢ Also contains objects which are incidental or ancillary to the attainment of main
objects.
The object clause of memorandum shall state “the objects for which the company is
proposed to be incorporated and any matter considered necessary in furtherance thereof”.
It indicates the purpose for which the company has been set up and its actual capability,
besides its sphere of activities.
4. Liability Clause
The liability of members of the company, whether limited or unlimited, and also state that
➢ In the case of a company limited by shares- The liability of its members is limited
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to the amount unpaid, if any, on the shares held by them; and
➢ In the case of a company limited by guarantee, the amount up to which each
member undertakes to contribute –
o To the assets of the company in the event of its being wound-up while he is a member
or within one year after he ceases to be a member, for payment of the debts and
liabilities of the company or of such debts and liabilities as may have been contracted
before he ceases to be a member, as the case may be; and
o To the costs, charges and expenses of winding-up and for adjustment of the rights of
the contributories among themselves;
➢ In case of unlimited company, this clause needs not to be given in MOA. Absence of
this clause means liability is unlimited.
5. Capital Clause (only in the case of a company having a share capital)
➢ The amount of share capital with which the company is to be registered and the
division thereof into shares of a fixed amount.
➢ The number of shares each subscriber to the memorandum intends to take, indicated
opposite his name;
➢ Company is not authorized to issued capital beyond its authorized capital without
altering this clause.
6. Association Clause:
➢ There is a declaration by subscribers that we are desirous of being formed into a
company and willing to take agreed number of shares in the company.
➢ Thereafter their names, addresses, occupation and number of shares taken are
mentioned and signed by them in the presence of at least one witness who attests the
signatures.
➢ Each subscriber must take at least one share.
➢ Subscribers cannot repudiate their liability/subscription after registration of company.
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Form Of MOA
Section 4 of the Companies Act provides that the memorandum of association of a
company should be in respective Forms specified in following Tables of Schedule I to the
Act, as may be applicable to such company.
Table A MOA of Company limited by shares
Table B MOA of Guarantee Company without share Capital
Table C MOA of Guarantee Company with Share Capital
Table D MOA of Unlimited Company without Share Capital
Table E MOA of Unlimited Company with Share Capital
Printing and Signing of Memorandum [ Section 3 & 4]
➢ The memorandum of association must be printed, divided into paragraphs, numbered
consecutively and signed by each subscriber in the presence of at least one witness who
shall attest the signatures of the subscribers.
➢ Each subscriber must state his address, occupation and the number of shares he takes
opposite his name.
➢ Only a person capable of entering into contract on his own can subscribe to the
memorandum. Both artificial and natural persons can subscribe to memorandum
Alteration of MOA
A Company may alter the provisions of its memorandum with the approval of the members
by a special resolution.
Alteration to Name Clause
Any change in the name of a company shall be effected only with the approval of the
Central Government in writing.
➢ Approval of Members through Special Resolution
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➢ Approval of Central Govt. in writing
➢ Registrar shall issue new certificate
➢ No approval shall be necessary where the change in the name of the company is only
the deletion there from, or addition thereto, of the word “private”, on the conversion of
any one class of companies to another class.
Rule 29 of Companies (Incorporation) Rules 2014-
Change not allowed if Company has defaulted in-
➢ Filing its annual returns/statements
➢ Repayment of matured deposits /debentures / interest
Rectification of Name of Company [Section 16]
➢ If, through inadvertence or otherwise, a company on its first registration or on its
registration by a new name, is registered by a name which,—
o in the opinion of the Central Government, is
o identical with or
o too nearly resembles the name by which a company in existence had been previously
registered, whether under this Act or any previous company law,
o It may direct the company to change its name and the company shall change its name or
new name, as the case may be, within a period of three months from the issue of such
direction, after adopting an ordinary resolution for the purpose;
➢ on an application by a registered proprietor of a trade mark that the name is identical
with or too nearly resembles to a registered trade mark of such proprietor under the
Trade Marks Act, 1999, made to the Central Government within three years of
incorporation or registration or change of name of the company, whether under this Act or
any previous company law, in the opinion of the Central Government, is identical with or too
nearly resembles to an existing trade mark, it may direct the company to change its name
and the company shall change its name or new name, as the case may be, within a period of
six 3 months from the issue of such direction, after adopting an ordinary resolution for
the purpose. (Amended 2022)
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➢ It shall within a period of fifteen days from the date of such change, give notice of
the change to the Registrar along with the order of the Central Government, who shall
carry out necessary changes in the certificate of incorporation and the memorandum.
Penalty
If a company makes default in complying with any direction given under sub-section (1), the
company shall be punishable with fine of one thousand rupees for every day during which
the default continues and every officer who is in default shall be punishable with fine
which shall not be less than five thousand rupees but which may extend to one lakh rupees.
Alteration to Situation Clause
➢ Section 12 provides that a company shall, on and from the 30th day of its
incorporation shall have a registered office.
➢ Sections 12(3) every company shall affix its name & add of registered office on outside
of every office & place &business in conspicuous position.
➢ Within 30 days from DOI, CO shall furnish to ROC, prescribed verification of
registered office in Form INC-22.
Shifting within same city, town or village (Sec.12)
➢ By passing a Board Resolution and intimating the notice of change to ROC in Form
INC-22.
➢ No alteration needed in MOA
Shifting from one city, town/village to another within same ROC (Sec. 12)
➢ The company shall pass a special resolution.
➢ The company shall give notice to Registrar within 30 days of change in form INC-22.
➢ Filing of Special Resolution with ROC in Form MGT-14
➢ Resolution by Postal Ballot is required in case of Company having more than 200
members.
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➢ No alteration to MOA
Shifting from one ROC to another within same State
➢ Confirmation from the Regional Director in Form No. lNC.23
➢ Board Resolution for shifting of registered office;
➢ Special Resolution in General Meeting
➢ A declaration given by the Key Managerial Personnel or any two directors authorised
by the Board, that the company has not defaulted in payment of dues to its workmen and
has either the consent of its creditors for the proposed shifting or has made necessary
provision for the payment thereof ;
After obtaining confirmation, File the same with ROC within 60 days who shall register the
new address.
Shifting of Registered Office From One State to Another State (Sec. 13)
➢ The company shall pass special resolution.
➢ An application for alteration shall be made to Central Govt in Form No. 23
➢ CG may dispose of the application within 60 days
➢ CG shall consider the rights and interests of the members and creditors of the
company before passing the order
➢ CG may grant the approval if it is satisfied that -
o Every debenture holder/creditor/other person.
▪ has given his consent; or
▪ his debt has been discharged; or
▪ His debt has been secured.
➢ Company will file with Registrar of each State,
o Order of CG in Form INC-28.
o A copy of memorandum, as altered
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o Copy of SR in MGT -14 within 30 days
➢ The Registrar of the new State shall register the change and give a certificate of
registration of registered office.
Alteration to Object Clause
➢ Special Resolution needs to be passed (Through Postal Ballot in case of Company having
more than 200 members) which must be filed with Registrar within 30 days.
➢ A company, which has raised money from public through prospectus and still has any
unutilised amount out of the money so raised, shall not change its objects for which it
raised the money through prospectus unless a special resolution is passed by the company
and –
➢ The details, in respect of such resolution shall also be published in the newspaper which
is in circulation at the place where registered office is situated & on website of Company
indicating justification of change.
➢ The dissenting shareholders shall be given an opportunity to exit.
Articles of Association
➢ Articles contain by law or rules and regulations that govern the management of
internal affairs and day to day conducts of the company, Eg Buyback, Call on shares,
meetings etc.
➢ Deals with rights of the members of the company inter-se.
➢ In the event of conflict between memorandum and article, memorandum prevails.
➢ The Articles shall be signed by each subscriber of the memorandum of association who
shall add his address, description and occupation, if any, in the presence of at least one
witness who shall attest the signature and shall likewise add his address, description and
occupation, if any.
➢ Sec 7 Articles must be printed, divided into paragraphs, numbered, stamped
signed by each subscriber to M.O.A., witnessed and filed with R.O.C. together with M.O.A.
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Form of Articles
Table F Articles of a Company limited by Shares
Table G Articles of a Company limited by Guarantee & having Share
Capital
Table H Articles of a Company limited by Guarantee & having No share
Capital
Table I Articles of an Unlimited Company having share Capital
Table J Articles of an Unlimited Company having No share Capital
Alteration of AOA
➢ Pass a special resolution & file with ROC in Form MGT-14 within 30 days.
➢ Alteration should be within memorandum.
➢ Alteration should not be inconsistent with companies Act.
➢ Alteration should not be illegal or against public policy.
➢ Alteration must be bonafied and in the interest of the company.
➢ Alteration should not impose fraud on minority shareholders.
➢ No company can deprive itself from the powers to alter its articles every company
has statutory right to alter its articles.
➢ Alteration does not have retrospective effect. It becomes effective only from the
date of amendment.
➢ Articles cannot be altered so as to include any provision authorizing, empowering the
directors to expel any member of the co.
➢ While converting one person company, articles can be altered with approval of tribunal.
➢ No approval is required for conversion of private company into one Person Company
31 | P a g e
or vice versa.
➢ Alteration of articles of association of a company, the copy of alteration along with
the altered articles shall be filed with ROC within 15 days.
Doctrine of Ultra Vires
The meaning of the term ‘ultra vires’ is ‘beyond the powers of. Anything which is-
➢ Not permitted by Companies Act, 2013
➢ outside the specified objects and powers
➢ or not reasonably incidental to or necessary for the attainment of objects of the
company is ultra vires the company and therefore is void. No rights and liabilities, on the part of
the company, arise out of such transaction and it remains nullity even if every member assents to
it. Consequently, an act, which is ultra vires the company, does not bind the company and neither
the company nor the other contracting party can sue on it.
Effects of Ultra Vires Act
➢ Such transaction is void.
➢ No ratification is possible.
➢ Injunction order from court against company can be obtained by any member.
➢ If Company’s funds are misapplied then directors will be personally liable for breach of
trust.
➢ If Company has acquired Ultra Vires Property, then it has the right to hold property
and protect it against damages.
Doctrine of Constructive Notice
Memorandum and articles are public document and can be inspected by any one on payment
of nominal fee. Therefore every person entering into contract with the Co. has a means of
ascertaining information. Every person dealing with the company is deemed to have
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―constructive notice‖ of the contents of memorandum and articles. It is assumed that
not only the person has read that document but also has understood them according to
their proper meaning.
For example, if article provides that bills of exchange must be signed by two directors,
person dealing with the company must see that this condition is fulfilled otherwise he
cannot claim under it.
Doctrine of Indoor Management
This doctrine is just opposite of doctrine of constructive notice. Every person dealing with
the company is although presumed to have knowledge of contents of memorandum and
articles but it is not their duty to see that the company carries out its internal
proceedings.
Case: Royal British Bank V/s Turquand
Facts: Directors of this banking company were authorized by the articles to borrow
money on bonds up to such amount as is authorized by resolution passed in general meeting
by shareholders. Directors borrowed money from Turquand without passing resolution in
general meeting.
Decision: Turquand can sue company. He was entitled to assume that the necessary
resolution had been passed.
Outsiders are bound to know the external position of the company but are not bound to
know its indoor management.
Exceptions to The Doctrine of Indoor Management:-
1. Knowledge of irregularity-
If the person dealing with the Co. has actual or implied knowledge of the irregularity in
the company, he cannot seek protection of indoor management.
Case- HOWARD V/s PATENT IVORY CO.
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Facts – Directors of a Company can borrow up to 1000 pound above this limit, without the
sanction of members in GM. Company borrowed 3500 Pound from a director without
passing resolution in GM. Decision-It was held that borrowing only up to 1000 Pound was
valid. It is so because director was deemed to have notice of internal irregularity
therefore the company was liable to them only for 1000 Pound.
2. No knowledge of MOA and AOA-
Person dealing with the company will not be protected against the Co. If he did not
consult MOA & AOA.
Case- Rama Corporation v/s Proved Tin & General Investment Co.
Facts - Articles provide - powers of Board of directors can not to be delegated to any
particular director. T, a director of the company, entered into a contract on behalf of the
company with Rama Corp.
Decision- Rama Corp. did not read the articles & therefore cannot claim any benefit under
rule of Indoor Management.
3. Forgery -No protection will be granted in case of transaction involving forgery or which
are void / illegal.
Case- Rauben V/s Grlat Fingal consolidated
Facts – Secretary forged the signature of directors on share certificate & issued them
without authority. Decision-Holders of certificate can‘t claim advantage of Indoor
Management.
4. Negligence -
Where an officer of the Co. do something beyond his powers, the person dealing with
him must make proper enquiries and satisfy himself as to the officer‘s authority.
Case- ANAND BIHARI LAL V/s DINSHAW & CO. LTD.
Facts – An accountant of this company transfers some property of the company to Anand
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Bihari. Decision-Court held that the transfer was void because accountant does not
have such a power to transfer property of the company.
5. This rule does not apply where there is a question on the existence of the company.
6. This rule does not apply where the acts done are not only ultra virus the directors
but are also ultra virus the company.
CONTRACTS & CONVERSION
Contracts:
➢ Preliminary Contracts (Pre Incorporation Contracts)
o Made before incorporation of a company.
o Never binding on com. Even if Company takes any benefit out of it. Because when these
contracts are made Company was not in existence.
o Even after incorporation, Company can not ratify such contract but can enter into
fresh contract after incorporation to make them effective.
o Promoters who make such contract will be personally liable until Co. accepts and
Communicate acceptance to other party.
➢ Contract after Commencement of business
Conversion:
A company can convert itself as a company of other class under this Act by alteration of
memorandum and articles of the company by following procedure under this act.
Conversion of Private Company into Public Company Steps:–
1. Pass Special Resolution
o Under Sec 14 to alter articles so that they no longer include restrictive provisions of
Sec. 2(68).
o Under Sec 13 to alter name of company so as to delete the word Private.
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o Under Sec 13 to alter MOA (Name clause) of the company.
2. File e-form MGT-14. Within 30 days of passing S.R.
3. File prospectus
4. Increase the no. of members to at least 7 and no. of directors to at least 3.
5. Surrender original certificate of incorporation & obtain fresh C.O.I. from R.O.C.
Note-
1. A company becomes a public Co. with effect from the date of passing S.R. but change of
name of the company shall be effective from the date of issue of fresh C.O.I. by R.O.C.
2. No new Co. comes into existence by conversion.
Conversion Of Public Company in To Private Company
➢ File e-form MGT-14 within 30 days of passing special resolution to R.O.C.
➢ File e-form INC-27 for obtaining Trbunal.‘s approved as required U/S14.
➢ Reduce the maximum number of members‘ upto 200.
➢ File altered articles with R.O.C. within 1 month of receipt of order of Tribunal.‘s
approval.
➢ Surrender certificate of incorporation and obtain fresh C.O.I.
➢ Pass special resolution for –
1. U/S 14 To alter articles so as to include
2. To alter name and include the word “Private”
3. For altering name clause of MOA
Note-
➢ A company becomes a Private Company w.e.f. the date of approval of C.G. but change of
name & shall be effective from the date of issue of fresh C.O.I. by R.O.C.
➢ No new Co. comes into existence by conversion.
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Note: - Company can commence any new business means which is not covered under object
clause, only subject to approval through SR at GM.
Conversion of Private Company into OPC- Rule 7
1. Rule 7 provides the procedure for conversion of private company into OPC.
2. Rule 7(1) provides that a private company other than Section 8 company, may convert
itself into OPC by passing a special resolution in the general meeting.
3. Before passing such resolution the company shall obtain ‘No Objection Certificate’ in
writing from the members and creditors.
4. The OPC shall file copy of the resolution with the Registrar of Companies within 30
days from the date of passing such resolution in Form No. MGT-14.
5. The company shall file an application in Form No. INC-6 for its conversion into OPC
along with fees.
6. The following documents are to be attached:
➢ the directors of the company shall give a declaration by way of affidavit duly sworn in
confirming that all members and creditors of the company have given their consent for
conversion,
➢ the list of members and creditors;
➢ Altered MOA & AOA
➢ the latest Audited Balance sheet and the Profit and Loss Account;
➢ the copy of No objection letter of secured creditors.
➢ On being satisfied and complied with the requirements the Registrar shall issue the
certificate.
Conversion of LLP in to Company and vice versa
➢ The LLP Act, 2008 does not provide any facility for conversion of a LLP into a
private limited company.
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➢ However, the Companies Act, 2013, provides for registration of LLP as a
Company.
➢ The assent of all the partners in the form of resolution must be taken
➢ LLP have to apply for name availability through Part A of Spice+ Form.
➢ The LLP shall publish an advertisement in a newspaper in English and in any vernacular
language, circulating in the district in which Limited Liability Partnership is situated in
prescribed format (Form URC-2) about registration under this act/conversion of LLP into
company for seeking any objections. The objections can be made by any party within 21
days of the publication of the advertisement.
➢ The next step is to file form URC-1 along with SPICE+, INC-33, INC-34
➢ The Registrar on being satisfied will issue Incorporation certificate
Nidhi Companies
It is formed with object of cultivating the habit of thrift and savings among the
members, receiving deposits, extending loans, all within the members. Nidhis are
registered by RBI and the Central Government. it registered as company, the
Companies Act also applies to it.
Incorporation and Incidental Matters
1. Requirements for incorporation (Rule 4)
➢ A Nidhi to be incorporated under the Act shall be a public company and shall
have a minimum paid up equity share capital of 5 lakh rupees.
➢ On and after the commencement of the Act, no Nidhi shall issue preference
shares.
➢ No Nidhi shall have any object in its Memorandum of Association other than
the object of cultivating the habit of thrift and savings amongst its members,
receiving deposits from, and lending to, its members only, for their mutual benefit.
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➢ Every Company incorporated as a ‘Nidhi’ shall have the last words ‘Nidhi
Limited’ as part of its name.
2. Requirements for Minimum Number of Members, Net Owned Fund etc.
(Rule 5)
➢ Every Nidhi shall, within a period of one year from the commencement of these
rules, ensure that it has:
o Not less than 200 members.
o Net Owned Funds of 10 lakh rupees or more.
o Un-encumbered term deposits of not less than ten per cent of the
outstanding deposits as specified in rule 14 and
o 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 second financial year, Nidhi shall file a return of statutory
compliances with the Registrar duly certified by a company secretary in practice
or a chartered accountant in practice or a cost accountant in practice.
➢ Extension of time from Regional Director in case of Non-Compliance within thirty
days from the close of the first financial year, and he will pass orders within thirty
days of receipt of the application.
3. General Restrictions or Prohibitions (Rule 6)
No Nidhi shall:
➢ carry on the business of chit fund, hire purchase finance, leasing finance,
insurance or acquisition of securities issued by any body corporate.
➢ issue preference shares, debentures or any other debt instrument by any
name or in any form whatsoever.
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➢ open any current account with its members.
➢ acquire another company by purchase of securities or control the composition
of the Board of Directors of any other company, unless it has passed a special
resolution in its general meeting and also obtained the previous approval of the
Regional Director.
➢ carry on any business other than the business of borrowing or lending in its own
name.
➢ accept deposits from or lend to any person, other than its members.
4. Share Capital and Allotment (Rule 7): Every Nidhi shall issue equity shares of
the nominal value of not less than ten rupees each.
5. Membership (Rule 8)
➢ A Nidhi shall not admit a body corporate or trust as a member.
➢ Except as otherwise permitted under these rules, every Nidhi shall ensure that
its membership is not reduced to less than two hundred members at any time.
➢ No Minor can be member
6. Deposits (Rule 12)
➢ The fixed deposits shall be accepted for a minimum period of six months and a
maximum period of sixty months.
➢ Recurring deposits shall be accepted for a minimum period of twelve months
and a maximum period of sixty months.
➢ The maximum balance in a savings deposit account at any given time qualifying
for interest shall not exceed one lakh rupees at any point of time and the rate of
interest shall not exceed two per cent above the rate of interest payable on
savings bank account by nationalised banks.
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7. Unencumbered Term Deposits (Rule 14)
Unencumbered means any asset is free and clear from unencumbered like charge,
lien, mortgage etc. Every Nidhi shall invest and continue to keep invested, in
unencumbered term deposits amount which shall not be less than ten per cent of
the deposits outstanding at the close of business on the last working day of the
second preceding month.
8. Rate of Interest (Rule 16)
The rate of interest to be charged on any loan given by a Nidhi shall not
exceed 7.5 per cent above the highest rate of interest offered on deposits by
Nidhi and shall be calculated on reducing balance method.
9. Dividend (Rule 18)
A Nidhi shall not declare dividend exceeding 25 per cent or such higher
amount as may be specifically approved by the Regional Director
10. Filing of Half Yearly Return (Rule 21)
Half yearly return with the Registrar in Form NDH-3 within thirty days from the
conclusion of each half year duly certified by a company secretary in practice or
chartered accountant in practice or cost accountant in practice.
PRODUCER COMPANIES
Producer Company means a body corporate having objects or activities specified in
Section (Section 378B) of the Companies Act introduced through amendment Act
of 2020.
Objects and Formation of A Producer Company (Section 378B)
Every Producer Company should deal basically with the produce of its active
member for carrying out any of its objects, namely:
➢ production, harvesting, procurement, grading, pooling, export of primary produce
of the members or import of goods or services for their benefit carried on directly
41 | P a g e
or through any institution.
➢ processing including preserving, drying, distilling, and packaging of produce of
its members.
➢ manufacture, sale or supply of machinery mainly to its members.
➢ providing education on the mutual assistance principles to its members and
others.
➢ rendering technical services, for the promotion of the interests of its
members.
➢ generation, transmission and distribution of power, revitalisation of land and
water resources, their use, conservation and communication relatable to primary
produce.
➢ insurance of producers or their primary produce.
Formation and Registration: Any ten or more individuals or institutional producer
can form producer company [Section 378C].
The Producer Company should also be required to submit (a) memorandum and (b)
its articles duly signed by the subscribers to the memorandum, to the Registrar
of the State in which the registered office of the company is to situate.
➢ Effect of incorporation of Producer Company: Every shareholder of the inter-
state co-operative society immediately before the date of registration of
Producer Company shall be deemed to be registered on and from that date as a
shareholder of the Producer Company to the extent of the face value of the shares
held by such shareholder.
➢ Membership and voting rights of members : A person, who has any business
interest which is not in conflict with business of the Producer Company, shall
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become a member, in case of conflict he will cease to be a member.
Note: the name of the company with ‘Producer Company Limited’ as the last
words of the name of such Company.
Management
➢ Number of directors (Section 378O)
Every Producer Company shall have at least 5 directors and not more than 15
directors.
The proviso to the Section states that in the case of the Inter-State Co-operative
Society incorporated as a Producer Company, such company may have more than
15 directors for a period of one year from the date of its incorporation as a
Producer Company.
General Meetings
Matters to be transacted at general meeting (Section 378S)
The Board of directors of a Producer Company shall exercise the following powers
on behalf of the company, and it shall do so only by means of resolutions passed at
the annual general meeting of its members
Quorum (Section 378Y)
Unless the articles require a larger number, one-fourth of the total membership
shall constitute the quorum at a general meeting.
Foreign Companies Operating in India:
According to Section 2 (42) ‘foreign company’ means any company or body
corporate incorporated outside India which
➢ has a place of business in India whether by itself or through an agent,
physically or through electronic mode, and
➢ conducts any business activity in India in any other manner.
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The Companies Act, 2013 provides detailed provisions for compliance by the
foreign companies:
Foreign Company shall be deemed to be an Indian Company for this
purpose [Section 379]:
Where not less than 50 per cent 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 as if it were a company
incorporated in India.
Registration with the Registrar of Companies [Section 380(1)]
➢ Every foreign company shall, within 30 days of the establishment of its place
of business in India, deliver to the Registrar for registration:
o a certified copy of the charter, statutes or memorandum and articles, of the
company
o the full address of the registered or principal office of the company.
o a list of the directors and secretary of the company containing such
particulars as may be prescribed.
o the name and address or the names and addresses of one or more persons
resident in India authorised to accept on behalf of the company service of
process and any notices or other documents required to be served on the
company.
o declaration that none of the directors of the company or the authorized
representative in India has ever been convicted or debarred from formation of
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companies and management in India or abroad, and
➢ Where any alteration is made or occurs in the documents delivered to the
Registrar under this section, the foreign company shall, within thirty days of such
alteration, deliver to the Registrar for registration, a return containing the
particulars of the alteration in the prescribed form.
Balance sheet and profit and loss account [Section 381(1)]
➢ Every foreign company shall, in every calendar year:
o make out a balance sheet and profit and loss account in such form, containing
such particulars and including or having annexed or attached thereto such
documents as may be prescribed, and
o deliver a copy of those documents to the Registrar:
Provided that the Central Government may exempt any class of Foreign Company.
Display of Name of the Company [Section 382]
➢ Every foreign company shall
➢ conspicuously exhibit on the outside of every office or place where it carries on
business in India, the name of the company and the country in which it is
incorporated, in letters easily legible in English characters & in Local Language.
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2 Deposits
“Deposit” includes any receipt of money by way of Deposit or Loan or in any other form, by a
Company.
Who is Depositor:
➢ any member of a private or public company who has deposited money with his company
is a ‘depositor’.
➢ any person (even if not a member of the company) who has deposited money with a public
company is also a ‘depositor’.
KINDS OF DEPOSIT
Acceptance of deposit from Members Acceptance of deposits from the Public
(Section 73) (case-1) (Section 76) (case-2)
Only a public company, having a NET
WORTH of not less than one hundred

Any company (whether private or public)
crore rupees OR a TURNOVER of not
can accept deposits from its members,
less than five hundred crore
subject to the passing of a resolution in
rupees, can accept deposits from the
general meeting and subject to certain
Public. Such kind of public company, for
specified conditions.
the purpose of this ChaDter. shall be
referred to as ‘Eligible Companv’.
Eligible Company
It means a Company
➢ has a net worth of not less than 100 crore or
➢ a turnover of not less than 500 crore.
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and which has obtained the prior consent of the company in general meeting by means of a
special resolution and also filed the said resolution with the Registrar of Companies before
making any invitation to the Public for acceptance of deposits
An eligible company, which is accepting deposits within the limits specified under clause (c) of
sub-section (1) of section 180, may accept deposits by means of an ordinary resolution
Prohibition on acceptance of deposits from public
On and after the commencement of this Act, no company shall invite, accept or renew
deposits under this Act from the public except in a manner provided under this Chapter
Exemption:
➢ A banking company and
➢ Non- banking financial company as per RBI Act, 1934.
➢ To such other company as CG after consultation with RBI, specify.
TYPE OF COMPANIES ON THE BASIS OF BUSINESS ACTIVITIES
NBNFC: NON BANKING
BANKING COMPANY NBFC: NON BANKING NON
FINANCIAL
COMPANIES FINANCIAL COMPANIES
EXAMPLE:
AXIS BANK LTD. EXAMPLE: EXAMPLE: RELIANCE .
RELIANCE CAPITAL INDUSTRIES LTD.
LTD.
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IF these companies
accept deposits
Sections 73 and 76 and
(Deposits) Rules DO
IF these companies NOT APPLY IF these companies accept
accept deposits Sections deposits Sections 73 and 76
73 and 76 and (Deposits) and (Deposits) Rules,
Rules, DO NOT APPLY APPLY
Conditions for acceptance of deposits from Members u/s 73(2)
Company may
➢ Resolution in GM and
➢ subject to rules as may be prescribed in consultation with RBI, accept deposits from its
members on prescribed condition, including the provision of security for the repayment
deposits interest, as agreed b/w company and its members, subject to the fulfillment of the
following conditions, namely:—
o Issuance of a circular to its members including statement showing the financial position,
credit rating obtained total number of depositors, amount due towards previous deposits and
other prescribed particulars.
o Filing a copy of the circular+ statement to ROC within 30 days before the issue of the
circular;
o At least 15% of deposits maturing during FY and the financial year next following shall be
kept in a scheduled bank called as deposit repayment reserve account;
o Providing deposit insurance as prescribed;
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o Certifying that the company has not committed any default in the repayment of deposits.
o Providing security for repayment of deposit or interest including the creation of such
charge if there are unsecured deposits‘‘ these shall be quoted in every circular, form,
advertisement or in any document related to invitation or acceptance of deposits.
U/s 73(3) Depreciation and interest shall be repaid as per section 73(2).
Section 73(4) companies fails to repay depositor concerned may apply to the Tribunal for an
order Deposit Repayment reserve u/s 73(5) Shall not be utilized for any other purpose.
Rules under Chapter V
Rule 3- Terms and conditions as to acceptance of deposits
Company u/s 73(2) and eligible company shall accept or renew any deposit, for a period at
least 6 months or upto 36 months from the date of acceptance or renewal of such deposit:
Exceptions to the Rule (3)
A company may, accept or renew deposits for repayment earlier than six months subject to
the condition that-
➢ such deposits shall be maximum 10% of paid up SC + FR and
➢ such deposits are repayable not earlier than three months from the date of
acceptance/renewal.
Rule 3(2) Deposits may be accepted in joint names up to 3.
Rule 3(3) company u/s73(2) shall accept or renew any ceiling limit of acceptance of deposit
(rule 3) together with other deposits outstanding as on the date maximum 25% of paid up SC +
FR.
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Rule 3(4) Eligible Company shall accept or renew Ceiling limit for acceptance of deposit.
➢ Eligible Company shall accept or renew any deposit from its members together with the
amount of deposits outstanding as on of the paid-up share capital and free reserves of the
company maximum 10%.
➢ Eligible Company can accept deposit from other than members– maximum 25% of paid
SC+FR
➢ Acceptance of deposits by Government Companies shall be maximum 35% of paid up SC+FR
➢ Company u/s 73(2) accept deposits from members maximum 35% of paid up SC+FR.
Rule 3(6) Rate of interest of deposits/payment of brokerage as RBI prescribed for
NBFC. Eligibility to receive brokerage
Only the person who is authorized by a company to solicit deposits and through whom
deposits are actually procured .Rule 3(7) company cannot alter any of the terms and
conditions of the deposit, deposit trust deed and deposit insurance contract after,
circular/advertisement is issued and deposits are accepted.
Rule 4- Form and particulars of advertisements/circulars.
➢ U/s 73(2) issue of circular form no. DTP-1 through registered AD/speed post/email,
circular may be published in newspaper in the state of RO. Every eligible company issue a
circular in the form of an advertisement in Form DPT-1 in newspaper in the state of RO.
➢ Every company inviting deposits from the public shall upload a copy of the circular on its
website.
➢ Circular or advertisement shall be issued in the name of the BOD.
➢ A copy of circular or advertisement at least thirty days before the date of such issue,
delivered to ROC signed by a majority of the directors.
➢ A circular or advertisement shall be valid up to 6 months from close of FY or till the date
50 | P a g e
when FS laid before AGM or if no AGM latest date when AGM should have been held which
ever is earlier.
Date of issue of advertisement – Date of issue of newspaper Date of issue of circular – Date
of dispatch of circular
Rule 5 –Deposit Insurance – Entered into a contract
➢ At least thirty days before the issue of circular or advertisement or renewal shall enter
for deposit insurance contract. Amt. of insurance shall be principle + interest.
➢ If deposit and interest up to maximum 20000/- deposit insurance contract shall provide
for payment of the full amount, if more than 20000 than at least 20000 otherwise upto limits
as specified in insurance contract.
➢ Insurance premium shall be borne by the company
➢ If any default with the terms and conditions the company shall either rectify the default
immediately or enter into a fresh contract within thirty days, if non-compliance, deposit
+interest shall be repayable within next 15 days if not then payment with interest @15% p.a.
& treated as default in payment & punishment will be as per Act.
Rule 6 – Creation of Security
company shall ensure that the total value of the security either by way of deposit insurance
or by way of charge or by both on company‘s assets shall be at least the amount of deposits
accepted and the interest payable thereon (Excluding intangible assets).
Rule 7 Appointment of deposit trustees.
Written Consent of deposit trustees with respect to their appointment
This statement shall appear with reasonable prominence in circular/ Advertisement.
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Execution of deposit trust deed before issuing advertisement
In Form No. DPT-2 at least 7 days before issuing the circular or advertisement.
Certain persons not to be appointed as deposit trustees
Any person who is in the business of providing trusteeship services if proposed trustee is
➢ Director KMP/any other officer/ an employee of the company /of its holding/ subsidiary/
associate / depositor in the company;
➢ is indebted to the company/SC/HC/AC/SC of HC.
➢ Material pecuniary relationship.
➢ Entered into any guarantee arrangement in respect of principal debts secured by the
deposits or interest thereon;
➢ Related clause (a).
No Removal of deposit trustees
After the issue of circular or advertisement and before the expiry of his term removal only
with consent of all directors present at meeting.
Rule 8 Duties of deposit trustees.
➢ Ensure assets + deposit insurance are sufficient to cover repayment of principal + interest
is not.
➢ Satisfy himself circular/advertisement is not inconsistent with the terms of the deposit
scheme or with the trust deed as per Act/Rules.
➢ Company does not commit any breach of covenants and provisions of the trust deed;
➢ Take such reasonable steps as may be necessary to procure a remedy for any breach.
➢ Take steps to call a meeting of deposit holder when ever required.
➢ Supervise the implementation of the conditions.
➢ do such acts as are necessary in the event the security becomes enforceable;
➢ Carry out such acts as are necessary for the protection of the interest of depositors and
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to resolve their grievances.
Rule 9- Meeting of depositors through deposit trustee when deposit holder having at
least 1/10 value of outstanding deposits, Request in writing
On happening of any event in the opinion of the deposit trustee.
Rule 10 - Form of application for deposits.
In prescribed from declaring that deposit is not being made out of any money borrowed by
him from any other person.
Rule 11 – Nomination made be by depositor u/s 72
Rule 12 -Furnishing of deposit receipts to depositors
Signed by authorized officer by Co. within 21 days from receipt of money or realization of
cheques containing prescribed particulars.
Rule 13- Maintenance of liquid assets and creation of Deposit Repayment Reserve
Account. Every Co. Up to 30april of each year deposit sum specified with any scheduled bank
and shall not be utilised that amount for any other purpose. The remaining deposited shall not
at any time fall below fifteen per cent, of the amount of deposits maturing, until the end of
the current financial year and the next financial year.
Rule 14 -Registers of deposits
➢ At its registered office one or more separate registers the case of each depositor with
specified particulars.
➢ Entries shall be made within seven days from the date of issuance of the deposit receipt.
Such entries shall be authenticated by a director or CS or other officer authorized.
➢ Shall be preserved at least 8 years.
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Rule 15 - General provisions regarding premature repayment of deposits
After 6 months but before maturity, rate of interest payable on such deposit shall be
reduced by 1%.
Rule 16 - Return of deposits to be filed with the Registrar
By 30th day of June, of every year a return in Form DPT-3 along with the fees, information
contained up to 31st march of year.
Rule 17- Penal rate of interest: @ 18% for the overdue period.
Acceptance of deposit from public by certain companies
Section 76(1) by eligible companies subject to condition u/s 73(2) & as per rules such a
company shall be required to obtain the rating from a recognized credit rating agency for
informing the public. It ensures adequate safety and the rating shall be obtained for every
year during the tenure of deposits.
Every company accepting secured deposits from the public shall within thirty days of such
acceptance, create a charge on its assets of at least amt. of deposit.
Repayment of deposits
Section 73 (3) provides that every deposit accepted by the company shall be repaid with
interest in accordance with the terms and conditions of the agreement. If a company fails to
repay the deposit or part thereof or any interest the depositor may apply to the Tribunal for
an order directing the company to pay the sum due or for any loss or damage incurred by him
as a result of such nonpayment and for such other orders as the Tribunal may deem fit.
Damages for fraud
U/S 75 company fails to repay the deposit or part or any interest within the specified time
or such further time allowed by the Tribunal, and it is proved that the deposits accepted with
intent to defraud or for any fraudulent purpose, every OID shall be personally responsible,
without any limitation of liability, for all or any of the losses or damages that may have been
54 | P a g e
incurred by the depositors.
Any suit, proceedings or other action may be taken by any person, group of persons or any
association of persons who had incurred any loss as a result of the failure of the company to
repay the deposits or part thereof or any interest.
Punishment for contravention of Section 73 or Section 76
U/S 76A company accepts deposits or invites or allows or causes any other person to accept
or invite on its behalf any deposit in contravention U/S 73 or 76 or rules made there under or
if a company fails to repay the deposit within the specified time-
Co shall, in addition to the payment of deposit or part thereof and the interest due, be
punishable with fine at least 1crore or twice the amount of deposit accepted by the company
WEIL but which may extend to Rs.10 crores; and
OID shall be punishable with imprisonment upto 7 Yrs or with fine at least Rs.25 lakhs but
which may extend to Rs.2 crores.
If it is proved that OID, has contravened such provisions knowingly or willfully with the
intention to deceive the company or its shareholders or depositors or creditors or tax
authorities, he shall be liable U/S 447
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3 Directors
According to Section 2(10) of the Companies Act, 2013 , "Board of Directors" or "Board", in
relation to a company, means the collective body of the directors of the company. According
to section 2(34) "director" means a director appointed to the Board of a company
Basic Conditions relating to Directors (Sec.149)
Public Co-3
Minimum Pvt Co-2
OPC-1
No. of Directors
15 (More than this

Maximum
by passing SR)
Exemptions:
1. Govt company is exempted from application of maximum and minimum directors
requirement. (Must not have defaulted in filing Annual return and Financial statements)
2. Section 8 Company
Only Individual Can be Directors.
Resident in India At least one Director By Every Company
U/S 149 (3)

Who has stayed in India for at least 182 days during the financial
year. In case of newly incorporated company, requirement of this
section shall apply proportionately at the end of financial year in
which it is incorporated.
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DIN Person having DIN u/s 154 can be appointed as Director. [Sec.
152(3)]
Declaration to ➢ his DIN
Co. U/S 152

➢ Not disqualified ,
(4),(5)
➢ Written Consent in Form DIR.2 [Note: Such Consent shall be
filed with ROC in Form DIR.12 within 30 days]
Appointment At GM Unless otherwise provided [Sec. 152(2)]
Minimum Maximum
Type of
Minimum and SR is required for
Company Directors Directors
Maximum appointment of
One Person 1 15
Directors U/S more than 15
Company
149(1) Directors
private 2 15
Company
Public 3 15
Company
Woman Directors [Sec.149 (1) 2nd Proviso Read with Rule 3 of Companies (Appointment
and Qualification of Director) Rules 2014
Applicability-At least one Woman Director
➢ Every Listed public Company,
➢ Every Other Public Company having
o Paid-up SC at least 100 Cr. OR
o Turnover atleast Rs. 300 Cr
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o [Note: Paid-up SC or Turnover is as per latest audited Financial Statements]
Vacancy-Shall be filled up by the Board of Directors -
➢ Within the next immediate Board Meeting or
➢ 3 months from the date of such vacancy, Whichever is later
Directors elected by small shareholders U/s 151
Aspect Description
Small "Small Shareholders" means a SH holding Shares of Nominal Value of
Shareholders' Rs.20,000 maximum or other prescribed sum.
Director A Director elected by SSH referred to as Small Shareholders'
Director. (SSD)
Applicability A Listed Company may have one SSHD -
➢ either on its own (suo motu), or
➢ upon written notice of at least 1,000 SSH or 1/10th of the Total
Number of such SSH, whichever is lower.
Notice ➢ Period: At least 14 days
➢ Contents: Details of the Appointee and SSH who are proposing
the SSD.
Statement: Notice shall be accompanied by a declaration signed by
the Appointee stating –
➢ His DIN
➢ He is Not Disqualified
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➢ Consent to act as director
Qualifications Eligible u/s 164
Ceiling Limit Maximum in 2 Companies at the same time.
The Second Company shall not be in competing or in conflict business
of the First Company.
SSD shall be If Eligible u/s 149(6), and Giving a declaration of his independence
Independent U/S 149(7).
Director
Tenure Subject to Sec.152 except that—
➢ Is not liable to retire by rotation,
➢ Maximum 3 consecutive years, and
➢ Not be eligible for re-appointment at the time of Expiry of
Tenure.
Vacation of If
Office
Disqualifications u/s 164,
Vacancy u/s 167,
Cease the criteria of independence u/s 149(6).
Restriction on For 3 years from the date of expiry of tenure of SSD, the person
Association shall not be appointed in or be associated with such Company in any
other capacity, (either directly or indirectly).
Appointment of Directors u/s. 152:
Appointment of First Director: U/S 152(1)
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Case I Case II Case III
If articles contain provisions w.r.t. first If no provision is In case of OPC
directors contained in articles Sole member —
All individual ➢ deemed to be

Appointment as per provisions
subscribers to MOA the first
contained in the articles
director
➢ deemed to be the
first directors ➢ until directors)
Regulation 60 of Table F: is / are duly

➢ until directors are
appointed by him
Number and names of first directors appointed in GM
shall be determined in writing by
majority of subscribers of memorandum
Appointment of subsequent Directors:
U/S 152(2) Every Director shall be appointed by co. in GM
U/S 152(3) Person can be appointed as director only he has DIN U/S 154
U/S 152(4) Every person proposed to be appointed as director shall furnish his DIN and
declaration to the Company
U/S 152(5) A person appointed as director shall act as director only when he gives his
consent to company (DIR-2) to hold the office and such consent filed with the company to
ROC within 30 days of his appointment in Form DIR-12. (NA –director appointed by Cg/SG,
Sec 8, IFSC co.)
Note: Generally, every director shall be appointed by the company in general meeting except
where the Companies Act expressly provides some other procedure for appointment of
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Directors.
For Example If articles empower the board then BOD can appoint additional directors or
alternate directors. (Given in Companies Act)
Consent to act as a director [Sec. 152(5)]
Written consent to act as a director
Person proposed as a (on or before appointment) Company
director (Form No. DIR-2)
Company Consent of director (within 30 days of appointment) Registrar
Form No. DIR-12
Non-applicability of Sec. 152(5) to a Govt. Company where appointment of directors is
made by CG/SG, if it has not committed any default in filing FS u/s 137 or AR u/s 92
Rotational & Non-Rotational Directors [Sec.152(6)]
1. Rotational Directors U/S Sec.152 (6) (a):
Meaning: Who are liable to retire by rotation at the AGM
Number of Rotational Directors:
➢ AOA may provide for retirement of all Directors at every AGM.
➢ If the AOA is silent, atleast 2/3wa of the Total Number of Directors are subject to
retirement by rotation. Fractions in the calculation of 2/3rd shall be rounded off to one.
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➢ Such Directors shall be appointed by the Company in GM.
2. Non—Rotational Directors [Sec.152 (6)(b)]:
➢ Meaning: Who do not retire by rotation at AGM
➢ Appointment: Shall be appointed in GM in default of and subject to AOA.
➢ Term of office: for life or for a specified period.
➢ Remaining 1/3rd Directors are considered as Non-Rotational
3. Computation of Number of Rotational Directors: The following Directors shall be
excluded from the "Total Number of Directors" for the purposes of calculating 2/3rd for
Rotational Directors
➢ Independent Directors, whether appointed under Companies Act, 2013 or any other
current law,
➢ Additional Directors,
➢ Directors appointed by CG u/s 408 [of Companies Act, 1956],
➢ SSHD,
➢ Nominee Director
4. Applicability of Concept: Public Company [Note: For a Pvt. Co. as per AOA] Retiring
Directors - Proportion of Directors liable to Retire [Sec.152(6)(c)]
➢ Minimum Number: Atleast 1/3rd of Rotational Directors shall retire from office at first
AGM & every subsequent AGM. However, AOA may provide that all Directors shall retire at
every AGM.
➢ Order [Sec.152(6)(d)]:Retiring Directors shall be determined in the following manner —
o Longest in office as Director will retire first.
o If two or more Directors were appointed on the same day, Directors liable to retire may be
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determined — (i) as per any agreement between them, or (ii) by draw of lots, in the absence
of any agreement.
➢ Special Considerations:
o Rounding off Fractions: fractions in determining the number of Retiring Directors shall be
rounded off to nearest 1/3'a.
o Directors filling in Casual Vacancy shall not be Retiring Director.
Re-appointment of Retiring Director [Sec.152(7)]
Vacancy caused by Retirement of Director at AGM
Vacancy filled up at AGM [Sec152 (6) (e)] Vacancy not filled up at AGM [Sec.152 (7)]
by appointing-
(a) Either the Retiring Director, or Company resolves Company has not expressly
(b) Some other person, thereto. not to fill the resolved not to fill the
vacancy vacancy
No Directors need See Points (1) & (2) below

to be appointed in
that place
1. Adjournment: Meeting will stand adjourned till –
➢ the same day in the next week, at the same time and place.
➢ the next succeeding day, at the same time & place (if the same day in the next week is a
public holiday).
2. Deemed Re-appointment: At the adjourned meeting also if the vacancy is not filled up,
the Retiring Director shall be deemed to be automatically re-appointed.
3. Exceptions: Retiring Director will not be automatically re-appointed at the Adjourned
Meeting in the following circumstances
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➢ Resolution for his re-appointment was put to vote and lost, or
➢ Retiring Director has given in the Notice of his unwillingness to continue as Director,
➢ Retiring Director is disqualified or
➢ Specific Resolution required for his appointment , or
➢ Resolution in contravention of Sec.162 is passed (i.e. two or more Directors are resolved
to be appointed vide a single resolution), or
➢ Company resolved not to fill the vacancy.
Amendment- SEC. 152 (6), 152 (7) is not applicable for Govt. company
Directors' Duty to call AGM: They cannot continue in office beyond the AGM without
calling.
1. No Director Situation: GM would get the power to make fresh appointment.
2. Disturbances at AGM: If such AGM is adjourned, the Retiring Directors shall continue
till the adjourned AGM.
Appointment of Director other than a Retiring Director – Section 160
➢ Following persons are eligible for appointment of director U/S 160:
o Additional director
o Alternate director
o Nominee director
o Director appointed to fill casual vacancy Any other person.
➢ Wherever co. wants to appoint any person as regular director, Section 160 is applicable.
➢ Following steps should be taken:
Any member or person proposing himself for candidature of director should give notice at
least 14 days to the company before GM.
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Notice should be signed by the proposed candidate or member.
Notice should be deposited at RO with deposit of Rs. 1 Lac. If the candidate is elected or get
more than 25% of total valid votes cast, deposit will be refunded.
However, provision of deposit is not applicable to independent director or director
recommended by NRC or director recommended by BOD if company is not required to
constitute NRC –
Note: Sec.8 Co., its BOD has to decide whether deposit made by or on behalf of the
person failing to secure more than 25% of valid vote is to be forfeited or refunded.
Nidhi Co. - notice can be given with deposit of Rs.10,000 instead of Rs.1,00,000
➢ The company must inform the members at least 7 days before GM either by email or by
individual notices where company has no email ids available. If it is not possible, company shall
advertisement of his fact in at least two newspapers circulating in the place where its
registered office is situated, of which one must be in English and the other in the regional
language. Notice is also placed on website of company, if any. If appointment of person as
regular director without complying Section 160, is invalid.
➢ Section 160 is not applicable to :
Private company
Govt. Co in which the entire Paid up share capital is held by Govt. and its 100% SC Section 8
co where article provided for election of directors by ballots
➢ Section 160 is applicable to IFSC unlisted public company as per Articles of company.
65 | P a g e
Additional Director U/S161 (1)
According to the section:
1. Articles may provide power to BOD for appointment of Additional Director
2. Person who fails to get appointed as a director in a general meeting, cannot be appointed as
an additional director
3. Additional Director shall hold office upto next AGM
Aspect Description
Subject to Appointed By BOD through BR
Powers in AOA Not retiring and Non Rotational Director.
Limit Within the maximum strength fixed for the Board by the AOA.
Restriction A person who fails to get appointed as a Director in GM shall not be
appointed as Additional Director.
Tenure of From: Date of appointment
Office To: Date of Next AGM or Last Date on which AGM should have been
held, whichever is earlier.
Powers & Same as Other Directors.
Duties
An Additional Director can also be appointed as WTD or MD.
Rotational Additional Directors automatically vacate their office on the date of
Directors AGM. So, Additional Directors are not included in computing the
number of Retiring Directors u/s 152.
Alternate Director U/S 161(2)
Aspect Description
Meaning Alternate Directors are Directors appointed by the Board to act for a
Director who is
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Original Director is absent for a period at least 3 months from India.

Conditions
By BOD subject to Power given by AOA or by a Resolution at GM.
Restrictions in The person shall be Alternate Director in maximum one company.
Appointment For appointment as an Alternate Director for an Independent Director,
only when he is qualified as an Independent Director under the Act.
Tenure of Vacation of Office: If and when the Director in whose place he has
Office been appointed, returns to India.
Restricted Period: An Alternate Director shall not hold office for a
period longer than that permissible to the director in whose place he
has been appointed.
Position of Independent Status: He is not an Agent or Proxy of the Original
Alternate Director.
Director
Interest in Contracts: Provisions as to contracts in which Directors
are interested will be applicable to the Alternate Director, only if he is
interested in such contracts.
A person appointed as Alternate Director shall not be a person who is
holding
Nominee Director U/S 161(3)
Aspect Description
Power Subject to AOA, BOD may appoint any Nominated Person, as a Nominee
Director.
Persons Any Institution in pursuance of any law or CG or SG.
nominated By
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Casual Vacancy U/S 161(4)
Aspect Description
Applicability All Companies
Casual Vacancy Vacation of Office of a Director in GM before his term of office
expires in the normal course. Such vacancy maybe due to death,
resignation, disqualification, etc.
Filling of Casual As per AOA.
Vacancy If AOA is silent, then BOD at BM only. Which shall be subsequently
approved by members in immediate next GM
Tenure 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.
Not a Retiring
NON Retiring and Non Rotational Director..
Director
Non-Acceptance Vacation of office does not arise when the Director had not assumed
Office
Casual Vacancy
No Obligation to Board may resolve not fill up the vacancy.
Fill
Separate Resolution for Appointment of Directors U/S.162
Aspect Description
Principle: Each Director should be elected separately. Placing of

Separate
composite motion for election of two or more Directors before a
Resolution
General Meeting is prohibited.
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Two or more persons can be appointed by a single resolution, if the

Composite
following procedure is followed
Resolution
The Company should first pass a unanimous resolution authorizing
appointment of two or more persons by enblock resolution.
Enblock Resolution should be passed thereafter.
Void Appointment: If Section 162 not complied with, even no

Effect of
objection was taken at the time of passing resolution.
Contravention
No Automatic Re—appointment: If the resolution is so moved, the
provisions relating to automatic re—appointment of Directors
retiring by rotation u/s 152(7), does not apply.
Validity of acts of Directors: Acts of the Directors will be valid
until the defect in appointment is shown to the Company. [Sec.176]
This Sec is not applicable to
➢ Pvt. Ltd. co.
➢ Govt. Co. where 100% Shares are held by SG/CG
➢ 100% SC of govt. co. where entire PUSC held by Govt. co. Specified IFSC unlisted public
company.
Proportional Representation for Directors' Appointment U/S.163
Aspect Description
Meaning Appointment of Directors representing different groups of
Shareholders.
It enables a minority of respectable strength, to elect its
representatives in proportion to their voting strength.
Provision
Must With specific provision spelling out the detailed procedures
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in AOA
Number of Atleast 2/3rd of Total Number of Directors should be appointed
by Proportional Representation.
Directors
Period For 3 years.
Interim Casual Vacancies should be filled by BOD U/S 161(4).
No Removal A Director appointed u/s 163 cannot be removed u/s 169 before
the expiry of his term of office.
Mode of Voting Sec.162 requiring appointment of each Director to be voted
individually is not applicable.
Appointment of Directors by proportional representation may be
done by- Single Transferable Vote, or Cumulative Voting Method,
or Any other method.
Amendment:- This Sec is not applicable to Pvt. Ltd. co. & Govt. Co.
Director Identification Number (DIN):
Meaning of DIN [Rule 2(d)
Allot - Identification
No.
CG ↓ Individual
Purpose - Identification:
➢ Individual intending to be appointed as a
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director
➢ Existing director
Steps to obtain DIN
U/S 153 Application for allotment of DIN to CG in form No. DIR-3 with fee through portal,
signed and submitted electronically using his own digital signature certificate and verified
digitally by
➢ PCA/PCS/PCMA or
➢ CS in full time employment of company or by MD /director of company with following
documents Photo + ID proof +Residential proof + specimen signature duly verified.
Section 154: Allotment of Director Identification Number within 1 month by CG
If CG approve DIN shall be allotted and intimate to the applicant
If CG find application is defective /incomplete---intimate applicant to rectify such defects
within 15 days from mail -----if rectified---DIN allotted & intimated to applicant. If not
rectified-admission rejected –informed to applicant –fees paid shall lapse.
Section 155: Prohibition to obtain more than one Director Identification Number
Section 156: Director to intimate DIN – to CG within one month.
Section 157: Company to inform DIN to registrar
Within 15days from receipt of DIN to ROC or authority specified by CG with fees.
If a company fails 270days from the date when it should have furnished, then on Co. – 25000
(further penalty of Rs. 100 /day ) to 1 lakh & on officer in default – same penalty
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Section 158: Obligation to indicate DIN – On all document as prescribed
Cancellation/Surrender/Deactivation of DIN – Rule 11
The Competent Authority (Central Government/RD (North), Noida/ Authorised Officer by
the RD) may, upon being satisfied on verification of particulars or documentary proof
attached with the application received from any person, cancel or deactivate the DIN in case:
➢ The DIN is found to be duplicated in respect of the same person provided the data
related to both the DIN shall be merged with the validly retained number;
➢ The DIN was obtained in a wrongful manner or by fraudulent means;
➢ Of the death of the concerned individual;
➢ the concerned individual has been declared as a lunatic or of unsound mind by a competent
Court;
➢ If the concerned individual has been adjudicated an insolvent.
➢ Provided that before cancellation or deactivation of DIN pursuant to clause (b), an OBH
shall be given to the concerned individual;
➢ On an application made in Form DIR-5 by the DIN holder, CG may deactivate such DIN
but after verification of e-records.
Disqualifications of Directors U/S 164
➢ Section 164 (1) following persons shall not be capable of being appointed as directors
o A person found by a competent court to be of unsound mind and such finding remaining in
force.
o An undischarged insolvent.
o A person who has applied to be adjudged an insolvent.
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o A person who has been convicted by a Court of an offence whether involving moral
turpitude or otherwise and sentenced in respect thereof to imprisonment for not less
than 6 months, and a period of 5 years has not elapsed from the date of the expiry of the
sentence. Court means either Indian Court on court outside India.
o If person has been convicted of any offence and sentenced for period of 7 years or
more, he shall not be eligible to be appointed as director in any company. (He is disqualified
for 5 years after the date of expiry of the sentence.)
o A person who has been disqualified by a Court or Tribunal, unless permission of the
Court or Tribunal has been obtained for his appointment.
o A person who has not paid any call in respect of shares of the company held by him,
whether alone or jointly with others and 6 months have elapsed from the last date fixed
for the payment of the call.
o A person who has convicted of the offence dealing with related party transactions
under Section 188 at any time during last preceding 5 years.
o Person has not obtained director identification number.
o If he does not comply with number of directorship i.e. maximum ten public companies and
maximum twenty in all companies.
o Disqualifications referred to in above clauses (d), (e) and (g) shall continue to apply even if
the appeal or petition has been filed against order of conviction or disqualification.
➢ As per Section 164(2), a person who is or has been director of a company which:
o Has not filed the financial statements or annual returns for any continuous 3 financial
years; or
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o Has failed to repay deposit or interest thereon on due date or redeem its debentures on
due date or pay dividend and such failure continues for 1 year or more.
➢ On default of Section 164(2), director of defaulting company becomes disqualified to act
as director of any other company for 5 years. He can‘t be re-appointed as director in
defaulting company for period of 5 years.
➢ Section 164(2) is not applicable to Govt. Company
➢ Where a person is appointed as a director of a company which is in default of section
164(2), he shall not incur the disqualification for a period of 6 months from the date of his
appointment.
➢ Public company can‘t add additional disqualification for director but independent
private company may add more disqualifications by its article.
Reporting Requirement of Section 164(2)
➢ Director is required to inform to company about his disqualification under Section
164(2) in Form DIR 8 before he is appointed or reappointed.
➢ Company shall file DIR – 9 to registrar and furnish names and address of all
directors within 30 days from failure.
➢ Statutory auditor is required to state in his report, whether any of director is
disqualified under Section 164.
➢ If the company is subject to secretarial audit, PCS has to remark whether board is
duly constituted. Board is duly constituted means to verify whether any director is
disqualified.
➢ Application for removal of disqualification of directors can be made in Form DIR – 10.
74 | P a g e
Number of directorship (section 165)
‘Specified number of companies’ (Maximum directorships)
(1) Directorships in Public Co. (s) + Private Co.→ Max. 20
(s) (including alternate directorships)
(2) Directorships in Public Companies (including→ Max. 10
alternate directorships)
(3) A private company which is a subsidiary of→ Treated as a
a public company public company
(4) A private company which is a holding → Treated as a
company of a public company public company
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Excluded directorships
Directorship in a company licenced u/s 8 Excluded for computing
(if it has not committed any default in→ 20 /JO directorships
filing FS u/s 137 or AR u/s 92)
Directorship in a dormant company → Excluded for computing
20 directorships
Restrictions by members
Members, may Lesser number of companies in which a
by passing specify director of the company may act as a
SR director
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Duties of Directors U/S 166
To act
1 2 3 4
in in so as to promote in the best interests of the
accordance the objects of the company, its employees, the

good
with the company for the shareholders, the community’
faith
articles benefit of its and for the protection of
members environment
5 6
To exercise his duties with due and reasonable To exercise independent judgment
care, skill and diligence
7 8 9
Not to get involved in a Not to achieve undue gain or advantage Not to
situation where his interest (either to himself or to his relatives, assign his
may conflict with the partners, or associates); if found guilty,

Office
interest of the company then, liable to pay the amount of gain to
(Any
the company
assignment
of office
shall be
void)
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Vacation of office of Director – Section 167 of Companies Act, 2013
Grounds of vacation of office of a director [Sec. 167(1)]
(a) A director who incurs any disqualification u/s 164 → Vacation of office u/s 167
If a director who becomes disqualified u/s 164(2), is also a director in any other
company
His office of director in all such other His office of director in the
companies shall become vacant defaulting company shall not
become vacant
(b) All BMs held during 12 months → Absent (with / without seeking leave of
absence)
(c) Contravention of Sec. 184 (d) Contravention of Sec. 184 (Fails
(Participates in BM in a contract or to disclose interest in contract
arrangement in which he is or arrangement in which he is
interested) interested)
(e) Disqualified
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by an order
(f) Committed + Convicted + Imprisonment
of Court or
an offence by a Court (6 months or
Tribunal
(whether more)
involving
moral
turpitude or
otherwise)
(g) Removed
(h) Appointed as a director by virtue of his→ ceases to hold such office in
holding any office in the holding, that company
subsidiary or associate company
Postponement of grounds (è) and (f) of Sec. 167(1)
Ground u/s No No vacation till No No vacation till
167(1) (e) or (f) appeal is disposed further appeal

→ vacation vacation
is attracted of (if appeal is is disposed of
for first till next
filed within 30 (if further
30 days
7 days
days appeal is filed
within 7 days
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Vacation of office of all the directors - Effects [Sec. 167(3)]
Vacation of Appointment of required number of Hold office till
offices of all→ directors by – → the directors
the directors are appointed

➢ Promoter; or
in GM
➢ CG (in the absence of promoter)
Additional grounds
Option
Private company Articles: Additional grounds of vacation of
office
Resignation of Director [Sec.168]
Aspect Description
Notice to Company A Director may resign by giving written notice to
Co..
On receipt of notice Board shall take note of it and

Duties of BOD
intimate to ROC within 30 days in DIR-12 and post
on website
Filing by Resigning Director To ROC Within 30 days from the resignation in
DIR-11 with detailed reasons.
Notice received by Co., or Date specified by

Effective Date of Resignation
director in Notice (WEIL)
Liability of Director For the offences occurred during his tenure.
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(Resignation – Foreign Director- DIR 11 can be filled by authorised representative
(CA/CS/CMA) of foreign director if he has given in the writing)
Removal of Director [Sec.169]
➢ Removal: Before the expiry of tenure.(Tribunal is also empowered , in case of Oppression
and Mismanagement.]
➢ All Directors can be removed except:
o Appointed by the Tribunal u/s 242, and
o Directors appointed under the principle of Proportional Representation u/s 163.
➢ Co. has Statutory Right to remove the Director by Ordinary Resolution
➢ Procedure for Removal:
Special Notice 14 days Special Notice By Members to Co.
Members holding at least 1% of Total Voting Power or holding
Shares of aggregate Paid Up Value at least Rs. 5,00,000.
Copy to Director Forth with.
make a written representation to be sent to every Member

Director's Rights
Representation read out at the Meeting if not sent.
be heard
If the Tribunal is satisfied representation is used secure

Exclusion to
needless publicity, tribunal may refuse.
Director's Right
Resolution Ordinary Resolution
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➢ Compensation for Loss of Office: is not admissible for vacation of office u/s 167 or for
resignation.
➢ Filling of Vacancy: At GM or by BOD
Penalties for Contravention
Sec. Punishment
157(2) Co.'s Failure to Company: Fine of Minimum Rs. 25,000, Maximum Rs. 1 Lakh.
intimate DIN to Every Officer in default: Fine of Minimum Rs. 25,000,
ROC Maximum Rs. 1 Lakh.
Defaulting Individual or Director of the Company shall be
punishable with —
Imprisonment upto 6 months or Fine upto Rs. 50,000,
Contravention
Further Fine upto Rs. 500 per day in case of continuing
of Sec. 152,
159 contravention.
155, 156
Note: Relevant Provisions: Sec.152 (Appointment of
Directors), Sec.155 (More than one DIN prohibited),
Sec.156 (Director to intimate DIN to Company)
Accepting Person accepting appointment as Director in more than 20

165
appointment in Companies is punishable with fine of Minimum Rs. 5,000-
more than 20 Maximum Rs. 25,000 for every day after the first during
Cos. which the contravention continues.
Default w.r.t If a Director of the Company contravenes the provisions
166 duties of of Sec.166, such Director shall be punishable with Fine of
Directors Minimum Rs. 1 Lakh, Maximum Rs. 5 Lakhs.
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Functioning as Defaulting Officer u/s 167(1) punishable with
Director after
Imprisonment upto 1 year, or
167 Vacation of
Fine of Minimum Rs. 1 Lakh, Maximum Rs. 5 Lakhs, or Both.
Office
Independent Directors
SECTION 149(6) OF COMPANIES ACT, 2013
➢ Who does not have any material or pecuniary relationship with the company or directors.
➢ MD/WTD can‘t be considered as independent director.
➢ Nominee directors appointed as per Section 161(3) are not considered as independent
directors.
Provisions Relating to Independent Director
Minimum number of independent director – Section 149(4)
➢ Central Government may prescribe the minimum number of ID for class of public
companies.
➢ Listed public company shall have at least 1/3rd of the total number of director as ID.
➢ Following public companies shall have at least two independent directors:
Which is having PUSC of Rs. 10 crore or more; or
Which is having turnover of Rs. 100 crore or more; or
Which have, in aggregate, outstanding loans, debentures & deposits, exceeding Rs.50
crores
➢ Provisions of Independent Director are not applicable to Section 8 Company.
➢ Unlisted public company, which is a joint venture, a wholly owned subsidiary or a
dormant company, will not be required to appoint Independent directors.
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Qualification – Rule 5 of Companies (Appointment and Qualification of Directors) Rules,
2014
➢ An 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.
➢ As per Section 149(6) following person can be appointed as independent director:
o A person who is not a managing director for whole time director or nominee director.
Person of integrity and possesses relevant experience and expertise in opinion of board. A
person who is or was not promoter of company, its holding, subsidiary or associate
company.
o A person who is not related to promoter or director of company, its HC/SC/AC.
o A person who has or had no pecuniary relationship other than remuneration as such
director or having transaction upto10% of his total income or prescribed amount with
company, its HC/SC/AC or their promoters, or directors, during last 2 FY or during CFY.
(Note: This provision is not applicable to Govt Company)
o A person whose any of
• His relative is holding securities of company or interest in the company, its HC/SC/AC
during immediately 2PFY or during CFY.
• However, the relative may hold upto securities upto face value of Rs. 50 lacs or 2% of
paid up capital of company, its HC/SC/AC.
• His relative is indebted to company, its HC/SC/AC or their promoters, or directors, in
excess of Rs. 50 lacs during 2 PFY/CFY.
• His relative has given guarantee or provided any security in connection with
indebtness of any third promoters, or directors of such HC during 2PFY or during CFY, in
84 | P a g e
excess of Rs. 50 lacs.
• His relative has pecuniary transactions or relationship with company, its HC/SC/AC
exceeding 2% of its gross turnover or total income, singly or in combination with above
referred transactions.
o Who, neither himself nor any of his relatives:
• Holds or has held the position of KMP or employee of Co/HC/SC/AC in any of the 3
immediate PFY; Even if a relative of director is employee of company during preceding 3
financial years, person can still be qualified as independent director‘.
• Is or has been an employee or proprietor or a partner, in any of the 3 financial years
immediately preceding the financial year in which he is proposed to be appointed, or –
• A firm of auditors or company secretaries in practice of cost auditors of the company
or its holding, subsidiary or associate company; or
• Any legal or a consulting firm that has or had any transaction with the company, its
holding, subsidiary or associate company amounting to 10% or more of the gross turnover
of such firm;
• Holds together with his relative 2% or more of the total voting power of the
company; or
• Is CEO or director, by whatever name called, of any NPO that receives 25% or more of
its receipts from the company. Any of its promoters, directors or its HC/SC/AC or that
holds at least 2% of total voting power of the company.
Tenure:
➢ Independent directors are not required to be retired by rotation.
➢ Maximum two consecutive periods of 5 years each, and can be extended for a second
term only after SR and disclosure of such appointment in BR.
➢ Reappointment can be done only after a cooling period of 3 years.

85 | P a g e
➢ During the cooling off period ID can‘t be appointed in or be associated with the
company in any other capacity, either directly or indirectly.
Remuneration
➢ The Act expressly disallows independent directors from obtaining stock options and
remunerations other than sitting fees and reimbursement of travel expenses for
attending the board and other meetings.
➢ Profit related commission may be paid to them, subject to the approval of SHs.
Liability
➢ Only for offences committed with their knowledge, connivance or negligence.
Audit Committee U/S 177
Mandatory constitution of audit committee by certain companies
1 2 3 4
Listed Public Public Public company +
company company
public (Loans + debentures +
+ + deposits) > Rs. 50 crore

company
Paid up Turnover ≥
capital ≥ Rs. Rs. 100 crore

10 crore
86 | P a g e
No requirement of constitution of audit committee by a company, if-
Company is an and 1 2 3
unlisted public
Joint venture WOS Dormant
company
company
Composition of audit committee Composition of audit committee in case of a company
licenced u/s 8, if it has not committed any default in

No. of directors ≥ 3
tiling FS u/s 137 or AR u/s 92
Majority: Independent No. of directors ≥ 3
directors
Majority: Ability to read and Majority: Ability to read and
understand FS understand FS
Functions of the audit committee
(i) Recommendation for - appointment of auditors
- remuneration and terms of appointment of auditors
In case of a Government company, which has not committed any default in filing FS u/s
137 or AR u/s 92, this clause shall be read as follows:
87 | P a g e
“The recommendation for remuneration of auditors of the company”
(ii) Review and - auditor’s independence and performance -
monitor
(iii) Examination of - FS and auditors’ report
(iv) Approval of - Related Party Transactions
(v) Scrutiny of - inter-corporate loans and investments
(vi) Valuation of - undertakings or assets, wherever it is necessary
(vii) Evaluation of - internal financial controls & risk management systems
(vili) Monitor - end use of funds raised through public offers
Powers of Committee:
➢ To call for comments about internal control systems, scope , and observations from
Auditors,
➢ To review FS before submission to the Board,
➢ To discuss any related issues with Internal and Statutory Auditors, and Management,
➢ To investigate into any matters in relation to its functions specified above,
➢ To have full access to information in the Company's records and obtain external
professional advice for above investigation,
➢ To oversee Vigil Mechanism, if applicable.
Note: The Company Auditors and KMP have a right to be heard in Audit Committee but can‘t
vote.
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Disclosure:
Board's Report u/s 134(3) shall disclose - (a) Composition of Audit Committee, (b) Areas
where Board has not accepted any recommendation of the Audit Committee, along with
reasons therefore.
Vigil Mechanism [Sec.177]
Aspect Description
➢ Listed Companies
Applicable For
➢ Companies accept Deposits from the Public,
➢ Companies borrowed money from Banks and PFIs in excess of 50 Cr.
Purpose Vigil Mechanism for Directors and Employees to report genuine
concerns.
If Company is required to form Audit Committee u/s 177, then, the
Audit Committee shall oversee the Vigil Mechanism. [See Note]
Overseeing the If not then, a Director nominated by the Board shall oversee the Vigil
Vigil Mechanism. Note: In case of conflict of interest on any matter, such
Mechanism matter shall be considered only by other Members of the Audit
Committee, i.e. excluding the Member having the conflict of interest.
Vigil Mechanism should provide -
Safeguards
➢ adequate safeguards and
➢ direct access to Chairperson of Audit Committee / Board—
nominated Director, in exceptional cases.
Misuse In case of complaints being filed by a Director / Employee, the Audit
Committee or Board Nominated Director may take suitable action.
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Disclosure Details of establishment of Vigil Mechanism shall be disclosed in the
Company's
Nomination and Remuneration Committee (NRC) [Sec.178]
Aspect Description
Applicability Same as for Audit Committee.
BY BOD
3 or more Non—Executive Directors, out of which at least ½ shall be

Constitution
Independent Directors.
The Chairperson of the Company may be appointed as a Member of the
NRC, but shall not chair the NRC.
Identify persons who are qualified to become Directors and Senior
Mgmt.
Role
Recommend to the Board their appointment and removal,
Shall specify the manner for effective evaluation of BOD/Committee
performance/individual director to be carried out either by BOD
/NRC/independent external agency and review its implementation and
compliances.
Formulate the criteria for determining qualifications, positive
attributes & independence of a Director,
Recommend to the Board a policy for Remuneration of Directors, KMP
and other employees.
[Note: This Policy places on website + salient features of policy +
changes shall be disclosed in the Board's Report.]
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While formulating the Remuneration Policy, the NRC ensure that
The level and composition of remuneration is reasonable and sufficient
to attract, retain and motivate Directors of the quality required to

Factors
run the Company successfully,
considered in
Relationship of remuneration to performance is clear and meets
Policy
appropriate performance benchmarks,
Remuneration to Directors, KMP and Senior Management involves a
balance between fixed and incentive pay reflecting short and long—
term performance objectives appropriate to the working of the
Company and its goals.
Attendance at GM: Chairperson or other authorized Member of NRC
Other Points shall attend the General Meetings of the Company.
Senior Management: "Senior Management" means personnel of the
Company who are Members of its Core Management Team excluding
Board of Directors comprising all Members of Management one level
below the Executive Directors, including the functional heads.
Stakeholders Relationship Committee (SRC) U/S 178
Mandatory constitution Composition
No. of
shareholders,
> 1,000 Chairperson Such other members
debenture-
as decided by the
holders, deposit- (Non-executive
Board
holders and any director)
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other security
holders
Functions Duty to attend GMs
Consider Inability to resolve or Chairperson of SRC
and consider any grievance by

In his absence, any other member
resolve SRC in good faith : Does
of SRC authorised by Chairperson
the not amount to
of SRC
grievance contravention of Sec. 178
s of
security
holders
Non-applicability:
A company licenced u/s 8,
if it has not committed any default in filing FS u/s 137 or AR u/s 92
Penalties for Contravention
Sec. Act / Omission Punishment
Company: Fine Rs. 1 Lakh, - 5 Lakh.

Contravention of
Every Officer in default:
Sec. 177/178 w.r.t.
178(8) Audit Committee, ➢ Imprisonment upto 1 year, or
92 | P a g e
NRC, SRC
➢ Fine of Minimum Rs. 25,000, Maximum Rs. 1 Lakh, or
➢ Both
Powers of Board U/S 179
➢ BOD of Company shall be entitled to exercise all such powers and do all such acts &
things , as company is authorised to do. BOD is custodian of interest of Company and its SHS.
➢ BOD shall be subject to provisions of Act/MOA etc. BOD shall not exercise any power
which is directed /required to be done by Co. in GM
➢ Regulations made in GM shall not invalidate any prior act of BOD, which was otherwise
valid.
➢ BOD shall exercise following powers on behalf of co. by passing board resolution
o to make Calls on Shareholders, in respect of money unpaid on their Shares,
o to authorize buy—back of Securities u/s 68,
o to issue Securities, including Debentures, whether in or outside India,
o to borrow moneys,
o to invest the funds of the Company,
o to grant Loans or give Guarantee or provide Security in respect of Loans,
o to approve Financial Statement and the Board's Report,
o to diversify the business of the Company,
o to approve amalgamation, merger or reconstruction,
o to take over a Company or acquire a controlling or substantial stake in another Company,
93 | P a g e
o Other prescribed matters.
Delegation of Powers (proviso to Sec 179)
By BR at BM. BOD may delegate the following powers -
Power Board Resolutions may specify Powers may be
delegated to
To borrow moneys Outstanding amount up to which

Committee of Directors,
Moneys may be borrowed by the MD, Manager, Any other
Delegatee. Principal Officer of the
To invest funds of ➢ Total amount up to which the funds Company, or Principal
the Company grant may be invested, and Officer of the Branch
Loans or give ➢ Nature of Investments. Office, if any.
Guarantee in ➢ Total amount up to which Loans may
respect of Loans be made,
➢ Purpose,
➢ Maximum Amount of Loans for
individual purpose
Powers to be exercised with consent through SR at GM U/S 180
SR is required for -
Sec. 180(1) (a): Sec. 180(1)(b):
Sell, lease otherwise dispose of- Investment of compensation
received by the company as a result
of any merger or amalgamation
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the whole of Or substantially the Exception: SR is not required if such
one or more whole of one or compensation is invested in trust
more securities specified u/s 20 of the

undertakings
undertakings of Indian Trusts Act
of the
the company
company '
Sec. 180(1)(c): Borrowing of money if- See. 180(1)(d):
Remission
moneys already (paid up share
borrowed, capital +
>
Or
together with securities
moneys proposed premium Give time for the

to be borrowed account + free repayment
reserves)
‘Temporary loans’ obtained from company’s
bankers in the ordinary course of business

of a debt due by a
are not considered as borrowings
director
Meaning of the term ‘undertaking’ used u/s 180(1)(a): An undertaking
In which investment exceeds 20% or Which generates 20% of
of net worth (As per audited B/S total income during
95 | P a g e
of preceding FY) preceding FY
Meaning of the term ‘substantially the whole of the undertaking’ used u/s
180(1)(a)
20% or more of the value of the as per Audited B/S of
undertaking
Effect of sale or lease of undertaking in contravention of Sec. 180(1)(a)
Right of buyer or lessee shall not be If he had acted in good faith
affected
Manner of passing SR u/s 180(1)(a)
By postal ballot (not in GM)
Meaning of the term ‘temporary loan’ used u/s 180(1)(c)
Repayable or Repayable within Q of but Not a loan raised for
the date of the loan financing capital

on demand
expenditure
Borrowings (without passing SR) exceeding the limit u/s 180(1)(c) shall be valid,
if the lender proves that -
he lent the And he lent the money without having any knowledge that
money in good the limit imposed u/s 180(1)(c) had been exceeded
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faith
Requirement of SR authorising borrowings exceeding the limit u/s 180(1)(c)
SR shall specify the total amount upto which moneys may be borrowed by the Board
Non applicability of Sec. 180
Private company, if it has not committed any default in filing FS u/s 137 or AR u/s 92
Contribution to Bonafide and Charitable Funds, etc. U/S 181
Powers of the Board Contribution > 5%
Contribute to bonafide Max 5% of average net profits Prior permission in
charitable and other during immediately preceding GM required
funds 3 FYs
Political Contributions U/S 182 (Directly or Indirectly)
Aspect Description
Applicability Any Political Party or Political Purpose
Companies which cannot A Govt. Co., and
contribute to Political A Company which has been in existence for less than 3
Party financial years.
Maximum Amount of
No Limit
Donation in any FY
97 | P a g e
Board Resolution BR at BM
Disclosure in P&L A/c

Total Amount contributed, and
Companies contributing
Name of the Party
Directly
Company - fine upto 5 times the amount contributed.

Consequences of
Officer in default - 6 months and with Fine upto 5 times
contravention
the amount contributed.
Contributions to National Defence Fund, etc. U/S183
Aspect Description
Applicability Contribution to National Defence Fund or any other Fund
approved by CG
Power exercised by By BOD,
Any person or authority exercising the powers of BOD,
Company in GM,
Limit No Limit / restriction.
Disclosure in P&L Of Relevant FY.
Contract by One Person Company U/S 193
Aspect Description
Type of OPC limited by Shares or by Guarantee, enters into a contract, with
Contract the Sole Member who is also the Director of the Company.
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If contract is not in writing, OPC shall ensure that the terms of the
Compliance contract or offer are contained in a Memorandum, or are recorded in
w.r.t. the Minutes of first BM held next after entering into contract.
contracts
Note: Not apply to contracts in the ordinary course of its business.
Information to About every contract entered and recorded in the Minutes of BM
ROC by OPC within 15 days of BOD Approval.
Interest / Concern in Parties U/S 184
Aspect Description
Applicability Every Company (Public or Private)
Director's Duty To disclose his concern or interest (including Shareholding interest)
in -
(i) Company or Companies, (ii) Bodies Corporate, (iii) Firms, (iv)
Association of Individuals.
To ensure that notice of his interest is disclosed at BM held
immediately after the date of notice.
At the First BM in which he Note: Disclosure is in three
participates as a Director, stages,
Time of First BM in every FY i.e. Initial Disclosure + Every

Disclosure after any change occurs in any Financial Year Beginning + Update
disclosures already made, of Changes.
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➢ in writing,
Notice shall be ➢ in Form MBP-1,
➢ kept at the Registered Office,
➢ preserved for 8 years from the end of FY to which it relates,
➢ in the custody of CS / other authorized person.
Interest in Contract or Arrangement U/S 184- applicable to All companies and all
directors.
1. Type of Contract:
Note: Contract or Arrangement includes proposed transactions also
1. Body Corporate in which a Director

➢ Singly or jointly with other Director, has more than 2%
Shareholding
Company ➢ is a Promoter, Manager, or CEO of that body corporate.

2. Firm or other Entity in which a Director is a Partner/ owner/
Member as the case may be.
2. Disclosure: A Director directly or indirectly interested in the above Contract —
At the time of Company entering into After Company entering into Contract
contract
(a) shall disclose his concern or interest at Shall disclose his interest in the Contract
BM, (a) Forthwith, or
(b) shall not participate in Meeting, where. (b) at First BM held after he became
interested.
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Exceptions / Disclosure not required [Sec.184 (5)(b)]
If any contract or arrangement entered or to be entered into between 2 Companies, if
maximum 2% of the Paid up SC in the other Co/BC is held by
➢ any of the Directors of the Co/BC b/w one or more co and BC , or
➢ 2 or more of them together.
Effect of Voting by Interested Director
➢ Director directly or indirectly interested shall note vote..
➢ If he votes it shall be void.
➢ His presence shall not be counted for quorum..
Effect of Contravention of Sec. 184
1. Vacation of Office [Sec. 167]
2. Voidable Contract:
3. Penalty: Every default Director
➢ Imprisonment upto 1 year, or
➢ Upto100000, or
➢ Both
U/S 184(2) When a director exercised his voting right as SH , he is free to vote in his best
interest like any other SH. Sec. 184(2) shall apply to pvt. Co. & IFSC public co. with exception
that interested director may participate after disclosure.
For section 8 Companies, Sec. 184(2) shall apply only if transaction reference to Section 188
on the basis of terms and conditions of contact exceeds 1L.
101 | P a g e
Types of Transactions (RPTs) U/S 188(1)
Prior Approval of SH by Ordinary

Transaction
Resolution required if Transaction Value
exceeds
➢ Sale, Purchase or supply of any Goods Least of: 10% of Turnover, (or) Rs. 100
or Materials (directly or through Agent) Crores.
➢ Selling or otherwise disposing of, or

Least of: 10% of Net Worth (or) Rs. 100
buying, property of any kind (directly or
Crores.
through Agent)
➢ Leasing of Property of any kind Least of: 10% of Net Worth (or) 10% of
Turnover (or) Rs. 100 Crores.
➢ Availing or rendering of any Services Least of: 10% of Turnover (or) Rs. 50
(directly or through Agent) Crores.
➢ Appointment of any Agent for purchase Appointment of Agents may pertain to RPTs
or sale of goods, materials, services or in (a), (b), (d) above. The Limits under those
property respective items shall apply.
➢ Such Related Party's Appointment to Monthly Remuneration >Rs. 2,50,000
any Office or Place of Profit in the
Company, its Subsidiary, or AC and SC
➢ Underwriting the subscription of any

Remuneration for Underwriting > 1% of Net
Securities or Derivatives thereof to the
Worth.
Company.
Note:
1. Turnover / Net Worth shall be as per Audited FS of preceding FY.
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2. For items (a) to (e), above Limits shall apply for transaction(s) to be entered into either
individually or taken together with the previous transactions during a FY.
3. Resolution passed by HC shall be sufficient for transactions B/W HC and wholly owned SC.
Approvals required for Related Party Transactions
If RPT is at ALP and in ordinary course of business, approval of audit committee is obtained.
If not above, following permissions are needed
➢ Audit Committee approval
➢ Consent of BOD at BM
Instead of granting approval for each RPT , audit committee may grant omnibus approval on
annual basis that shall be valid one FY.
Omnibus approval shall not be made in respect of selling or disposing of the undertaking of
company.
Particulars Board Resolution at BM only. Prior OR by Members
Transactions Transaction below specified

Transactions as per Table above.
transaction Value.
Disclosure Agenda for BM shall disclose Explanatory Statement for the
General Meeting shall disclose Name

Name of the RP and Nature of
of the Related Party Managerial Key
relationship,
or Director the of Name
Nature, Duration, particulars
of the Contract and contract Personnel who is related,
or arrangement, ➢ Nature of relationship,

Material Terms & Value of the
➢ Nature, Material terms, Monetary
contract or arrangement .
value, particularsof the contract or
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Any Advance paid or received. arrangement,
Manner of determining the➢ Any other information relevant or
Pricing and other commercial important for the Members to take
terms decision on the proposed resolution.
Whether all factors relevant to
the contract have been
considered, if not, the details
of factors & Reasons, and
Any other information relevant
or
important for the Board for
decision making.
Voting by If any Member is a Related Party,

Note: No Presence, No Voting
Interested he shall not vote on that OR in
Person which he is a Related Party.
Transactions in the ordinary course of business at Arms' Length basis, not covered by Sec.
188(1) Restriction on interested member for voting is not applicable to company in which 90%
or more members are relatives of promoters or RPTs.
Interested member can vote in OR for:
➢ Pvt Companies
➢ Govt. company entered contract or arrangement with Govt. Company.
Office or Place of Profit
1. Any Office or Place shall be deemed to be an "Office or Place of Profit" under Company
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where the person holding the office receives —
Person holding the Office Remuneration
(a) Director Receives from Co., any remuneration
in addition to the remuneration he is
entitled to receive as Director.
(b) An Individual other than a Director, Receives from the Company any
or Any Firm, or Pvt. Co. or remuneration.
2. Remuneration: Remuneration includes — (a) Salary, (b) Fees, (c) Commission, (d)
Perquisites, (e) Rent Free Accommodation, or (f) otherwise.
Disclosure of Every Related Party Transaction: In Board's Report, along with
justification.[Form No.AOC-2]
Effect of Contravention
1. Transaction entered into by Director/ any other Employee without obtaining Board/
General Meeting approval
➢ If ratified by BOD/SH within 3 months from the date of contract: Contract is Valid
➢ If not ratified:
o Contract is voidable at the Board’s option
o Company can claim indemnity of loss from defaulting Directors and Directors having
relationship with the party
➢ Such director shall be disqualified for 5 years
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2. Punishment for Director/ Other Employees for violation of Sec. 188
➢ In case of Listed Company
o Imprisonment upto 1 year or
o Fine of Minimum Rs 25,000
o Maximum Rs 5,00,000 or Both
➢ In case of other company
o Fine of minimum Rs 25,000
o Maximum Rs 5,00,000
Loans to Directors Prohibited U/S 185
➢ Company can‘t give, directly or indirectly; any loan /guarantee/ security for any loan
taken or given by:
Any director of the lending company. Any director of company‘s HC.
Any partner or relative of director of company or its HC.
Any firm in which any such director or relative is a partner.
➢ Loan or security or guarantee can be given in connection with any loan taken by any
person in whom any of the directors of company is interested, if:
o Special Resolution is passed in General Meeting; and
o Loans are utilised by borrowing company for its principal business activities.
The expression to any other person in whom director is interested‘ means following:
o Any private company of which any such director is a director or member.
o Anybody corporate at GM of which 25% or more voting power is controlled by one or
more directors collectively.

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o Anybody corporate where BOD, MD or Mgr whereof is accustomed to act in according to
directions of directors of lending company.
➢ If one company has lent money to another company, Sec. 185 is required to be
followed by lending company as well as borrowing company.
➢ Section 185 is applicable to a loan represented by a book debt.
➢ Bombay High Court has held in case of Dr. Fredie Ardeshir Mehta vs. Union of India that
where company sale flat to one of its directors on receipt of 50% cash and 50% agree to
receive by installment does not amount to loan. It is credit sale.
Example:
Ajanta Ltd. has two Directors Mr. X and Mr. Y Both holds 505 shares each of company.
Ajanta Ltd. wish to give loan to following and have asked for your views on same:
➢ Loan to Director X.
➢ Loan to a relative of Director Y.
➢ Director of company D which is the holding company of Ajanta Ltd.
➢ A partner of Director of Holding Company.
➢ A partner of Director of Ajanta Ltd.
➢ To a firm in which Mr. X is a partner.
➢ To a firm in which relative of Mr. Y is a Partner.
SN Situation Whether company can Reason
grant loan?
I Loan to Director X. No Prohibited
U/S 185
II Loan to a relative of Director Y. No Prohibited
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U/S 185
III Director of company D which is the No Prohibited
holding company of Ajanta Ltd. U/S 185
IV A partner of Director of Holding No Prohibited
Company. U/S 185
V A partner of Director of Ajanta Ltd. No Prohibited
U/S 185
VI To a firm in which Mr. X is a partner. No Prohibited
U/S 185
VII To a firm in which relative of Mr. Y is a No Prohibited
partner. U/S 185
Note: Relative – Section 2 (77) of Companies Act, 2013
1. Member of HUF
2. Spouse
3. Father, Mother, Son Son‘s wife, Daughter, daughter‘s husband, brother and sister.
Non-applicability
➢ Any loan made, guarantee give or security provided by:
A banking company during its ordinary course of business (if interest is charged at rate at
least bank rate declared by RBI)
A HC to its wholly owned SC. Provided that such loan made to SC should be used for its
principal business activities.
➢ Any guarantee/ security provided by HC in respect of loan made by any bank or FI to its
SC
➢ Govt Co, if it has obtained prior approval of Dept. of CG/SG before making any loan, or
giving any guarantee or providing any security.

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➢ Nidhi Company, if loan is given to a director or his relative in their capacity as members
and it is disclosed in annual accounts by note.
➢ When the advance salary is given as per the policy of company to wife of MD who is
employee of company.
➢ Company which provides loans or gives guarantees or securities for repayment of loan in its
ordinary course of business.
➢ Private Company.
In whose SC, no other body corporate has invested any money.
If the borrowing of such company from banks, FI or any BC is less than twice of its PUSC or
Rs. 50 Cr., WEIL, and If it has no default in repayment of such borrowing subsisting at
the time of making transactions under this section.
➢ Any loan to MD/WTD.
As part of the conditions of service extended by company to all its employees. Pursuant to
any scheme approved by members by SR. Such scheme may include housing loan scheme,
education loan scheme, ESOP etc.
➢ Penalty
Company is liable to pay fine at least Rs. 5 lakhs but not more than Rs. 25 lakhs. Officer in
default is punishable with imprisonment upto 6 months or with fine at least Rs. 5 lakhs but
which may extend to Rs. 25.
Director and every other person who was party to loan or guarantee
o Imprisonment upto 6 months; or
o Fine at least Rs. 5 lakhs but not more than Rs. 25 lakhs; or
o Both Person who was party is liable for repayment of loan.
For contravention of Section 185, both lender of loan and receiver are liable for punishment
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4 Board Meeting
Number of Board Meetings (Sec. 173)
1. Principle: First BM shall be within 30 days of Date of Incorporation for all Companies.
Frequency of subsequent BM is as under —
General Rule(173( 1)) OPC, Small Co and Dormant co., Pvt co
which is
Minimum 4 Meetings every year. At least 1 Meeting in each half of calendar
year. At least 90 days gap between 2

Maximum 120 days gap between 2 BM.
Meetings.
2. Exemption: CG may exempt or modify the General Rule above U/S 173(1)
3. OPC with Only 1 Director: Sec.173 & 174 are not applicable, i.e. One Director — so no
Meeting, and no Quorum is required u/s 173(5)
For Sec. 8 co. at least 1 board meeting for every 6 months will satisfy sec 173
Specified IFSC Public Co. & IFSC Pvt. Co. Shall hold its first BM within 60 days of its DOI
and thereafter at least one BM in each half of calendar year.
U/S 173(2) Participation in BM
1. In person video conferencing/other audio visual means
2. Such Audio visual means should be capable of recording/recognizing and storing the
participation or storing of such meetings along with date and time.
Provided CG may notify matters which shall not be dealt with in a meeting through VC/AV
Provided where quorum in a meeting through physical presence of director, any other
director may participate through VC or other AV means in such meeting on any matter as
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specified under first proviso.
Prohibition on transacting certain matters through video conferencing (Rule 4)
Approval of:
➢ Annual financial statements
➢ Board’s Report
➢ Amalgamation, merger, demerger, acquisition and takeover
➢ Prospectus
➢ Meeting of Audit committee for consideration of Financial Statements
(Omitted by Companies (Meeting of Board and its Powers) Amendment Rules, 2021)
Notice of Board Meeting U/S 173(3)
1. Form:
➢ Format: No particular. Notice of meeting shall inform directors regarding options available
them for VC/AV means and other details for participation through such mode.
➢ Director shall communicate his intention to chairman/CS about his option. (prior
intimation). He may intimate through electronic mode at the beginning of calendar year and
such declaration shall be valid for one year. In absence of intimation it shall be assumed for
personal presence.
➢ Definite: A conditional or contingent Notice is not valid.
2. Mode:
Written Notice.
By hand delivery / post/email/fax.

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3. Addressees:
➢ To Every Director: At his Address registered with the Company.
➢ Interested Director: No Voting
➢ Alternate / Original Director: Notice of the Meeting should be given to both
➢ Non-compliance: Every Officer in default (whose duty is to give notice)shall be
punishable with a fine of Rs. 25,000.
4. Authority: Notice should be given by officer or Direct.
5. Length of Notice: The principles are as under —U/S 173(3)
Decisions valid if
atleast 1 Independent
director is present
Urgent Business:
Shorter than 7 days
If all Independent
Time of Notice Directors absent, then
circulate decision &
should get ratification
Normal Rule: At least
by atleast 1
7 days
Independent Director
Place, Time and Agenda of BM
1. Place: At any convenient place. BM can be in a foreign country, if circumstances justify it.
2. Time: No specific provision so BM can be held on a Public holiday even after business
hours, unless AOA provides otherwise.
3. Agenda: The Board can transact any business even without a formal agenda..
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4. Attendance: May be through— (a) in person, or (b) through video—conferencing or other
audio visual means.
Excluded Matters: Through VC/AV means -
➢ Approval of the Annual Financial Statements,
➢ Approval of the Board's Report,
➢ Approval of the Prospectus,
➢ Audit Committee Meetings for consideration of FS, including Consolidated FS if any, to be
approved by the Board u/s 134(1), and
➢ Approval of the matter relating to Amalgamation, Merger, Demerger, Acquisition and
Takeover.
Quorum for Board Meeting [Sec.174]
1. General Rule:
➢ 1/3rd of the total strength of the Board, or
➢ 2 Directors
Whichever is higher
Note:
➢ Total Strength = Total Strength of BOD Less: Number of Directors whose places remain
vacant. Any fractions shall be rounded off to nearest 1.
➢ Interested Directors u/s 184(2) are not counted for quorum at the time of discussion or
vote on any matter.
➢ Directors participating under VC/AV means are also counted for the purposes of quorum.
➢ In case of sec. 8 companies instead of 1/3 or 2 whichever is higher- 8 directors/ 25 % of
board whichever is less(subject to 2 number) has to be substituted (Amendment)

113 | P a g e
2. Interested Directors: Where the number of Interested Directors exceeds or is equal
to 2/3rd of the total strength, then the quorum shall be
➢ Number of Non—Interested Directors present at the meeting, or
➢ Directors Whichever is higher
Note: In calculation of Quorum, an Interested Director should be excluded only at the time
of discussion or vote on any matter before the Meeting in which he is interested. He can
be counted for the purposes of quorum with respect to any other matter in which he is not
interested.
3. Time of Quorum: Not only at the commencement, but throughout the meeting.
➢ No Quorum = Automatic Adjournment:
➢ General: Automatically, to the same day, at the same time and place in the next week. If it
is National Holiday, to the next succeeding day which is not a National Holiday.
➢ Provision in AOA: Then meeting can be even if it happens to be a National holiday.
Decision at Board Meeting
1. Chairperson of Board Meetings: [Regulation 70 of Table F]
➢ The Board may elect a Chairperson of its Meetings and his tenure.
➢ If no such Chairperson is elected, or not present within 5 minutes , Directors present
may choose one of their number to be the Chairperson of Meeting.
2. Unanimous Decision: At Board Meeting -
➢ Loans or Investment, or giving any Security or Guarantee to any other Body Corporate.
[Sec.186]
➢ Appointment of MD where the Person is already a MD / Manager of any other Company.
[Sec.203]
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Passing Resolution by Circulation
1. Circulation of Draft: The draft of the resolution along with all the necessary papers must
be circulated as under —
Persons All the Members of the Board or the Committee.
Address At their Addresses registered with the Company.
Mode (a) Hand Delivery, or (b) Post or Courier, or (c) Electronic Means,
including E—Mail or
2. Approval: The Resolution should be approved by a majority of all the Directors /
Members, who are entitled to vote on the resolution.
3. Minutes: Where a resolution is passed by Circulation, to prove its authenticity, the
Company shall -
➢ "note" the same in the next Board Meeting, and
➢ make it a part of the Minutes of that Meeting.
4. Need for Meeting: Where at least 1/3rd of the Total Number of Directors require that
the matter (circulated) must be decided at BM, Chairperson shall put the resolution to be
decided at BM.
5. Matters which cannot be decided by Circulation: Some matters which require
consideration at a Board Meeting, and cannot be passed as Circular Resolution are –
Sec. Matters
161(4) Filling of Casual Vacancy in the Board.
179(3) Power to (a) Make calls on Shareholders; (b) Issue Debentures; (c) Borrow
Moneys Otherwise than on Debentures; (d) Invest the Company's funds, and
(e) Make Loans.
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182 Political Contributions
188 Related Party Transactions
184 Disclosure to the Board of a Director's Interest.
186 Loans and Investment by Company
196 Appointment of Managing Director / Whole Time Director / Manager, and
approval of
Key Management Personnel
U/s. 2(51) ―KMP means-
➢ CEO/MD/ manager;
➢ CS;
➢ WTD;
➢ Such Other Officer , not more than one level below the directors who is in whole time
employment designated as Key Managerial personnel by the Board and
➢ Such other officer as may be prescribed.
Managing Director U/S 2(54)
Means Includes
A Director who is entrusted with substantial powers of management

A Director
which would not otherwise be exercisable by him, by virtue of -
occupying the
➢ an agreement with the Company, or
of position of
➢ a resolution in GM, or its BOD, or MD by
➢ its AOA. whatever Name
called.
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➢ MD exercise his powers subject to superintendence , control &
direction of BOD
Whole Time Director U/S 2(94)
➢ A WTD is a Director who is in whole time employment of company.(no more than one
company)
➢ Additional director can be appointed as WTD.
Manager U/S 2(23)
Manager means — Manager includes
A Director or any other

An individual who —
person occupying the
➢ subject to the Superintendence, control and direction of
position of a Manager, by
BOD,
whatever name called, and
➢ has the management of the whole or substantially whole whether under a contract
of the Affairs of a Company. of service or not.
Chief Executive Officer and Chief Financial Officer:-
U/s.2 (18) (19) CEO/CFO as an officer, who has been designated as such by it;
Company Secretary:-
U/s. 2(24) CS means a company as defined u/s. 2(1) of the Company Secretaries Act, 1980
who is appointed by a company to perform the functions of a company secretary under this
Act;
117 | P a g e
Multiple MD / WTD / Manager
1. Two or more MDs /WTDs possible: A Company can have
➢ a MD and a WTD,
➢ two or more MD(s),
➢ two or more WTD(s),
➢ two or more WTD(s) and Manager.
[Reason: A Manager is vested with "whole" affairs, so only one "Manager" is possible. But MD
is vested with "substantial powers". Substantial does not necessarily mean whole powers. So,
more than one MD is possible.]
2. Only one Manager: There can be only one Manager in a Company who has the management
of the whole, or substantially the whole of its affairs. But there can be more than one MD in a
Company, apart from WTD(s).
3. MD & Manager not permitted: A Co. cannot have a MD & Mgr. at same time. [U/S 196 (1)]
Disqualifications for MD I WTD I Manager [Sec. 196(3)]
➢ is below the age of 21 years or has attained the age of 70 years. [Note 2]
➢ is an Undischarge Insolvent or has at any time been adjudged an insolvent.
➢ has at any time suspended payment to his Creditors or has at any time made a
composition with them
➢ Convicted by a Court of an offence and sentenced for more than 6 months.
Note 1: Other disqualifications under Schedule V are also applicable.
Note 2: A Person who has attained the age of 70 years may be appointed as
MD/WTD/Manager if
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➢ Justification thereof is given in an Explanatory Statement / Notice, and
➢ SR.
A person who is disqualified U/S 164 can‘t be appointed as MD/WTD
Term of Office of MD/ WTD/ Manager U/S 196(2)
1. Maximum 5 years at a time
2. Extension shall not be made earlier than 1 year before the expiry of his term
Appointment of MD/WTD/Mgr. Methods/ Conditions/Procedures U/S 196(4)
Method Conditions
AS per Sec 197 & Schedule V,OR BR at BM (terms + conditions + remuneration)
BR is subject to approval by resolution at next
GM.
If not as per Schedule V, then approval In addition to the above 2 points, CG approval
of CG is required but with is also required.(within 90 days of appointment)
U/S 196(4) Form MR.1 +fee shall be filed with ROC within 60 days of such appointment.
U/S 196(5) if appointment of MD/WTD/Mgr is not approved by co. in M, any act done by him
before approval shall be valid.
U/S 196(6) Subject to the provisions of Act, where an appointment of MD/WTD/Mgr. is not
approved by co. at GM, any act done by him before such approval shall be valid.
Sec. 196(2)/(4)/(5) shall not apply to Govt. Co. and Sec. 196(4)/(5) shall not apply to Pvt. Co.
Removal of a MD
➢ The appointing authority can remove the MD from his office.
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➢ Even if MD is appointed by BOD, the Members can remove him from his Directorship u/s
169.
➢ If the procedure is stipulated in AOA, then removal should be in accordance with AOA.
➢ Approval of CG
➢ If a MD resigns, the resignation will be effective only when accepted by the Company.
Whole Time Key Managerial Personnel [Sec. 203]
Aspect Description
Listed Company
Applicability
Other Public Company having Paid up Capital at least 10Cr..
Whole Time The above Companies shall have the following Whole-Time KMP:
KMP
➢ MD /CEO/Mgr./ and in their absence, a VVTD
➢ CS, (Amendment: Every Private Company having Paidup SC of Rs
10 Cr or more shall have a whole time CS)
➢ CFO (CFO)
Appointment By BR containing - (a) Terms and Conditions, and (b) Remuneration.
Multiple Posts in Principle: Whole Time KMP shall not hold office in more than one
different Company at the same time.
Companies Exceptions: A Whole Time KMP can -
➢ hold any office in a Subsidiary Company,
➢ be a Director of any Company, with Board's permission.
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An Individual can be appointed as - (a) Chairperson cum CEO (or) (b)
Chairperson Chairperson cum MD, ONLY if -
cum CEO (or) ➢ AOA provided so , or
Chairperson
➢ the Company carries only single business.
cum MD
➢ if company carries multiple business and has appointed one or more
CEO for each such business as may be notified by CG.
Note: The above shall not apply for -
➢ Public Companies
➢ having PUSC at least Rs. 100 Cr, and Turnover at least Rs. 1,000
Cr.
Filling of Vacancy in the office of Whole Time KMP shall be filled up - by BOD
Vacancy at BM within 6 months.
For Company: Fine Min Rs. 500000
Contravention For every Director &KMP in default: Fine upto Rs. 50,000, and
further fine Upto Rs.1,000 per day and upto 500000.
Rule 3 of Companies (Appointment and Remuneration of Managerial Personnel) Rules,
2014
Appointment of MD/WTD/MGR, CEO, CS, and CFO- within 60 days to ROC- form no. MR1.
Functions of Company Secretary U/S 205
➢ to report to BOD about compliance of Act/ rules/other laws ;
➢ Compliance of SS;
➢ to discharge prescribed duties.
U/s. 205(1) (c) CG prescribed duties of CS-
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➢ Guidance to directors;
➢ facilitate the convening of meetings and attend and minutes of these meetings;
➢ obtain approvals from the Board/SH/ Govt. when required;
➢ represent before various authorities & with discharge of various functions under the
Act;
➢ Assist the Board;
➢ Assist and advise the Board in ensuring good corporate governance best practices;
➢ discharge such other duties as may be assigned by the Board;
➢ Other duties as have been prescribed under the Act and Rules.
Remuneration to Managerial Personnel and Other Directors (Sec.197]
1. Applicability: Public Companies.
2. [Sec. 197(3)]: In case of no profits or inadequacy of profits, a company is not allowed to
pay any remuneration (other than sitting fee) to its directors, including managing director,
whole-time director or manager, except as provided under Schedule V to the 2013 Act.
The Companies (Amendment) Act, 2020: to provide remuneration for non-executive
directors, including independent directors, in case of inadequacy of profits in a manner
similar to executive directors.
3. Determination of Directors' Remuneration [Sec. 197(4)]: [including MD and WTD and
Manager ) subject to Sec.197 by -
➢ AOA, or
➢ OR, or
➢ SR if so required by AOA.
4. Remuneration for other Services [Sec. 197(4)]: Remuneration above shall be inclusive
of any remuneration for other services rendered, except when -
➢ the services rendered are of professional nature, and
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➢ the Director possesses requisite qualifications for the practice of the profession, in the
opinion of
o Nomination and Remuneration Committee, in case of a Company covered u/s 178(1),
o BOD, in case of other Companies.
5. Sitting Fees for Meetings [Sec.197 (5)]:
➢ A Director may receive Remuneration by way of Fee — (i) for attending BM, or
Committee Meetings, or (ii) for any other purpose as decided by BOD.
➢ Sitting Fees may be decided by BOD subject to the following Rules
o Maximum Fee is Rs. 1,00,000 per Board / Committee Meeting.
o Fees for Independent Directors and Women Directors shall not be less than that of
other Directors.
➢ Ceiling Limits (%) on Remuneration shall be exclusive of Fees Payable to Directors.
6. Manner of Payment Sec. 197(6) & (7):
Person Disbursement of Remuneration
Director /Manager Monthly, or
Specified % of NP, or
Partly of either way.
Independent Sitting Fees u/s 197(5),
Directors
Reimbursement of Expenses for participation in Board / Other
Meetings,
Profit—related commission, as approved by Members.
Note: Independent Director is not entitled to any Stock Option.
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Overall Maximum Remuneration Payable [Sec.197(1)]: (including MD & WTD) and Manager
= 11% of NP that FY. The ceiling Limits are as under -
Overall Limit Can be increased only with —(a) Resolution in GM (b) approval
of CG, (c) Subject to Schedule V.
Remuneration 5% Limit: To any one MD or WTD or Manager shall be
maximum 5% of NP
For MD / WTD
10% Limit: If there is more than one MD/ WTD, then
/MD/WTD/ Manager
maximum upto 10% of NP to all such Directors and Manager
together.
For Directors not being Remuneration Payable to Directors who are neither MDs nor
MD/WTD WTDs, shall be maximum
1% of NP, if there is a MD or WTD or Manager,
3% of NP, in any other case.
Note: The above limits in (b) and (c) can be increased by GM. Sitting Fee paid to Directors is
not considered while computing the above limits.
7. Excess Remuneration [Sec. 197(9), (10)]:
Received by any Director, he shall Refund or, Hold it in trust for the Company till it is
refunded. The Company shall not waive the recovery unless it is permitted to by CG.
8. Private Companies: Can pay Remuneration as per its AOA.
9. Contravention of Sec 197: Rs. 1 Lakh-5Lakh.
Remuneration to MD/WTD/Mgr in case of Inadequate or no Profits
Schedule V / Central Government Approval:
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➢ Within the limits prescribed under Schedule V,
➢ If Not then, with, approval of CG.
Maximum Managerial Remuneration under Schedule V Part II
Note: Managerial Person includes MD/ WTD / Manager (Now this section also covers Other
Directors as well)
SECTION I: Remuneration Payable by Companies having Profits: Limits u/s 197 apply.
SECTION II: Remuneration by Companies having no profit or Inadequate Profit
without CG approval.
If in any FY during tenure of a Manager Person, a Company has no profits/ inadequate
profits, without CG approval, pay remuneration maximum up to higher of (A) and (B) given
below —
(A) BASED ON EFFECTIVE CAPITAL:
Where the Effective Capital is Remuneration Payable p.a. shall not
exceed
Negative or less than Rs. 5 Crores 1. In case of Managerial Person: Rs. 60
Lakhs
2. In case of other directors: Rs 12
Lakhs
Rs. 5 Crores and above but less than Rs. 100 Cr. 1. In case of Managerial Person: Rs. 84
Lakhs
Lakhs
Rs. 100 Crores& above but less than Rs. 250 Cr. 1. In case of Managerial Person: Rs.
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120 Lakhs
Lakhs
Rs. 250 Crores and above 1. In case of Managerial Person: Rs.
120 Lakhs + 0.01% of the Effective
Capital in excess of Rs. 250 Crores
Lakhs plus 0.01% of the effective
capital in excess of Rs 250 crores
Remuneration in excess of above limits may be paid if Special Resolution is passed. For less
than 1 year, limits shall be pro— rated.
(B) TO BE NOTED
In case of a managerial person who is or other director 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 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
➢ has graduate level qualification with expertise and specialized knowledge in field in which
company operates.
Applicable conditions for Payment of Remuneration: Limits of A & B will apply if:
➢ Board resolution is passed for remuneration
➢ Company has not committed default in payment of Deposits/Debentures/Loan payment.
➢ Ordinary resolution or Special resolution has been passed under (A) or Special resolution
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has been passed for remuneration as per (B) at the General meeting for a period not
exceeding 3 years.
SECTION III:
Remuneration payable by Companies having No Profit or Inadequate Profit without CG
approval in excess of amt provided in SECTION II in certain Special Circumstances:
1. Paid by any Other Company within limits: The following conditions are applicable in
this case
➢ Where the remuneration in excess of the limits specified in Section I or II is paid by any
other Company, that other Company —
o is either a Foreign Company, or
o has got the approval of its Shareholders in GM,
➢ that other Company treats this amount as Managerial Rem. for the purpose of Sec.197,
➢ the Total Managerial Remuneration Payable by such other Company to its Managerial
Persons including such amount or amounts is within permissible limits u/s 197.
2. New Company or Sick Company:
➢ A newly incorporated Company, for a period of 7 May pay Remuneration up
years to 2 times the amount
permissible under Section

from the date of its incorporation, or
II.
➢ A sick Company,
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3. Fixed by BIFR or NCLT.
Particulars _
Paid up Share Capital (excluding Share Application Money or Advances against XXX
Shares)
Add: Share Premium XX
Reserves and Surplus (excluding Revaluation Reserve) XXX
Long Term Loans and Deposits repayable after 1 year (See Note 1 below) XX
Less: Investments (other than Investments held by Investment Company) XXX
Accumulated Losses XX
Preliminary Expenses not written off XX
Effective Capital XXX
4. SEZ Company: has not raised any money by Public Issue and has not made any default in
repayment of any of its Debts for continuous 30 days in any Financial Year, may pay
remuneration upto Rs 240 Lakhs per annum.
Effective Capital under Schedule V Note:
➢ Long Term Loans do not include — (a) Working Capital Loans, (b) Overdrafts, (c)
Interest due on loans unless funded, (d) Bank Guarantee, and (e) Other short-Term
arrangements.
➢ When Effective Capital calculated as above is less than zero, it is referred to as
Negative Effective Capital.
Compensation for Loss of Office [Sec. 202]
A. MD / WTD / Manager: [Sec.202]
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1. Nature of Payment:
o Compensation for loss of office, or
o Consideration for retirement from office, or
o Payment in connection with such loss / retirement.
2. Persons entitled:
o Eligible Persons: MD / WTD / Manager
o Ineligible Persons: Any other Director.
3. Determination of Compensation:
o Basis: Average Remuneration actually earned by the person, for 3 years immediately
preceding the date on which he ceased to hold office. If he was in office for a period less than 3
years, then that period shall be considered.
o Maximum Amount: Remuneration payable for the unexpired portion of his term or for 3
years, whichever is shorter.
4. No Payment
In case of ➢ Winding—up
Winding up o Commenced before he ceases to hold office, or
o Commences within 12 months after he ceases to hold office.
➢ Insufficiency of Funds: to repay SH (including premium paid on
Shares) contributed by them.
Other Cases ➢ Amalgamation / Reconstruction: appointed as MD / WTD / Manager
/ Other Officer of the Amalgamated Reconstructed Company.
➢ Resignation:
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➢ Vacation of Office: u/s 167(1).
➢ Negligence: Winding—up is due to the negligence of the Director
concerned.
➢ Fraud / Breach of Trust: this Company or its SC/HC.
➢ Instigation by Director: Director has instigated or has taken part
directly or indirectly in bringing about, the termination of his office.
Co. in Default ➢ Compensation (other than Notice Pay and Statutory Payments as
situations- As per the terms of appointment MD / WTD / Manager), cannot be
per Rules paid if -
➢ Default in repayment of Public Deposits or payment of interest
thereon,
➢ Default in redemption of Debentures or payment of interest
thereon,
➢ Default in repayment of any liability, secured or unsecured,
payable to any Bank, PFI or any other FI,
➢ Default in payment of any undisputed dues towards IT, VAT, Excise
Duty, Service Tax or any other Tax or Duty, payable to CG/SG,
Statutory Authority or Local Authority,
➢ Outstanding Undisputed Statutory Dues payable to the Employees
or Workmen or Company has not paid Dividend on Preference
Shares or not redeemed Preference Shares on the due date.
5. Exclusion: Payment of Remuneration for Services rendered to Company by MD / WTD /
Manager, in any other capacity, is not restricted by Sec. 202.
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Remuneration by unlisted companies in case of Inadequacy of profits without CG approval
Further Relaxation for Unlisted Company, etc. [Rules]
Aspect Description
Applicability Companies other than Listed Companies and Subsidiary of a Listed
Company
Above Companies may pay Remuneration to its Managerial Personnel
without Central Government approval, in the event of no Profit or
Relaxation inadequate Profit beyond ceiling specified in Section II, Part II of
Schedule V, subject to complying with following conditions.
➢ Approval by BR and also by the Nomination and Remuneration
Committee, if any u/s 178(1),
➢ NO Default in repayment of Debts for continuous 30 days in the
preceding FY before the date of payment to such Manager Personnel,
➢ SR for payment of remuneration for maximum 3 years,

Conditions
➢ A Statement along with a Notice calling including reasons and
justification
➢ The Company has filed B/S and Annual Return to ROC.
SECRETARIAL AUDIT
Secretarial Audit is a compliance audit and an effective tool for corporate compliance
management & to take corrective measures to check compliance with the provisions of various
laws and rules regulations/procedures, maintenance of books, records etc, by an independent
professional. Considering the increasing importance of Corporate Governance, Section 204
mandates every listed company and such other class of prescribed companies to annex a
Secretarial Audit Report, given by PCS with its Board‘s report.

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CG has prescribed such other class of companies as under-
➢ Every public company having a paid-up share capital of 50 cr. or more; or
➢ Every public company having a turnover of 250 cr. or more.
Company should give all assistance and facilities to the PCS, for auditing the secretarial and
related records of the company.
Board report, shall explain in full any qualification or observation or other remarks made in
the Secretarial Audit Report.
Secretarial Audit is an independent, objective assurance intended to add value and improve an
organization‘s operations.
It helps to accomplish the organization‘s objectives by bringing a systematic, disciplined
approach to evaluate and improve effectiveness of risk management, control, and governance
processes.
Board Report
Disclosures under Section 134 of the Companies Act, 2013:-
FS including CFS should be approved by the BOD before they are signed and submitted to
auditors for their report.
U/s.134 (3) contents of BR:-
➢ The extract of the annual return as provided under Section 92(3) in Form No. MGT 9
➢ No. of BMs;
➢ DRS
➢ a statement on declaration given by independent directors under section 149(6)
➢ Company‘s policy on directors‘ appointment and remuneration including criteria for
determining Qualifications, positive attributes, independence of a director and other matters
as prescribed for Company‘s u/s. 178(1). In case of Govt. co., this disclosure is not required
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➢ Explanations or comments by the Board on—
o audit report by auditor; and
o Secretarial audit report by CS.
➢ Particulars of L/I/G u/s. 186.
➢ Particulars of contracts or arrangements with related parties u/s.188.
➢ State of the company‘s affairs.
➢ Amounts to reserves.
➢ Amount recommended, paid by way of dividend.
➢ Material changes and commitments, B/w end of FY & date of report..
➢ Conservation of energy, technology absorption, foreign exchange earnings and outgo, in
such Manner as may be prescribed.
➢ Risk management policy & elements of risk.
➢ CSR policy developed and implemented during the year.
➢ in case of a listed company prescribed public company having statement indicating the
manner in which formal annual evaluation has been made by the Board of its own performance
and that of its committees and individual directors;
➢ such other matters as may be prescribed.
The Directors‘ Responsibility Statement
Section 134(5) referred to in clause (c) section 134(3) shall state that—
➢ In the preparation of the annual accounts, the applicable accounting standards had been
Followed along with proper explanation relating to material departures;
➢ The directors had selected such accounting policies and applied them consistently and
made judgments and estimates that are reasonable and prudent so as to give a true and fair
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view of the state of affairs of the company at the end of the financial year and of the profit
and loss of the company for that period;
➢ The directors had taken proper and sufficient care for the maintenance of adequate
accounting records in accordance with the provisions of this Act for safeguarding the assets
of the company and for preventing and detecting fraud and other irregularities;
➢ the directors had prepared the annual accounts on a going concern basis; and
➢ the directors, in the case of a listed company, had laid down internal financial controls to
be followed by the company and that such internal financial controls are adequate and were
operating effectively.
➢ The directors had devised proper systems to ensure compliance with the provisions of all
Applicable laws and that such systems were adequate and operating effectively
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5 Loans & Investment

Investment Company & Infrastructure facilities
As per explanation to Section 186
➢ The expression investment company means a company whose principal business is the
acquisition of shares, debentures or other securities;
➢ The expression infrastructure facilities means the facilities specified in Schedule VI.
As per Schedule VI, the term infrastructural projects or infrastructural facilities includes
the following projects or activities:
➢ Transportation
➢ Agriculture
➢ Water management
➢ Telecommunication
➢ Industrial, commercial and social development and maintenance
➢ Power
➢ Petroleum and natural gas
➢ Housing
➢ Other miscellaneous facilities/services
➢ Such other facility service as may be prescribed.
LOANS AND INVESTMENTS BY COMPANIES (Section 186)
Not more than two layers of investment companies (Section 186(1)): A company shall
unless otherwise prescribed, make investment through upto two layers of investment
companies. [U/S 186(1)]
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Not applicable to-
➢ A company from acquiring any other company incorporated in a country outside India if
such other company has investment subsidiaries beyond two layers as per the laws of such
country;
➢ A subsidiary company from having any investment subsidiary for the purposes of any law,
rules & regulations.
Restriction on providing loans, guarantees and investment
Company shall not, directly or indirectly:
➢ Give any loan to any person or other body corporate;
➢ Give any guarantee, or provide security, in connection with a loan to any other person body
corporate or person; and
➢ Acquire, by way of subscription, purchase or otherwise the securities of any other body
corporate;
Explanation: Person doesn‘t include any person who is in employment of company.
More than, 60% of (paid up Share Capital + Free Reserves(FR) and security premium) or
100% of FR, whichever is higher If company wants to exceed this limit-Previous approval of
SR at GM is required. U/S 186(3) Loan/Investment/Security/Guarantee to be made with
the approval of all the directors at BM.
Disclosure in financial statements: Full particulars of the L/I/S/G given, and purpose of it.
Prior Approval of Financial Institution
➢ Where any term loan is subsisting prior approval of PF shall be required.
Note: No prior approval is required if L/I/S/G is upto limit specified above and there is
no default in repayment of loan installments or interest thereon.
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Rate of interest Section 186(7): At the prevailing rate
If default subsists with respect to repayment of deposits
➢ Company shall not give any L/I/S/G till such default is subsisting.
Register of Loans Made, Guarantee Given, Securities Provided & Investments Made
➢ By every company - with prescribed details.
Rule 12 states that
➢ Register in Form MBP 2 and enter separately, the particulars of L/I/S/G.
➢ Entries shall be made within seven days.
➢ At the registered office shall be preserved permanently custody of the CS or other
authorised person.
➢ Entries in the register (either manual or electronic) shall be authenticated by CS or other
authorised person.
➢ Extracts may be furnished to any member on payment of such fee as may be prescribed
AOA maximum Rs.10 per page.
Offence and Penalty
If noncompliance, company shall be punishable with fine 25000 to five lakh and every officer
in default shall be punishable with imprisonment up to 2 yrs. and with fine 25000 to 5 lakh
Non Applicability of Sec 186 Except Section 186(1)
➢ To Loan G/S Provided by
Banking company or an insurance company or a housing finance company in the ordinary course
of its business or a company engaged in the business of financing of industrial establishment
or of providing infrastructural facilities;

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➢ To any acquisition—
o Made by Investment company
o NBFC
o Made by a company whose principal business is the acquisition of securities
o Subscription of Right shares allotted U/S 62(1)(c).
Section 186 compared with Section 185
➢ Section 185 will be applicable if loan is given by a company to another private company in
which a director of the first company is a director or member.
➢ As a result, such a loan would be void unless it is given to MD/WTD pursuant to a scheme
approved by the members through SR.
➢ where one or more directors of the a company exercise 25% or more of the total voting
power in any other body corporate, no loan can be given by such company to that body
corporate as it is prohibited under section 185.
Applicability of Sec-186 to Sec-8 Company or a guarantee Company not having Share
capital
Computation shall be based upon FR of the company if any.
U/S 187 (1), all investments made or held by a company in any property, security or other
asset shall be made and held by it in its own name.
Investments by the company as a trustee & held in the name of the beneficiaries is
allowed.
As per proviso to section 187(1), the company may hold any shares in its subsidiary company in
the name of any nominee of company to ensure minimum number of subsidiary company is not
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reduced below the statutory limit.
If company holds shares in dematerialized form, the name of depository is entered in ROM
and the name of the investing company as the beneficial owner of the said shares.
U/S 187(2), Exemptions from applicability of Section 187(1)
Section 187(2), does not prevent a company:
➢ From depositing with the bank any shares or securities for the collection of any dividend
or interest payable thereon, being the bankers of the company,
➢ From depositing with or transferring to, or holding in the name of, SBI/ or a scheduled
bank, being the bankers of the company, shares or securities, in order to facilitate the
transfer thereof.
➢ From depositing with, or transferring to, any person any shares or securities, by way of
security for the re -payment of any loan advanced to the company or the performance of any
obligation undertaken by it.
➢ From 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.
➢ For collecting dividend.
BR is sufficient in this behalf is sufficient.
The company is only required to enter into a separate agreement with the bank
U/S 187(3) company shall maintain a register in Form MBP 3 containing prescribed
particulars at registered office of company.
Glossary:
Free Reserves U/s 2(43)
FR means such reserves which, as per the latest audited B/S are available for distribution as
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dividend:
➢ Any amount representing unrealised gains, notional gains or revaluation of assets, whether
shown as a reserve or otherwise, or
➢ Any change in carrying amount of an asset or of a liability recognised in equity, including
surplus in profit and loss account on measurement of the asset or the liability at fair value,
shall not be treated as free reserves;
Body Corporate
As per Section 2(11) ―body corporate or corporation includes a company incorporated outside
India, but does not include—
➢ A co-operative society; and
➢ Any other body corporate (not being a company as defined in this Act), Which the CG may
notify
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6 Accounts of Companies
Requirement of Keeping Proper Books of Account& other relevant books and papers & FS
by every co. for every financial year (Section 128(1))
At registered office Or such other place as BOD decides, within 7 days intimation to ROC in
writing about full address.
True & fair view /Accrual basis and double entry system of accounting
Maintenance of records to record specified financial transaction:-
➢ BOA for items specified u/s 2 (13).
➢ All receipts/ expenses /sale/purchase of goods assets and liability.
➢ Accrual basis & double entry system.
➢ True & fair view of statement of affairs.
As defined in u/s 2 (13):-
➢ All sums of money received & expended matters related.
➢ All sales and purchases of goods and services.
➢ Assets and liabilities.
➢ Cost items u/s 48 for specified class of companies.
U/S 128(2) Books of account in respect of branch office in same manner as specified
u/s 128 (1)
Summarized return to registered office at quarterly interval & kept open to director for
inspection.
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Maintenance of books of accounts of electronic form {Companies (Accounts) Rules 2014:-
Is permitted and optional. It shall remain accessible in India so that usable for subsequent
use. Information shall be in original format in which it generate/sent/ received or a format
which present information accurately, complete, unaltered.
Information received from branch offices shall not be altered & kept in original format.
Document shall be capable of being displayed in a legible from (rule)
Proper system for storage retrieval display or printout shall not be disposed or be rendered
unusable, unless permitted by law. Back up shall be kept in servers physically located in India
on a periodic basis.
Annual intimation to ROC at the timing of financial statement.
➢ Name of the service provider.
➢ Internet protocol address of service provider.
➢ Location of the service provider ( wherever applicable)
➢ Where BOA & books and papers are maintained on cloud such address as provided by
service provider.
Inspection by directors: - U/s 128 (3) BOA & books & paper maintained by co. within India
during business hour at RO or such other place in india & in case of financial information, if
any, maintained outside India
Inspection of BOA of subsidiary only on authorization through BR.
Any financial information maintained outside India, is required by director- request to co. the
company shall furnish the same within 15 days from receipt of request.
Director can seek information only individually or not by or through his attorney
holder/agent/ representation.
Inspection w.r.t. SC shall be done only by person authorised by BR.

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U/S 128 (4) –If inspection made U/S 128(3), officer and other employees give all assistance.
Period for which books to be preserved U/S 128(5):
At least 8 years. if there is any inspection or investigation by CG More than 8 years as CG
directs.
Persons responsible to maintain books 128(6):
MD, WTD (finance in charge) CFO or Any other person charged by BOD.
Penalty: If Above person fails: - imprisonment up to 1 year or fine 50000 – 5lakh or both
Section –129 FINANCIAL STATEMENT:
U/S 129(1)True & fair view of co. statement of affairs in form as specification schedule III.
Comply with AS U/S 133 Insurance/ banking/ electricity/other class of company comply with
specify act.
U/S 129(2) Financial statement shall be laid in AGM by BOD for FY
U/S 129(3) In case of SC/AC, company shall Prepare a consolidated financial statement of
the company and all subsidiaries and Associate Companies in the same form and manner as
that of its own and as per applicable accounting standards and lay before the annual general
meeting. Provided company shall also attach along with its FS, a separate statement
containing salient features of FS of its SC and AC.
CG may exempt class or classes of companies from any of the requirements.
U/S 129(4)- Provision as applicable to FS shall apply to CFS
Definition of financial statement u/s. 2 (40):-Include-
➢ B/S
➢ P&L A/c or I/E A/c CFS
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➢ Statement of change in equity(if applicable)
➢ Any explanatory notes annexed or framing part of FS
➢ OPC small company and dormant company may not include the cash flow statement.
Financial statement should be prepared for financial year and shall be in form as per schedule
III.
True and fair view means:-
Comply with AS notified u/s 133 FS as per schedule – III.
Insurance/ banking/electricity/other companies comply the form specified in the act.
U/S 129(5) Where FS don‘t comply AS then shall disclose.
➢ Deviation from AS.
➢ Reason.
➢ Effects.
U/S 129(6) CG may exempt any class of company conditionally or unconditionally;
CG may notify, class of companies to file their FS in XBRL mandatory, & manner of such filing
FS shall include any notes annexed to or forming part of such FS.
Person responsible for compliance of sec 129 u/s. 129(7):-
➢ MD.
➢ WTD (in charge of Finance)
➢ CFO or
➢ Other person charged by the board.
➢ Where any of above are absent, all the directors shall be responsible and punishable.
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Penalty
Officer in default- imprisonment upto – 1year or fine 50,000- 5L or both.
Form of financial statements (schedule-III) for B/S & P&L.
Consolidated financial statements by all companies :-( when one or more Sc.)
Only CG may exempt conditionally or unconditionally Sc includes – associates co. or JV.
Section 133:- CENTRAL GOVERNMENT TO PRESCRIBE ACCOUNTING STANDARDS
As recommended by ICAI in consultation with after examination of recommendation made by
NFRA.
Section 130 Reopening of Books of Accounts and Recasting of Financial Statement:
U/S 130(1)A company shall re-open its BOA and recast its FS only when an application in this
regard is made by CG, IT authorities, SEBI, any other statutory regulatory body or authority
or any person concerned and an order is made by a court of competent jurisdiction or the
Tribunal to the effect that –
➢ The relevant earlier accounts were prepared in a fraudulent manner; or
➢ The affairs of the company were mismanaged during the relevant period, casting a doubt
on the reliability of FS:
Provided that court or the Tribunal, , shall give notice to CG, IT authorities, SEBI or any
other statutory regulatory body or authority concerned or any other person concerned and
shall take into consideration the representations, if any, made by them before passing any
order under this section.
U/S 130(2) the accounts so revised or re-cast shall be final.
U/S 130(3) No order shall be made respect of re-opening of BOA relating to a period
earlier than eight FY immediately preceding the CFY:
Provided a direction issued by CG for a period longer than eight years, BOA may be
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ordered to be re-opened within such longer period.
Section 131-Voluntary Revision of FS or BOD Report
U/S 131(1) If it appears to directors of company that FS or BOD Report don‘t comply with
Sec. 129/134, they may prepare revised FS or BR in respect of any of 3PFY after approval of
tribunal on an application made by company in prescribed manner and Tribunal‘s order shall be
filed with ROC.
Provided tribunal shall give notice to CG & IT authorities & shall take into consideration the
representation made by them.
Provided Such revised FS/BR shall not prepared or filed more than once in FY.
Provided detailed reasons for such revision shall also be disclosed in BR in relevant FY in
which revision is made.
U/S 131(2) –Where previous FS/BR have been sent to members /ROC/laid before AGM, the
revision must be confined to Correction in respect sec. 129/134 , which previous FS/BR not
comply with. Making of any necessary consequential alteration.
Section 134:- FINANCIAL STATEMENT BOARD‘S REPORT ETC.
BR shall be prepared based on FS report shall contain separate section on performance of
financial position of subsidiaries/ associate & JV include in CFS this shall be presented &
approved by BOD before signing & submitted to auditor.
Copy of every FS shall be circulated, issued or published along with all notes or documents,
the auditor‘s report and duly signed boards report.
Requirement as to financial statements:-
FS including consolidated FS approve by BOD before signing.
FS should be signed on behalf of BOD by at least
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➢ Chairperson of company,(if authorized board) or
➢ Two directors one of whom shall be MD and
➢ CEO, CFO and CS if any
OPC, FS shall be signed by only one director.
Sign is required for submission of financial statements to the auditor.
Contravention of Sec. 134:
Company- fine 50000 to 5 lakh
Officer in default - imprisonment up to 3 year, fine 50000 to 5 lakh or both
Section 135: CORPORATE SOCIAL RESPONSIBILITY
The CSR policy is expected to normally cover following core elements:-
➢ Care for all stake holders.
➢ Ethical functioning.
➢ Respect for workers‘ rights and welfare.
➢ Respect for human rights.
➢ Respect for environment.
➢ Activities for social and inclusive development.
Application of provision u/s 135:
➢ Companies having net worth of Rs. 500crores or more or
➢ Turnover of Rs.1000 crores or more or
➢ Net profit of Rs.5 crores or more during any financial year
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Shall constitute a CSR committee of board comprising of 3 or more directors, one of whom
shall be an independent director.
Composition of CSR committee:
Composition shall be disclosed in BR as require u/s 134
➢ Unlisted public company or a private company shall have its CSR committee without
independent director.
➢ A private company having only two directors shall constitute its CSR committee with two
such directors.
➢ Foreign company CSR committee shall have at least two persons one person resident in
India and another person shall be nominated by the foreign company.
➢ The CSR committee shall institute a transparent monitoring mechanism for implementation
of CSR projects or programs or activities undertaken by the company.
CSR policy shall include the activities specified in schedule VII CSR activities:-
The companies act, 2013 does not prescribe the methodology. However, the CSR activities
may be undertaken by way of the following method:-
➢ By charity: donate
➢ By contract: NGO
➢ By itself: can take up a project on
Role of the board:-
➢ Compose CSR committee (CSRC).
➢ Approve & take steps to implement execute CSR policy &disclose it.
o In BR u/s 134.
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o Place the contents of policy on its company‘s website.
➢ Ensure that the activities duly undertaken by the company.
➢ Ensure company spends in every FY at least 2% of average NP of company during 3
preceding FY Company shall give preference to the local area and areas around it where it
operates.
➢ Company fails specify the reasons in BR.
CSR contribution /expenditure
It should be ensured that CSR expenditures compiles with company‘s CSR approved CSR
policy and the legal provisions include all expenditure including contribution to corpus for
projects or programs relating to CSR activities approved by the board on the recommendation
of its CSR committee.
Penalty:-
➢ The board‘s report shall disclose the composition of the corporate social responsibility
committee as per sub- section (3) of section 134;
➢ Co. fine – 50000-25L every officer imprisonment-3 years of fine -50000 or 5L both.
Section 136:- Right of Member to Copies of Audited Financial Statement:-
Copy of FS, including consolidated FS, auditor report and other required document shall be
annexed to FS and shall be sent to every member ,every debenture trustee, other entitled at
least 21 days before the GM.(14 days in case of section 8 Company)
Provided that if copies of document are sent less than 21 days before the date of meeting,
they shall, Notwithstanding that fact, be deemed to have been duly sent if it is so agreed by
members-
➢ If Co. with SC-Majority of members in number entitled to vote & represent at least95%
of PUSC with voting right at that meeting or
➢ If Co. without SC-Members having at least 95% of total voting power at the meeting
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Provided also that every listed company having SC shall place separate audited accounts in
respect of each of SC on its website, if any
It is sufficient that listed company keep document at registered office, During business
hours 21 days before the meeting for inspection and Statement containing the silent features
of such documents in form AOC-3 prescribed by the CG or the documents and sent same to
every member, debenture trustee and other entitled person unless ask for full FS.
Provided also that a listed company which has SC incorporated outside India (foreign
subsidiary) –
➢ Where such foreign subsidiary is statutorily required to prepare CFS under law of its
incorporation country, it is sufficient if CFS of such foreign subsidiary is placed on website
of listed company.
➢ Where such foreign subsidiary is not required to get its FS audited under any law of
incorporation country & which does not get such FS audited, the holding Indian listed co. may
place such unaudited FS on its website in English.
A company shall allow every member or Deb trustee to inspect documents stated U/S 136 (i)
at is registered office during business hours:
―Provided that every company having SC shall provide a copy of separate audited or
unaudited FS, as the case may be, as prepared in respect of each of its subsidiary to any
member who asks for it Listed Co. & public Co, having net worth more than Rs, 1 & turnover
more than Rs.10 crores
Members, debenture, trustees, and other entitled person right to get copies of FS
including consolidated FS (if app.) to be laid at GM including.
➢ BS.
➢ P&L A/C.
➢ CFS.
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➢ Change in equity.
➢ Auditor‘s report.
➢ Director‘s report.
➢ Other document required by law to be annexed attached.
Financial statements of subsidiaries:-
➢ Place separate audited FS for each of its subsidiary on its website, if any.
➢ Provide copy of separate audited FS if any SH demands.
Penal provisions;-fine u/s. 136-
Co.-25000/-
A officer in default- 5000/-
Both penalties shall be imposed simultaneously.
Section 137:- Copy of Financial Statement to be Filed with Registrar:-
Every Company to ROC.
FS including CFS + AOC-4 +fees
Within 30 days of AGM held & adopted FS
➢ If FS not adopted at AGM or at adjourned AGM, such unadopted FS + required document
to ROC within 30 days from AGM.
➢ ROC registers them as provisional until the adoption.
➢ For OPC within 180 days from the closure of FY.
➢ Co. shall attach A/C of subsidiaries incorporated outside India and which have not
established their place of business in India.
➢ CG may notify class of companies to file FS in XBRL format.
➢ If AGM not held, the FS along with facts & reason to ROC within 30 days of last day when
AGM should have been held.
➢ If sec 137, not compiled company fine 1000/day during default maximum 10L.
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➢ MD & CFO if not, than director charged by BOD ,if not by all director Imprisonment up 6M
or fine 1L to 5L.
Section 138:- Internal Audit
Classes of companies requiring to appoint internal auditor or firm of internal auditor:-
➢ Every listed company.
➢ Every unlisted public company having-
o Paid up share capital of Rs.50 crores or more during the preceding FY; or
o Turnover of Rs.200 crores or more during the preceding FY; or
o Outstanding loans or borrowings from banks or PFI exceeding Rs.100 crores or more at
any point of time during the preceding FY; or
o Outstanding deposits of Rs.25 crores or more during the preceding FY; and
o Every private company having-
o Turnover of Rs.200 crores or more during the preceding FY; or
o Outstanding loans or borrowings from banks or public financial institutions exceeding 100
crore or more during the preceding FY.
Audit committee or board in consultation with the internal auditor formulates the scope,
functioning, periodicity and methodology for conducting the internal audit.
BOD may appoint any PCA / PCWA / other suitable person as internal auditor depending upon
requirement.
Internal auditor can be:-
➢ CA.
➢ CWA.
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➢ Other person as decided by the board.
For smooth & effective internal auditor is required
Section 148:- Maintenance of Costing and Stock Records
A company engaged in production, processing, manufacturing or mining activity.
It means utilization of material labour or other items of cost, class of companies as CG may
prescribe.
Audit & Auditors
Sec 139(1) read with rule, every company at first AGM:-
Point Description
Appointment at AGM Every Company shall appoint an Individual or a Firm as Auditor,
at its 1st AGM.
Note:
Appointment includes re-appointment. Firm includes LLP under
LLP Act, 2008
Tenure ➢ From the conclusion of 1st AGM to till the conclusion of its 6th
AGM and thereafter till the conclusion of every 6th AGM.
➢ Meeting wherein such appointment has been made will be
counted as 1st AGM.
Ratification at every ➢ Through OR.
AGM
➢ If not ratified, BOD shall Appoint another Individual/Firm .
➢ If AGM not held-No ratification-Existing Auditor shall Continue.
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Duties of Company ➢ Obtain written consent of the Auditor, and prescribed
Certificate before appointment.
➢ Inform to Auditor and notice to ROC, within 15 days in Form
ADT-1.
Effect of no Existing Auditor shall continue .
appointment at AGM
Appointment of First Auditor:
First auditor other than Govt. Company
Provision Sec.139(7) Sec.139(6)
Type of Company 1. Govt. Co. or Any other Company
covered
2. Any other Company owned or
controlled, directly or indirectly,
by -
➢ By CGT, or
➢ By SG, or
➢ Partly by CG and partly by
SG.
Appointment of ➢ By C&AG ➢ BY BOD.
➢ Within 30 days from DOI.

First Auditor ➢ Within 60 days from DOI.
In case of failure BOD shall appoint within the See next point below.
next 30 days.
of above
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In case of BOD ➢ Inform the Members. ➢ Inform the Members.
failure ➢ Members shall appoint, within ➢ Members shall appoint, within
60 Days, in an EGM. 90 days, in an EGM.
Tenure Till the conclusion of the First Same
AGM.
Overriding of Sec.139 (1) & 139(5). Sec.139 (1).
Appointment of Auditors of Govt. Companies [Sec.139 (5)]
Point Description
Type of Companies ➢ Government Companies, or
➢ Any other Company owned or controlled, directly or indirectly,
by
➢ By CG, or
➢ By SG, or
➢ Partly by CG & partly by SG.
Extended Provisions are also applicable to any Company in which at least
applicability MCA 51% of the Paid-Up SC is held by combination of Govt .and Govt
Circular 33/2014 .Companies.
Appointment of ➢ Appointee: Duly qualified as per Act.
Auditors
➢ Appointment by: (C&AG)
➢ Time Limit: Within 180 days from the commencement of FY.
➢ Tenure: Till the conclusion of the AGM.
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Eligibility & Qualifications of The Auditor U/s 141 (1) & (2)
U/s 141 (1) Only a CA (individual) or firm (majority partners are PCA in India).
U/s 141 (2) Firm including LLP is appointed only CA partners shall be authorized to act & sign.
Disqualifications of Auditor U/S 141 (3):-
The following persons of a company:—
➢ A body corporate other than a LLP registered under the LLP Act, 2008.
➢ An officer or employee.
➢ Partner, or employee of an officer or employee of the company.
➢ A person who, or his relative or partner-[in company/ its SC/ its HC/ associated Co. / SC
of HC.
o Is holding any security or interest. Provided that the relative may hold security or
interest in the company of face value maximum one lakh.
o Is indebted in excess of Rs. 5 lakh; or
o Has given a guarantee or provided any security in connection with the indebtedness of any
third person in excess on Rs. 1 lakh.
➢ A person or a firm who, whether directly or indirectly, has business relationship.
➢ A person whose relative is a director or is in the employment of the Co. as a director or
KMP.
➢ Full time employment or a person or a partner of a firm holding appointment as its auditor,
in more than twenty companies.
➢ Convicted by a court of an offence involving fraud and a period of ten years has not
elapsed from the date of such conviction;

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➢ Any person who directly or indirectly renders any services as provided insection144.
➢ If grounds of disqualification generate after appointment, he shall vacate his office & it
will be treated as casual vacancy U/S 141(4)
Term of Auditor Section 139 (2) ,(3),(4) And Rule 5
➢Listed Companies,
➢All Unlisted Public Companies having Paid Up SC at least Rs.10 Crores,

Rotation
➢All Private Limited Companies having Paid Up SC at least Rs. 20
Principles
Crores,
Applicable to
➢All Companies having Paid Up SC below above specified limits, but
having Public Borrowings from FI, Banks or Public Deposits at least Rs.
50 Crores.
Note: Excluded Companies(a) OPC , & (b) Small Company
Maximum Tenure The above Companies shall not appoint / re-appoint -
of
➢ An Individual , for more than 1 term of 5 consecutive years, and
Auditors
➢ An Audit Firm , for more than 2 terms of 5 consecutive years.
➢ Cooling Off Period: Any Individual or Audit Firm shall not be
eligible for re- appointment as Auditor in the same Company, for 5
years from the completion of their audit term.
➢ Common Partners: Any Audit Firm having common partner(s) on
the date of appointment, in the retiring Audit Firm whose tenure has
expired immediately preceding the financial year, shall not be
appointed as Auditor, for a period of 5 years.
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➢ Old Certifying Partner in New Firm: If a Partner, who is in

Auditors
charge of an Audit Firm and also certifies the Financial Statements of
Ineligible for
the Company, retires from the said Firm and joins another Firm of
appointment
Chartered Accountants, then such Other Firm is also ineligible to be
Different
appointed for a period of 5 years.
Scenarios
➢ Same Network Firms: The Incoming Auditor or Audit Firm is not
eligible to be appointed, if It is associated with the Outgoing Auditor
or Audit Firm under the same network of Audit Firms.
➢ [Note: "Same Network" includes the Firms functioning, hitherto
or in future, under the same brand name, trade name or common
control.]
Reappointment a Retiring Auditor Section 139 (9)
At any AGM expect under the following circumstances:-
➢ He is disqualified.
➢ He has given written notice of his unwillingness to be re-appointed.
➢ SR at meeting that, appointing somebody else instead of him or providing expressly that
retiring auditor shall not be re-appointed.
U/s 139 (10) at AGM if no auditor is appointed or reappointed, the existing auditor shall
continue to be the auditor of the company.
Casual Vacancy in the Office of Auditor Section 139(8)
1. Meaning: "Casual Vacancy" means like resignation, disqualification, dissolution of the CA
Firm, etc.
2. Filling up Casual Vacancy:

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Type of For Companies whose accounts are For all other Companies
subject to audit by an Auditor

Company
appointed by C&AG
Filling of Casual By C&AG, within 30 days.
Vacancy By BOD within 30 days.

If not, BOD shall fill the vacancy,
within next 30 days. See Notes below.
Till the conclusion of the next AGM Till the conclusion of the
Tenure next AGM. [Sec.139(8)]
Sec.139(5)]
Removal of Auditor Before Expiry of His Term – Section 140 (1) and rule 7
➢ Prior approval to CG by an application in form ADT-2 within 30 days of BR.
➢ SR at GM within 60 days of approval of CG.
➢ Auditor shall be given OBH.
Resignation of Auditor (Before Expiry of His Term) – Section 140 (2), 140 (3) And Rule
8:-
Procedure The Resigning Auditor should file Form ADT-3, within 30
days of date of resignation.
Form ADT-3 Time Limit Form ADT-3 shall be filed with-
➢ the Company,
➢ the ROC, and
➢ the C&AG also in case of Sec. 139(5) Companies.
Non-Compliance Fine 5,00,000 or remuneration of Auditor WEIL
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Remuneration of Auditor U/S 142
At GM or in such manner as determined their in by BOD first auditor this remuneration
shall be extra of only pocket exp. And for any special services at request of company.
Auditors Right to Attend General Meeting – Section 146:-
All notices to auditor. He must attend himself or through his authorized representative
(qualified to be an auditor) and shall have right to be heard.
Powers And Duties of Auditors:-u/s. 143 (1)
➢ Access to BOA/vouchers
➢ Seek information & explanations
➢ Right to visit branches and access branch accounts
➢ Right to readout at general meeting.
➢ Enquiry for clause (a) to (f) (duty)
➢ Verify & report whether cash received or not
➢ B/S is correct , regular & not misstating
➢ Loans and advances made by the company.
➢ Transactions represented by book entries.
➢ Sale of investments
➢ Loans and Advances shown as deposits
➢ Charging of Personal expenses to revenue account
➢ Allotment of shares for cash
➢ Auditor of HC shall have right to access the records of SC/AC

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Branch Audit Section 143 (8) & Rule, 12:-
Qualifications:
Local Branches Foreign Branches
Company's Auditor appointed u/s 139, or

Company's Auditor appointed u/s 139,or Person
An Accountant or other qualified person
qualified as an Auditor u/s 139.
with the laws of that foreign country.
➢ Branch Audit Report : By Branch Auditor to Company's Auditor who shall deal with it to
finalize his Audit Report.
➢ Duties and Powers of Company and Branch Auditor: U/S Sec. 143(1) to 143(4).
➢ Frauds at Branch: Sec.143 (12) shall also extend to Branch Auditor, to the extent it
relates to the concerned Branch.
Reporting of Frauds by Auditor –Section 143 (12) To 143 (15) &Rule13:-
If auditor has reason to believe an offence is committed against the company by officers or
employees, he shall report to the CG within 60 days of his knowledge: follow the prescribed
procedure:-
➢ Auditor shall forward his report to Board or the Audit Committee, as the case may be,
within 45 days after comes to knowledge;
➢ On receipt of reply or observations auditor from above , he shall forward his report along
with his comments to the CG within 15 days of receipt of such reply or observations;
➢ if auditor fails to get any reply or observations within 45 days, he shall forward his report
to CG alongwith a note the details of his report to the Board or the Audit Committee Report
shall be Form ADT-4. U/s.143 PCWA conducting Cost Audit, u/s.148, PCS u/s is to comply with the
provisions of section, if default – PCWA/PCS- fine. 1 lakh to Rs. 25 lakhs but will not be punished if
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Auditor has done such reporting in good faith.
Appointment of Auditor other Than Retiring Auditor by Special Notice U/S.140 (4):-
1. Special Notice: is required for a resolution at an AGM for -
➢ Appointing as Auditor, a person other than the Retiring Auditor, or
➢ Providing expressly that the Retiring Auditor shall not be re-appointed.
Note: If the Retiring Auditor has completed a consecutive tenure of 5 years (for Individual)
or 10 years (for Firm), such Special Notice is not required.
2. Copy to Retiring Auditor: by company on receipt of special notice..
3. Rights of Retiring Auditor:-
➢ Representation of a reasonable length to the Company,
➢ Requesting for representation be circulated among the members,
➢ Requiring for representations are read out and he be heard orally at the AGM.
4. Company's Duties: Company shall -
➢ State the fact in any EGM notice and
➢ Send a copy of representation to every member.
➢ Note: The Auditors' Representations need not be circulated to Members by the Company,
if
➢ Received too late , or
➢ The Tribunal is satisfied that it is for needless publicity.
➢ Not sent to the Members, a copy thereof should be filed with the ROC.
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Punishment for Contravention – Section 147:-
If Auditor contravenes Sec. 139/143/144/145, auditor shall be punishable at least 25000-
upto 5L or 4 times of Remuneration of Auditor WEIL.
Provided Auditor contravened knowingly /willfully with intention to deceive Co./SH/Cr/Tax
authorities, he shall be punishable with fine at least 50000-25L or 8 times of Auditor
remuneration WEIL.
If Auditor contravenes the above, he shall be liable to Refund the remuneration
Pay damages to Co/statutory bodies/authorities/members/creditors for loss arising out of
incorrect/misleading statement in Audit Report.
In case of criminal liability of an Audit Firm, in respect of liability other than fine , concerned
partners who acted in a fraudulent manner , shall only be liable.
Cost Records & Audit– Section 148
➢ CG may, specified class of companies and direct that particulars relating to the utilisation
of material or labour or to other items of cost as may be prescribed shall also be included in
the books of accounts
➢ CG shall, before issuing such order in respect of any class of companies regulated under a
special Act, consult the regulatory body constituted or established under such special Act.
u/s148(2)
➢ CG may order for cost audit, if it thinks necessary
➢ U/s.148(3)- audit by cost accountant, appointment by BOD on such remuneration as
determined by the members in prescribed manner. He will comply cost accounting standards.
➢ Company auditor u/s.139 cannot be a cost auditor.
➢ U/s. 148(4)- cost audit is in additional to financial audit
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➢ U/s. 148(5) qualifications, disqualifications, rights, duties and obligations applicable to
auditors will be applicable to cost auditor. Cost auditor report by PCWA to BOD
➢ Company shall within thirty days from the date of receipt of cost audit report furnish
the CG such report along with full information and explanation.
Section 144: -Auditor not to provide certain services:
➢ An auditor appointed under this act shall provide audit service to the company but
doesn‘t provide following services: -
➢ Accounting & Book – keeping services
➢ Internal audit
➢ Design & implementation of any financial information system
➢ Actuarial services
➢ Investment advisory & banking services
➢ Financial services & management services
➢ Any other services as may be specified.
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7 Inspection & Investigation

POWER TO CALL FOR INFORMATION, INSPECT BOOKS &
CONDUCT INQUIRIES (SEC. 206 OF CA, 2013):
1. Power of ROC (Sec. 206(1)) :
ROC may require the company to:
➢ Furnish such information / Explanation (in writing) OR
➢ To produce such Documents / books
Note: No ROBH is required, before issue of such notice.
ROC may exercise such power where –
➢ On scrutiny of any document Filed by the company
➢ On any information received by him
➢ He is of the opinion that any further information/explanation/document is necessary.
2. Duty of Company (Sec. 206(2)}:-
To furnish such document / info./ explanation within specified / extended time.
Duty of past officers(in employment for such period): If info./explanation relates to a past
period, (if so called by ROC), shall be liable to furnish it, to the best of their knowledge.
3. Additional written notice by ROC (Sec. 206(3)}
for further books, papers, explanations as required; at such place time, if :
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No info/Explanation If Info. furnished to

was furnished to ROC ROC was inadequate
If ROC is satisfied that

unsatisfactory state of
affairs exist in company.
ROC shall record his reasons, in writing, for issuing such notice.
4. Inquiry by ROC (Sec. 206(4)} :
ROC may ask to furnish any info. /expl. on certain matters & inquiry if ROC is satisfied:
Representation made to
On the basis of
it that, business is being
information available with
carried on for a
it
fraudulent manner.
Grievances of investors are

not addressed.
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Note: Before exercising such power, ROC informs company about allegations made, in a
written order. CG if satisfied, direct ROC/Inspector appointed by it, to carry out such
inquiry if business is being carried out for fraudulent / unlawful purpose, every OID
shall be punishable for fraud u/s 447.
5. Inspection by CG (Sec. 206(5)}: CG may direct inspection of books & papers by an
inspector.
6. Inspection by Statutory Authority (Sec. 206(6)}: CG may be general/special order,
authorize any statutory authority to carry out inspection of BOA of a company / class of
companies.
7. Punishment for contravention (Sec. 206(7)}:
If company fails to furnish any, info/ expl/doc as required in this section, then company &
every OID shall be punishable with :
Fine upto Rs. 1 lakh & additional fine upto Rs. 500/day in case of continuing failure:
CONDUCT OF INSPECTION & INQUIRY (SEC. 207):
1. Duty of Director, Officer or Employee:-
If Info. /BOA / Papers are called u/s 206, then duty of every director, officer or
employee
➢ Produce all such information
➢ Furnish him with such statements, explanations etc as required
➢ Render all necessary assistance to ROC/Inspector
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2. Power of ROC / Inspector :
➢ They have all power as vested in a Civil Court :
o Discovery/Production of BOA/Documents at such place/time OR
o Summoning /Enforcing attendance of persons so examining them on oath OR
o Inspection of any books/registers of company at any place
➢ During inspection, their powers include :
They can make copies of such BOA
They can place any identification mark in token of inspection.
REPORT ON INSPECTION (Section 208):
After inspection / inquiry u/s 206 & other B&P u/s 207, ROC/Inspector shall submit a
report in writing to CG along with such documents as it thinks fit.
Above Report may include a recommendation that further investigation is necessary or not,
stating such reasons.
Power of CG has been delegated to RD.
SEARCH & SEIZURE (Section 209):
1. If ROC / Inspector has reasonable grounds to believe that B&P are likely to be
destroyed mutilated, altered, falsified or secreted, he may exercise the following
powers:
o Enter & search the places where they are kept (Only after obtaining order from special
court.)
o Seize such books/papers, after allowing the company to take copies/Extract.
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2. Books / Papers must be returned maximum within 180 days. Books / Papers may be
called for further period of 180 days (if needed) by written order. ROC / inspector may,
while returning the books / Papers, take copies & extract, Can place identification marks on
them.
INVESTIGATION INTO AFFAIRS OF COMPANY (SEC. 210):
Investigation may be ordered by CG on the following basis :
➢ On receipt of report of u/s 208
➢ On SR passed by the company
➢ In public interest
➢ On an order being passed by Court/Tribunal
CG may appoint 1 or more persons as inspectors for investigation & report thereon as CG may
direct. CG may require the applicant to pay security of Maximum Rs. 25000.
ESTABLISHMENT OF SERIOUS FRAUD INVESTIGATION OFFICE (SECTION 211):
CG may establish SFIO to investigate frauds relating to company. Constitution of SFIO:
Headed by a Director (Not below the rank of Joint accounting Secretary to GOI having
Knowledge in corporate affairs) & Experts from various fields like Banking, corporate
Affairs, Tax, Forensic Audit, Capital Markets, IT , Law etc.
Experts from other fields, like cyber forensics, & any other fields as necessary.
CG may appoint such experts & other officers / employees in SFIO as necessary. Terms /
Conditions of service of directors, experts etc shall be as may be prescribed in Rules.
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INVESTIGATION INTO AFFAIRS OF A COMPANY BY SF10 (Section 212):
➢ Without prejudice to Sec. 210, if CG is of the opinion, that it is necessary to investigate
into affairs of the company by SFIO on the basis of :-
o Report of ROC/Inspector u/s 208.
o SR of the company
o In Public Interest
o On request any CG/SG Department
Then CG shall assign this work to SFIO.
Director of SFIO, shall assign the work to designated number of inspector, as necessary.
➢ If case has been assigned to SF10, for investigation, then :
No other investigation agency of CG/SG If any investigation has been
initiated, then Shall proceed with investigation in such it shall not be proceeded further.
Case.
➢ SFIO shall investigate in prescribed manner & submit report to CG, within specified
period.
➢ Investigating Officer shall have powers of inspector u/s 217
➢ Duty of employees / officers to provide all necessary info/ expl. / doc. Etc. of the officer.
➢ Offences covered u/s 447 of this Act ……… Sec. 212 (6)
Person accused of any such offence, shall be released on bail or bond, only when:
o Public prosecutor has been given an opportunity to oppose the application of release &
o Where he opposes the application, special court is satisfied that there are reasonable
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grounds to believe that he is not guilty of such offence & that he is not likely to commit any
offence, while on bail.
o However a person:
o Who is under the age of 16 yrs or is a woman or
o Is sick or inform, may be released on bail, if special court, so directs.
o Special court shall not take cognizance of any offence
➢ Director, Add. Director or Assistance Director of SFIO may arrest any person, if reason
to believe that such person is guilty of any offence u/s 212(6) & such arrested person, shall
be informed of grounds in writing.
Where an arrest is to be made in connection with a Govt. co/foreign co. under investigation,
only with prior written approval of CG.
➢ Authorities shall also forward copy of order & material in his possession to SFIO.
➢ Person arrested above, within 24 hours (excl. travel time) be taken to Judicial or
Metropolitan Magistrate having jurisdiction.
➢ SFIO shall submit an interim report to CG, if directed.
➢ SFIO shall submit report to CG, on completion of investigation
➢ Copy of this report may be obtained by concerned person by making an application to
court.
➢ On receipt of report by CG, may direct SFIO to initiate prosecution ,before such
direction, CG shall examine the report & taken legal advice.
➢ This investigation report filed with Special court shall be deemed as report filed by a
Police officer.
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➢ Investigation initiated by SF10 under CA, 1956 shall be continued under this Act.
➢ When SFIO is investigating, then all other authorities like SG, income tax authority,
police authority having information / documents shall be shared with SFIO & Vice – Versa of
above.
INVESTIGATION INTO AFFAIRS OF A COMPANY ON AN ORDER MADE BY
TRIBUNAL (Section 213):
If application is made before Tribunal by certain number of members supported by such
documents/evidence or suomoto, the Tribunal may order investigation.
Tribunal must be satisfied that following circumstances exist:
Business is being conducted

to defraud creditors,
Company was formed for
members etc or for
fraudulent or unlawful
fraudulent purpose in
purpose OR
manner oppressive to
members OR
Members of the company

Promoters have been guilty are not been given all the
of fraud misfeasance or information w.r.t affairs
other misconduct OR (Which they reasonably
expect to have)
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Tribunal may make such order, only if it thinks fit & after giving ROBH. For the purpose of
this section, specified number of members:
Company having share capital Company having no share
capital
100 members or Whichever 1/5th of total members
Members is
Holding 10% of total Voting Lower
Power
SECURITY FOR PAYMENT OF COSTS & EXPENSES OF INVESTIGATION (Section
214):
If investigation is ordered by CG
U/S 210 (in case, where SR is passed by the company) where order is made by Tribunal u/s
213,
Then this section becomes applicable.
CG will require the applicant to give security for costs & expenses, maximum upto Rs.
25,000 & this can be demanded before appointing inspector.
This shall be refunded back to applicant, if it results in prosecution.
FIRM /BC OR ASSOCIATION NOT TO BE APPOINTED AS INSPECTOR (SECTION
215)
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INVESTIGATION OF OWNERSHIP OF COMPANY by CG (SEC. 216):
On matters relating to company & membership for determining the true persons, if CG
think fit.
Who have been able to

Who are/have been financially
control or materially
interested in success/failure
influence the policy of
of company OR
company OR
Who have/had beneficial interest in

shares of the company or who are/have
been beneficial owners or Significant
beneficial owners of a company
CG shall appoint inspectors, if Tribunal direct that affairs of the Co. must be investigate as
regards the membership of co. & other matters relating to co.
Scope of investigation may be limited by CG
PROCEDURE POWERS ETC OF INSPECTORS (Section 217):
It shall be the duty of all officers & other employees & agents including the former ones to :
Preserve & Produce all BOA, Papers & produce Otherwise provide all necessary
assistance the same before inspector to the Inspector.
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Inspector may require any other body corporate to furnish required information.
Inspector shall keep B & P in his custody for more than 180 days. however this can be called
again for another 180 days, if needed again.
Inspector may examine on oath above in 1st point & any other person (prior approval of CG) (If
investigation u/s 212, then instead of prior approval of CG, approval of Director of SFIO
would be sufficient – for any other person)
Inspector shall have same powers as vested in a civil court under code of civil procedure
1908.
If any director / officers , disobeys direction issued by ROC/ Inspector, then punishment:
Imprisonment upto 1 year &
Fine : Min – Rs. 25,000, Max – Rs. 1,00,000
If director / officer has been convicted of an offence here they shall be deemed to
have vacated their office & be disqualified from holding any office in company.
If any person fails to :
➢ Produce required information w.r.t. books / papers
➢ To furnish any other information
➢ To appear before Inspector / to answer any question
➢ To sign the examination notes, then punishment: Imprisonment upto 6 months &
Fine: Min – Rs. 25,000, Max – Rs. 1,00,000 & Further fine of Rs. 2000/day for continuing
failure.
Officers of CG/SG/Statutory authority, police authority shall provide the necessary
assistance.
CG may enter into an agreement with Government of Foreign State for reciprocal agreement
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to assist in Inspection, inquire or investigation.
PROTECTION OF EMPLOYEES DURING INVESTIGATION (Sec. 218):
➢ If during any investigation or pendency of proceedings u/s 210/212/213/216/219, if any
company proposes –
➢ To discharge / suspend any employee or
➢ To punish him (by dismissal, removal, reduction in rant ) or To change his employment (to his
disadvantage)
➢ Then approval of Tribunal is required .
➢ If approval not received within 30 days of application, then company may proceed to take
action.
➢ Employee may prefer an appeal to NLL(A), with fees within 30 days of receipt of
objection.
➢ Decision of NCL(A)T shall be final & binding on NCLT & Company.
Important Note: If Tribunal not reply within 30 days, then no remedy to the
employee.
POWERS OF INSPECTOR TO CONDUCT INVESTIGATION INTO AFFAIRS OF
RELATED COMPANIES ETC (Section 219) :
If inspector appointed u/s 210/212/213, considers necessary, to investigate :
➢ Any other BC, which is / has been SC/HC/SC of its HC.
➢ Any other BC, is / has been managed by any person as MD/ Manager, who is /was the
MD/Manager of this company.
➢ Any other BC, whose BOD is accustomed to act as per this Directions of this company.
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➢ Any person, who is or has been, the company‘s MD or manager or employee.
after obtaining prior approval of CG, investigate the above i.e. other body corporate or MD
or Manager.
SEIZURE OF DOCUMENTS BY INSPECTOR if reasonable ground to believe (Section
220):
B& P of or relating to company / other BC/ MD or Manager of such company are likely to
be destroyed, mutilated, altered, falsified or secreted, the inspector may :
Enter such place, where books, papers are kept & Seize such books / papers (after Allowing
them to take copies at their cost) kept in custody of inspector maximum till conclusion of
investigation Before returning inspector may :
Take copes / extract of the same & place identification marks on the
same.
FREEZING OF ASSETS OF COMPANY (Section 221):
Tribunal may impose restrictions on assets of the company i.e. freeze them :
However this period of freeze shall be specified in the order & shall not exceed 3 years.
Tribunal may such order if reason to believe that such transfer of assets is likely to take
place in a manner, prejudicial to the interest of company / SHS/ creditors or in public
interest.
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Tribunal may make such on order –
On In Complaint Complaint by Complaint

referen connection made u/s creditor made by
ce made with inquiry 244 having o/s any other
by CG or amount of > person
investigation Rs. 1lakh
into affairs
of co.
If contravention, then punishment : on company – fine – min: Rs. 1,00,000 Max : Rs. 25,00,000
on defaulting officers : Imprisonment upto 3 years or fine : Min Rs. 50000, Max Rs. 500000
or both.
IMPOSITION OF RESTRICTIONS UPON SECURITIES (SEC. 222)
By Tribunal for maximum 3 years
Tribunal can exercise its powers in the following cases:
➢ After investigation u/s 216, if its necessary OR
➢ When any person makes a complaint
Possible restrictions
Transfer of shares shall be void.
If shares were to be issued, they need not be issued. No voting rights shall be exercisable
No further shares be issued.
No payment of dividend / capital be done (except on liquidation)
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If any of the orders are contravened, then Punishment :
On company : Fine – Min Rs. 1,00,000, Max Rs. 25,00,000
On OID : Fine – Min Rs. 25,000 , Max Rs. 5,00,000 or imprisonment upto 6 months or both.
INSPECTOR‘S REPORT (Section 223):
Inspector shall submit report to CG (Interim – if read & the final report) Report shall be
printed or in writing.
Copy of report may be obtained from CG by : Members or creditors or any person interested.
Report shall be authenticated by seal (if any) of company (whose affairs have been
investigated) or a certificate of a public officer having custody of report.
Section not applicable to report of SFIO u/s 212.
Inspector report shall be admitted to evidence in any legal proceeding.
ACTIONS TO BE TAKEN IN PURSUANCE OF INSPECTOR‘S REPORT (Section 224):
1. Prosecution :
If any person criminally liable for any offence , then CG may prosecute such person & it shall
be the duty of officers etc to render necessary assistance to CG
2. Application for winding up or Relief u/s 241: If after Inspector‘s report, CG is of
the opinion that:
Company is liable to be wound up under this Act or IBC, 2016 &
It is necessary to do so because of circumstances referred in Section 213, Then it may
present to Tribunal :
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Petition for winding up OR Application u/s 241 for claiming OR Both of
relief them
On just & equitable from oppression &
grounds mismanagement
3. Recovery of Damages :
Damages in respect of fraud, misconduct, misfeasance in connection with formation /
promotion or management of affairs of company or Recovery of any property which was
misapplied.
4. Cost / expenses of proceedings etc incurred by CG, shall be indemnified by such company.
5. If, as per Inspector‘s report any fraud has taken place in company & any director/ KMP
etc has taken undue advantage, then CG may file apply ,Tribunal for appropriate orders for
disgorgement & holding such person personally liable without any limitation.
EXPENSES OF INVESTIGATION (Section 225):
Defrayed by the CG initially (except expenses u/s 214) Then, these expenses shall be re-
imbursed by :
➢ Person convicted / prosecuted
➢ Person who is ordered to pay damages / restore property
➢ Company in whose name proceedings are brought (first charge on property)
VOLUNTARY WINDING UP OF COMPANY ETC NOT TO STOP INVESTIGATION
PROCEEDINGS (Section 226):
Investigation under this chapter, which was initiated, shall not be stopped or superadded
because of :
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1. Application made u/s 241 2. Company has passed a SR 3. Any other proceeding
(i.e. relief from oppression or for voluntary winding up for winding up is pending
Mismanagement) before Tribunal.
If order of winding up is passed by Tribunal, Inspector shall inform about pendency of
investigation proceedings & Tribunal shall pass such order as it may deem fit. No director /
officer shall be free from liability.
LEGAL ADVISERS & BANKERS NOT TO DISCLOSE CERTAIN INFORMATION (Section
227):
To Tribunal / CG / ROC/ Inspector, any communication made to him except name &
address of client :
Bankers of company shall not be bound to disclose to Tribunal / CG/ ROC/ Inspector, any
info. Relating to any of their customers, other than such company.
INQUIRY, INSPECTION & INVESTIGATION OF FOREIGN COMPANIES (Section
228):
Section 206-209 shall apply to foreign companies also.
PENALTY FOR FURNISHING FALSE STATEMENT MUTILATION DESTRUCTION OF
DOCUMENTS (Section 229):
1. Destroys, mutilates or Conceals or tamper or is a Party to any of the above
2. Makes / helps in making false entry in any document
3. Provides any false (knowing it to be false)
Then be shall be punishable u/s 447.
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8 Divisible Profits & Dividends

Definition & Meaning of Dividend:-
Portion of the profit received by the shareholders from the company‘s net distributable
profits , dividend is a return on the subscribed & paid up share capital.
Dividend U/s. 2(35) includes interim dividend Types of Dividend
Final dividend:
➢ Recommend by BOD
➢ Declared at AGM
Final dividend once declared becomes a debt enforceable against the company.
Interim dividend:
1. Meaning: Dividend paid by BOD any time B/W 2 AGM's.
2. Principle: U/s 2(35), Dividend includes Interim Dividend also.
3. Power to declare Interim Dividend with BOD as justified : Subject toSec.123
4. Source: (a) Out of Surplus in P&L A/c, (b) Out of Current Profits of the year in which
Interim Dividends are declared.
5. Effect of Current Period Loss: If Co. has incurred loss during the year up to the end of
the quarter preceding the declaration of Interim Dividend, the Rate of Interim Dividend
shall be Average Rates of Dividend, if any, of 3 immediately preceding years.
6. Interim Dividend vs Final Dividend
BOD may declare interim dividend during FY or at any time from closer of FY till holding
of AGM out of surplus in P&L A/C or out of profits of FY for which interim dividend is
sought to be declared.
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Aspect Interim Dividend Final Dividend
(a) Meaning Dividend paid by BOD any time between For any FY, is declared at
two AGM's AGM.
(b) Authority It is paid bythe Directors and Proposed by BOD and is
subsequently regularized at the AGM. subject to the approval
of SH at AGM.
U/s. 51 payment of dividend if authorised by the articles- in proportion to paid up SC:-
Legal Aspects as to Dividends [Sec. 123]
Aspect Description
➢ Depreciation for CY should be provided out of current profits, as
per Schedule II.
Pre-conditions
➢ Arrears of Depreciation for any previous financial year(s) should
for Dividend
be provided for, either out of current profits or out of past profits.
➢ Past Losses and Depreciation (not provided for), for any previous
financial year(s) shall be provided for / set—off, out of current
profits.
➢ Equity Dividend cannot be paid if default under Sec.73/ 74
(Acceptance of Deposits) continues.
Prior Appro- ➢ Transfer to Reserves at the Company's discretion or as per its
priations AOA.
➢ Debenture Redemption Reserve, etc.
➢ Provision for Preference Dividend, before consideration of Equity
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Dividend.
➢ Out of current profits, after providing for depreciation as per
Schedule II, or
➢ Out of undistributed profits for any previous financial years
arrived at after providing for depreciation in the manner
aforementioned and remaining undistributed, or
Sources of ➢ Out of both
Dividend Provided in computing profits any amount representing unrealized
gains ,notional gains or revaluation of assets and any change in carrying
amount of an A/L at fair value shall be excluded.
➢ Out of moneys provided by CG / SG for payment of a dividend
under Govt. Guarantee.
➢ Mode: Cash (including Cheque or Warrant or electronic mode).
➢ To Whom: Registered Holder of the Shares, or to his order or to
Payment of his Banker.
Dividend ➢ Time Period: within 30 days of the date of declaration.
➢ Separate Bank A/c [Sec 123(4)]: Dividend, including Interim
Dividend, shall be deposited in a Scheduled Bank in a separate account
within 5 days from the date of declaration.
Unclaimed
See Below
Dividend
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Unclaimed Dividend
➢ Where a dividend has been declared by a company but has not been paid or claimed within
thirty days from the date of the declaration to any shareholder entitled to the payment of
the dividend, the company shall, within seven days from the date of expiry of the said period
of thirty days, transfer the total amount of dividend which remains unpaid or unclaimed to a
special account to be opened by the company in that behalf in any scheduled bank to be called
the Unpaid Dividend Account.
➢ The company shall, within a period of ninety days of making any transfer of an amount
under sub-section (1) to the Unpaid Dividend Account, prepare a statement containing the
names, their last known addresses and the unpaid dividend to be paid to each person
and place it on the website of the company.
➢ Any money transferred to the Unpaid Dividend Account of a company in pursuance of this
section which remains unpaid or unclaimed for a period of seven years from the date of such
transfer shall be transferred by the company along with interest accrued, if any, thereon to
the Fund established (Investor Education and Protection Fund)
Dividends out of Reserves [Rules]
Companies (Declaration and Payment of Dividend) Rules, 2014: In case of inadequacy or
absence of profits in any year, Co. Proposes to declare dividend out of accumulated profits
earned by it in previous years and transferred by the company to Free Reserves , subject to
conditions —
Rule Related Point
1. Rate of Dividend should be maximum NA for Co. which has not declared any
Average Rates of Dividend of 3 immediately Dividend in each of 3 preceding FYs.
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2. Amount withdrawn: Amount to be Amount withdrawn shall first be utilized
withdrawn from Accumulated Profits to set off Current Year Losses, before
maximum1/10th of its Paid-Up Capital and Free declaration of Equity Dividend.
Reserves. Paid up Capital and FR are as per latest
audited
3. Reserves Balance: Balance in Reserves Paid up Capital and FR as per latest
after such withdrawal 15% of its Paid-Up audited FS.
Share Capital.
Dividend In Case Of Absence or Inadequacy Of Profits:-in any FY
➢ Unless previous losses and dep. Losses were set off against the profit of the current year,
dividend cannot be paid. (Applicable to all companies.)
➢ Removed Rule 5- adjust dep. Loss/ business loss whichever is less against amount
withdrawn from reserves.
➢ Dividend rules is not applicable for 100% Govt.co.
Effect of Shares Transfer pending Registration [Sec. 126]
Situation Effect in relation to those Shares
Instrument of Transfer Issue of fully paid Bonus Shares and Offer of Rights,
delivered to the Company for shall be kept in abeyance.
registration, and Dividends shall be transferred to Unpaid Dividend A/c,
Transfer of shares not yet unless the Registered Holder of such Shares has given
registered by the Company a written authorization to the Company, to pay such
dividend to the Transferee.
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Punishment for failure to distribute Dividends [Sec.127]
Default Person Liable and Punishment
Declared Dividend not paid For every Director who is knowingly a part to the
within 30 days, or Dividend default, punishment is Imprisonment upto 2 Years, and
Warrant not posted within 30 Fine of Min. Rs. 1,000 per day of default.
days
For Company: Interest at 18% p.a. for the period of
default.
Excuse of No Offence: No offence is deemed to be committed, if the nonpayment of
dividend is due to:-
➢ Operation of any law,
➢ SH has given directions to Co. regarding the payment of dividend, and those directions
cannot be complied with, and the same has been communicated to him,
➢ Dispute exist regarding the right to receive the Dividend,
➢ Lawfully adjusted by Co. against any sum due to it from SH,
➢ For any other reason which was not due to any default on the part of the Company.
Treatment of Capital Profits / Receipts and Past Losses
Aspect Description
Dividend From Capital Profits: Realised on sale of Fixed Assets or on disposal of

Capital investments. They are transferred to P&L as per applicable AS. Hence,
Profits / may be distributable by way of dividends, in certain cases.
Receipts Capital Receipts: Can‘t be distributed by way of dividends. Examples of
Capital Receipts include Securities Premium, CRR.
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Dividend on Preference Shares:-
A Preference share carries a preferential right as to dividend in accordance with the term of
issue and the AOA subject to availability of distributable profits. The preferential right to a
dividend could either be a fixed amount or an amount calculated at a fixed rate. It may be
cumulative or noncumulative.
But these rights in respect of dividends are subject to three conditions.
Firstly, preference shares are part of the company‘s share capital, consequently, preference
dividends can be paid only if the company has earned sufficient profits.
Secondly, a dividend becomes payable to the shareholders only when it is declared in the
manner laid down in the Act and by the company‘s articles.
There should have been a formal declaration. Preference shareholders are not entitled to
treat the preference dividend as a debt and sue for its payment in the first instance.
Investor Education & Protection Fund:
➢ Following amounts are credited to this fund –
➢ Amount of unpaid unclaimed dividend a/c.
➢ Application many received by co. & due for refund.
➢ Matured deposits
➢ Matured debentures
➢ Interest accrued on amount referred in above 4 points.
➢ Grants & donations given to the fund by central govt.
➢ Interest and other income out of investment from the fund.
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9 Compromises & Arrangements

Compromise and arrangement
➢ Compromise is not defined under the act.
➢ Means agreement terminating dispute between parties as to rights or modifying the
rights.
➢ No compromise, if there is no dispute.
➢ Compromise results into settlement of dispute.
Meaning of arrangement
➢ Means agreement, which modify rights about which there is no dispute.
➢ It includes a reorganization of SC of the company by:
➢ Consolidation /Division /Both
➢ Arrangement may involve: (Examples of arrangement )
o DH extend time/exchange their debenture for equity shares in a new company.
o Creditors waive part payment of claims and receive balance in shares of the company.
o PSH waive arrears of dividends and agree to accept a reduced rate of dividend .
o Exchange of company‘s assets for shares in newly formed company.
(A total surrender of rights by one party would not amount to compromise or arrangement.)
1. Compromise vs. Arrangement
Compromise Arrangement
The term compromise‘ has not been U/S230(1) states that arrangement
defined in the companies act. includes a reorganization of SC be
consolidation/division
Existence of a dispute relating to rights. there is no dispute
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Compromise is arrived at the conclusion of Arrangement may be made in
the dispute. anticipation of a dispute.
The parties to the dispute in a compromise The term ‘Arrangement‘ carries a wider
agree to settle the dispute between sense than compromise. It implies re-
themselves by a give and take arrangement. arrangement of rights or of liabilities
without the existence of dispute.
POWER TO COMPROMISE OR MAKE ARRANGEMENTS WITH CREDITORS &
MEMBERS (Section 230):
➢ Power of Tribunal on an application filed for a compromise or Arrangement :
o If a compromise / arrangement is proposed between : {company & creditor or company &
member}
o Then, application may be filed by creditor/member/liquidator (appointed under this Act or IBC,
2016)/ company, to Tribunal.
o Application was done to order a meeting of creditors/members in prescribe manner.
➢ Disclosure by Applicant :
Applicant shall disclose to Tribunal by Affidavit :
➢ All material facts, Relating to company, e.g. latest financial-compromise or arrangement
➢ Reduction of share capital, if any, included in the compromise and arrangement
➢ Scheme of any corporate, Debt Restructuring consented to by at least 75% of secured
creditors in value including :
o Creditors Responsibility Statement
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o Safeguard for protection of other creditors
o Report by auditor on liquidity post restructuring
o Statement to the effect that RBI guidelines for CDR shall be adopted
o Valuation report by registered valuer
➢ Notice of meeting conducted on order of Tribunal :
Shall be sent to :-
o All Creditors
o All members
o All Debenture holders at their individual registered addresses with the company.
Advertisement of notice :
Must be placed on the website of company/SEBI/RSE.
Published in Newspapers, in the manner prescribed.
➢ Notice shall also specify that vote in the meeting themselves or through proxies or
by postal ballot within 1 month of date of receipt of notice.
However any objection to the compromise / arrangement shall be made only by persons
holding at least 10% of shareholding or having O/S Debt of at least 5% of total O/S debt as
per latest audited FS.
➢ Notice must also be sent to CG, income Tax Authorities, RBI, SEBI, ROC, Respective
Stock Exchange, official Liquidator Competition Commission of India, if necessary & such
other sect oral regulators / authorities likely to be affected by compromise / arrangement &
require that, they shall make representations if any, within 30 days of receipt of notice,
failing which, it will be presumed that they have no representations.

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➢ Binding order of Tribunal :
Dual Majority is to be checked –
o A simple majority in number of those voting and
o 3/4th in value of creditors / members, who voted for the scheme.
If complied then Tribunal shall pass the order & it shall be binding on company, members
creditors, liquidator & the contributories of the company.
➢ Particulars to be stated in the orders :
o If pref shares are converted into equity shares, then such preference SHS must be
given an option to obtain arrears of dividend in cash or equity shares.
o Protection of any class of creditors
o If there is any variation of rights of SHS, then section 48, must be complied with.
o If compromise is agreed by creditors, then proceedings before BIFR shall abate.
o Exit offer to dissenting SHS & Such other matters.
Compromise/ arrangement shall be sanctioned only when certificate from company‘s
auditor has been filed that accounting treatment proposed in the scheme is as per as
prescribed u/s 133.
➢ Order of Tribunal must be filed to ROC within 30 days of receipt.
➢ Tribunal may dispense with calling meeting of creditors if at least 90% value, agree by
affidavit to scheme.
➢ No compromise in respect of buyback shall be sanctioned by Tribunal, unless it is in
accordance with section 68.
For Section – 230, the words Tribunal shall be substituted by CG‘ in case of Government
Company.
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POWER OF TRIBUNAL TO ENFORLE COMPROMISE OR ARRANGEMENT (Section 231):
➢ If Tribunal has passed : order u/s 230 it shall have the powers to, Supervise the
implementation & Give Necessary directions for proper implementation
➢ If Tribunal thinks that order it may make an u/s 230, cannot be implemented & order for
winding up & company is unable to pay it debts
➢ For section – 231, the words Tribunal‘ shall be substituted by CG‘ in case of
Government Company.
MERGER & AMALGAMATION OF COMPANIES (Section 232):
➢ Filing of an application: when application u/s 230 is made to the Tribunal for : Merger /
Amalgamation of 2 or more companies + There is going to be transfer of property Then
tribunal may on an application, order meeting of such creditors or members. (Notice as U/S
230)
➢ Circulation of information for meeting by the merging companies / companies of which a
division is proposed. Supplementary Accounting statement (if annual A/cs of any merging co.
is older than 6 months)
➢ Order of Tribunal : Provisions for all these must be provided in the Tribunal order.
o Date of Transfer
o Transfer of Instruments
o Legal Proceedings
o Dissolution
o Provision for Dissent persons
o NRI Holders
o Employee Transfer
o Listed co. to unlisted co.
o Certificate by company‘s Auditor

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➢ On passing the order, the transfer of A/L shall now take place. Certified copy of order
must be filed with ROC within 30 days Duly certified statement by CA/CS/CWA. of compliance
of scheme must be filed with ROC, duly certified by CA/CS/CWA.
➢ In case, if any of the Above provisions are contravened : Punishment on company:
Fine : Min Rs. 1,00,000 = Max Rs. 25,00,000
Punishment on OID :
Imprisonment upto 1 year or
Fine : min Rs. 1,00,000 – Max Rs. 3,00,000 or both
For Section 232, the words Tribunal‘, shall be substituted by CG‘ in case of Government
Company.
MERGER OR AMALGAMATION OF CERTAIN COMPANIES (Section 233):
➢ If merger / amalgamation is between :
o 2 or more small companies
o A Holding Company & its wholly owned Subsidiary Company
o Such other class of Prescribed Companies
o two or more start-up companies (Amendment in 2021)
o one or more start-up companies or with one or more small companies (Amendment in 2021)
(Start up Company: Not for more than five years old and whose turnover must not be more
than 25 crores in any preceding financial year.)
➢ Notice of proposed scheme, inviting objections / suggestions from ROC & official
Liquidator within 30 days to be issued by Transferor company & Transferee company.
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➢ Objection / Suggestion received are considered in GM & it must be approved by
respective members holding at least 90% of total no. of shares.
➢ Each of such company is required to file a ‗declaration of solvency‘ with ROC
➢ Cr. Meeting called by 21 days notice & the scheme shall be approved by majority i.e.
9/10th in value of creditors.
➢ Transferee Company file copy of scheme with CG, ROC & Official Liquidator within 7 days
of meeting.
➢ If no objection or suggestions, then CG shall register the same & issue a confirmation to
the companies
➢ IF ROC/ Official Liquidator have objections / suggestions, communicate to CG within 30
days in writing. If not then assumed that no objections are there.
➢ If Central Government after receiving objections or suggestions, is of the opinion that it
is not in the public interest or interest of creditors, then it may file application before
Tribunal within 60 days, stating the objections requesting Tribunal to reconsider the same
u/s 232.
➢ If Tribunal thinks that scheme should be reconsidered it may pass the necessary
orders.
➢ Copy of Tribunal order , confirming the scheme shall be communicated to ROC of
transferee co. & ROC shall register the same & issue confirmation to companies & this
confirmation shall be communicated to ROC of transferor company.
➢ Registration of Scheme = Deemed Dissolution of Transferor company.
➢ Effect of Registration of Scheme :
o Transfer of Property / Liabilities
o Charges on Transferor co. = Charges on Transferee co.
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o Legal proceedings shall be continued against transferee co.
o Where any amount is still unpaid to dissenting members / creditors, it shall become
the liability of transferee co.
➢ Transferee co. shall not, on merger / amalgamation hold shares in its own name or on
behalf of any of its subsidiary / associate company & all such shares shall be cancelled /
extinguished.
MERGER OR AMALGAMATION OF COMPANY WITH FOREIGN COMPANY (Section
234):
➢ CG may make rules in consultation with RBI.
➢ A foreign co. may (with prior approval of RBI) merge into a company registered under
this Act or vice-versa &
➢ Terms & conditions may provide for payment of consideration to the SHS of merging
company
➢ It can be in cash, or in Depositing Receipts or partly cash & partly depositing receipts as
per the scheme.
POWER TO ACQUIRE SHARES OF SHAREHOLDERS DISSENTING FROM
SCHEME OR CONTRACT APPROVED BY MAJORITY (Section 235):
➢ Transferee co. shall offer to SHS of transferor company. This Scheme (contract of
transfer of shares) must be approved by at least 90% of value of shares held by members of
transferor company within 4 months of making the offer.
➢ Transferee co. shall express its desire to acquire the remaining shares of dissenting
SHS, within 2 months of expiring of above 4 months & also give notice to such SHS about its
desire to acquire.
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➢ If above notice is given, transferee company shall within 1M from notice, be entitled to
acquire those shares under the scheme/contract. (when no application by Dissenting SHS to
Tribunal)
➢ If Tribunal is in favour of company & not in favour of Dissenting SHS, the transferee co.
shall on expiry of 1 month from date of notice, & once the dissenting SHS application has
been disposed off:
o May send notice to transferor company (+) transfer deed to be executed on behalf of
SHS.
o Pay the consideration to transferor company as per scheme/contract.
o Transferor Co. shall register the transferee co. as SH & intimate the dissenting SHS of
this fact.
PURCHASE OF MINORITY SHAREHOLDING (Section 236):
➢ An acquirer or any person or group of person Holding /Becoming SHS of at least 90% of
Issued SC
➢ They shall notify company of their intention to buy remaining equity shares at a price
determined by a Registered valuer as per the valuation Rules.
➢ Minority SHS may offer to majority SHS for purchasing their interest & to determine
the prices.
➢ Majority SHS shall deposit an amount = value of Shares to be acquired, in a separate
bank account for payment to minority SHS & such amount shall be disbursed within 60 days.
Disbursements shall continue till 1 year, if not made within 60 days.
➢ Company whose shares are being transferred shall be deemed as transfer agent.
➢ SHS holding at least 75% of minority equity shareholding may negotiate or reach an
understanding on a higher price.

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POWER OF CG TO PROVIDE FOR AMALGAMATION OF COMPANIES IN PUBLIC
INTEREST (Section 237):
➢ If CG satisfied in public interest that 2 or more companies should amalgamate, then CG
notify the same & provide for amalgamation into a single company.
➢ legal proceeding of transferor company may continue against transferee co.
➢ Every member / creditor before amalgamation, shall have, as nearly as possible, same
rights / interest in the transferee co.
➢ If the interest / rights are less, then they shall be entitled for compensation.
➢ Person aggrieved may appeal to Tribunal, within 30 days.
➢ Order Shall be made under this section, only when:
o Copy of proposed order has been sent in draft to each of the companies concerned.
o If no appeal was filed & the time limit has expired
o If appeal was filed, then it has been disposed off
o CG considered the suggestions/objections received from company & made modifications.
REGISTRATION OF OFFER OF SCHEMES INVOLVING TRANSFER OF SHARES
(Section 238):
➢ For every offer of scheme/contract which involves transfer of shares in transferor co.
to transferee co. u/s 235-
o Every offer must be sent to members of co. by directors (+) necessary info.
o Such offer must contain a statement necessary steps to ensure that necessary cash will
be available. &
o Before circulating, it must be compulsorily registered with ROC.
➢ ROC may refuse to register, circular, which has incomplete/incorrect information &
communicate this refusal within 30 days of application.
➢ Against this refusal, appeal may be preferred before Tribunal.
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➢ If any director issues circular, which was not registered with ROC, shall be liable to a
penalty of Rs. 1,00,000.
PRESERVATION OF BOOKS & PAPERS OF AMALGAMATED COMPANIES (Section 239):
➢ Books & Papers shall not be disposed off, without prior permission of CG.
➢ Before granting permission, CG may appoint a person to examine such books / papers for
ascertaining any evidence of commission of an offence related to promotion / formation/
management of affairs of transferor company or amalgamation or acquisition of its shares.
LIABILITY OF OFFICERS IN RESPECT OF OFFENCES COMMITTED PRIOR TO
MERGER, AMALGAMATION etc (Section 240):
shall continue after such merger, amalgamation or acquisition.
Majority Rule – Minority rights (Oppression – mismanagement )
Distinguish between oppression – mismanagement
Particulars Oppression Mismanagement
When affair of Prejudicial to public interest Prejudicial to interest of company;
company is ; or Prejudicial or oppressive or Prejudicial to interest of any
to any member ; or member
Prejudicial to interest
of company
Future acts Cannot be base of application Can be base for application
Material change Oppression does not take Mismanagement may take place
place due to material change. due to material change.
1. Rule of Majority
➢ Members pass resolutions on various subjects either by simple majority or by 3/4
majority. Then it is binding on all the members.
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➢ Usually, court will not intervene to the internal management of co. and to protect the
minority interest. If anything wrong is done, it is the company, take action against the
wrongdoer and shareholder or member individually, do not have a right to do so. It is called as
majority rule. Rule of majority was decided in the leading case of fossVs. harbottle.
Oppression and mismanagement U/S 241
Majority rule does not apply for prevention of oppression and mismanagement.
2. Meaning of oppression – mismanagement and application seeking relief U/S 241
➢ Word oppression and mismanagement are not defined under companies act.
➢ person can complain only in his capacity as a member.
➢ Person claiming relief on the ground oppression has to prove on the part of majority:
o Lack of probity. (i.e. honesty )
o Unfair conduct.
o Prejudice to him in the exercise of legal and propriety rights as a shareholder.
o Act is burdensome, harsh and wrongful.
Mismanagement
➢ The material change has taken place in management or control and due to such change, it
is likely that the affairs will be conducted in a manner prejudicial to its interests or its
members
Relief against oppression & mismanagement
➢ Member may apply to tribunal U/S 244.
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➢ CG may apply to tribunal, if it is opinion that affairs of company are being conducted in
manner prejudicial to public interest.
3. Person eligible to apply for relief case of oppression and mismanagement U/S 244
➢ Member (s); or
➢ CG
➢ Note: Pref. SH can apply. Legal representatives of a deceased member, whose name is still
on ROM entitled to file a petition U/S241.
4. Application requirements
➢ Co. Having SC ( lowest of following) :
o 100 members, or
o 1/10th of total members, or
o Members holding at least 1/10th of total issued share capital
➢ If co. without SC- at least 1/5th of total number of members.
➢ The tribunal may allow any member to apply, if just and equitable
➢ The applicant must have paid all the calls and other sums due on their shares.
➢ Note: Condition of holding requisite number of shares to be fulfilled at the time of
application. Joint holder of shares to be counted as one member only. One of joint holders
can sign the application. Petition filed under section 241 with mala fide intention is not
encourage by the NCLT.
5. Can majority apply for relief U/S 244 against Oppression or mismanagement
➢ Yes if tribunal must be satisfied about it.
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➢ Following person cannot apply for getting relief against oppression and mismanagement:
o Member whose calls are in arrears
o A holder of a letter of allotment of a partly paid share A holder of a share warrant
o A holder of a share certificate to bearer
o A transferee of shares who has not lodged the shares for transfer to the company
o Shareholders of holding company against subsidiary of the holding company.
o BOD of HC, where the directors did not hold shares in subsidiary
6. Special situation developed after application for oppression or mismanagement U/S
244 Member ceased to be member after application
➢ Requirement of minimum shareholding is to be satisfied at the time of filling application.
Application is still maintainable.
Withdrawal of consent after filing application, during the course of proceeding
➢ Application is still maintainable. Court allows to join more SH after filling petition.
➢ Any one member may make an application to the NCLT (earlier CLB) on behalf of all the
members by obtaining the prior consent of other members in writing.
7. Powers of tribunal to prevent oppression and mismanagement U/S 242
➢ An order to regulate the conduct of the company‘s affairs in future
➢ An order for purchase of shares/interest of any member by other members or by Co.
➢ An order for reduction of SC. Not required to follow capital reduction procedure.
➢ Termination, setting aside or modification of an agreement b/w company and MD,
manager or any director
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➢ Termination, setting aside or modification of an agreement with any person, provided due
notice has been given to him and his consent is obtained.
➢ Remove MD, manger or any director .Recover any undue gains made by MD, manager or
director and transfer to IEPF or repay to victims.
➢ Appointment of director by the tribunal and report to tribunal as directed.
➢ An order to restrict transfer or allotment of shares of company
➢ Setting aside any fraudulent preferences made within 3M before the date of application.
➢ Where, in the opinion of the NCLT, it is just and equitable that this provisions to be
applied
➢ An order to alter AOA –MOA
Tribunal order should be filed by Co. –ROC within 30 days
If any of above provisions contravened then company shall be punishable with fine
Minimum2 lakh –max.25 L
Every OID punishable with imprisonment for upto 6 M or fine minimum 25000-Maximum
1L or both
Consequences of orders of NCLT U/S 243
If the NCLT orders, company cannot alter MOA/AOA
If order sets aide or modifies any agreement with any managerial personnel, no claim for
damages or compensation for loss of office is allowed
➢ Such, managerial personnel shall not be capable of serving company for period of 5
years except with the leave of the NCLT.
➢ Certified copy of giving permission altering MOA/AOA shall be file with registrar within
30 days.
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Interim order
➢ While hearing petition under section 241, NCLT may on the application of any party, make
any interim order as it thinks fit .
8. Class Action U/S 245
➢ A class action, class suit, or representative action is a type of suit where one of the
parties is a group of people who are represented collectively by a member of that group.
Class action can be filed against-
➢ A company or its directors for any fraudulent, unlawful or wrongful act or omission.
➢ An auditor including audit firm for any improper or misleading statement in audit report
or for any unlawful or fraudulent conduct.
➢ An expert, advisor, or consultant for an incorrect or misleading statement made.
When class action can be initiated?
➢ If applicants are of the opinion that management or conduct of the affairs of the
company are being conducted in manner prejudicial to the interest of the company or its
members or depositors.
➢ For any misleading statement in prospectus.
➢ The existing public deposits, not paid because of fraud, class action is allowed.
➢ Note: Class action cannot be taken against banking company.
Who can apply to NCLT for class action
➢ Co. with SC( lowest of the following) :
o 100 members ;or
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o % of the total number of members as prescribed; or
o Member holding at least prescribed % of issued SC
➢ Co. without SC, at least 1/5th of total number of members.
➢ Depositors ( lowest of the following) :
o 100 depositors‘; or
o % of total number of depositors as prescribed; or
o Any depositor to whom the company owes prescribed % of total deposits
Reliefs from NCLT by seeking orders
➢ To refrain company from committing acts ultra vires to AOA/MOA.
➢ To restrain the company from committing breach of its memorandum or articles.
➢ To declare a resolution altering MOA/AOA as void if resolution was passed by
suppression of material facts or by misstatement.
➢ To restrain the company from doing an act which is contrary to law
➢ To restrain the company from taking action contrary to resolution passed by the members.
➢ To claim damages or demand any other suitable action from defaulting persons
➢ Note: Two class action applications for same cause of action shall not be allowed.
Order of NCLT
➢ An order passed by NCLT is binding on the company and all its members, depositors,
auditor, expert and consultant etc.
➢ The company or any other person responsible for any oppressive act shall defray the cost
connected with application for class action.
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➢ If application is found by NCLT to be frivolous or vexatious, it shall reject application and
make an order that the applicant pay cost to opposite party.
9. Difference between application for prevention of oppression-mismanagement & class
action suit
Basis Application for prevention Class action suit
of oppression –
mismanagement
Applicable section (s) Section 241-244 Section 245
Who can file application Members members as well as
depositors
Against whom Company and its directors. Company, its director,
auditor, audit firm,

application can be filed
expert, advisor,
consultant or any other
person.
Subject matter of Any current or past any past, present or future
an application activity to prevent activity.
recurrence of any act.
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10 Winding Up
Winding up means winding up under this act or liquidation under the insolvency and
bankruptcy code, 2016, as applicable. – Section 2(94A)
It means all affairs of company are wound up, its right and liabilities ascertained and
claims of creditors are paid off out of assets of company.
Difference between Winding up Dissolution
winding up and First step where assets It is final stage where by
dissolution realized, liabilities are paid existence of company is
off, and surplus, if any withdrawn by law.
distributed among its
members.
Either company Tribunal can pass order of
or tribunal appoints the dissolution only.
liquidator.
Liquidator represents the After dissolution order,
company in process of liquidator can no longer
winding- up. represent the company.
Creditors can prove their Creditors cannot claim their
debts in the winding up debts after the dissolution order
process. is made.
Case can be filed against Case cannot be filed against the
the company while it is company once dissolution order is
undergoing winding-up. made.
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Modes of winding –up – U/S 270
➢ Compulsory winding –up Voluntary winding -up
➢ Compulsory winding up is also known as winding up by the tribunal. The provisions of
companies act, 2013, govern it.
➢ Voluntary winding up is also known as liquidation of corporate person and insolvency &
bankruptcy code, 2016, governs it.
Grounds for compulsory winding up U/S 271
➢ If the petition is filed with tribunal.
➢ On the following grounds or reasons petition can be filed to the tribunal
➢ Company pass special resolution – section 271 (a)
➢ National interest – section 271 (b)
➢ Fraud & unlawful purpose – section 271 (c)
➢ Default in filing financial statement or annual returns for 5 consecutive FY –section
271 (d)
➢ Just and equitable grounds – section 271 (e)
Winding-up petition may be presented by U/S 272:
Company when it has passed SR Contributory
➢ Every person liable to contribute at winding up and includes holders of fully paid shares.
➢ The legal representative of decreased shareholder is contributory.
➢ Holder of forfeited shares is contributory.
➢ The contributory, whose call is in arrear, may not be permitted to present petition.
Government (CG/SG) or person authorized by CG
ROC with previous sanction of CG subject to OBH given to company if
➢ Company has acted against national interest
➢ Company has acted in fraudulent or illegal manner

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➢ Company has defaulted in filing financial statements or annual returns.
➢ Note: Right to apply for winding-up of company being statutory right, none other than
those on whom right is conferred by statute can make application for winding-up and no such
right having been conferred on workers.
Forward copy of petition to ROC and it shall submit his views to tribunal within 60 days.
Procedure for winding up by the tribunal or consequences U/S 273
➢ On hearing winding –up petition the tribunal
➢ Shall make order within 90 days from presentation of petition.
➢ Shall give notice to company and OBH before appointing provisional liquidator.
Direct to file statement of affairs – section 274
➢ If application for winding up is made by any person other than company, the tribunal shall
order and direct company to file statement of affairs along with objections within 30 days.
The tribunal may allow further period of 30 days in special circumstances.
➢ The tribunal may direct petitioner to deposit specified security for costs
➢ If company fails to file statement of affairs, it does not have right to oppose petition.
Further, defaulting officer or director shall be liable for punishment.
Appoint official liquidator: U/S 275
➢ At any time after presentation petition and before making winding –up order,
tribunal may appoint the provisional liquidator or company liquidator.
Intimation of the tribunal‘s order to liquidator and ROC U/S 277
➢ Within 7 days from passing of an order.
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➢ ROC shall notify the order in the official gazette.
➢ In the case of listed company, the registrar shall intimate to the stock exchange.
➢ Note: Any person may apply to the tribunal against action of company liquidator. The
tribunal may confirm, reverse modify act or decision complained of and makes such further
order.
Following are duties of company liquidator:
➢ Submit preliminary report to Tribunal U/S 281
➢ Take custody of company‘s property U/S 283
➢ Periodical reports(quarterly) to tribunal U/S 288
➢ Maintain books U/S 293
➢ Audit of accounts U/S 294
Report in case of fraud when he is of the opinion that fraud has committed in promotion
or formation of company.
Advisory committee U/S 287 advise liquidator and to report to the tribunal on specified
matters. It has Right to inspect BOA, documents, assets and properties under liquidation.
Disclaimer of onerous property U/S section 333
➢ Onerous means burdensome or contract involving heavy obligations.
➢ Onerous property means a property, which has ceased to be an asset and has become a
liability Examples :
o Land of any tenure, burdened with onerous covenants
o Any property, which is unsalable by reason of obligation attached to it.
o Unprofitable contracts
➢ Company liquidator may disclaim any onerous property within 12 months from the
date of commencement of winding –up or such extended period allowed by the tribunal.
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If come to know about onerous property after one month from commencement of winding up
, disclaimer can be exercised even after period of 12 months.
Effects On valid disclaimer:
o Company is relieved of all its liabilities in respect of such property.
o Any person affected may apply to tribunal for damages for non-performance of contract
and treated as creditor of company, if the tribunal grants damages.
Report by company liquidator with in 60days & direction by the tribunal on report –U/S
281-282
Inspection of report U/S 281
o Creditor
o Contributories
Directions of tribunal on report U/S 282
Fix /Revise time limit for completion of entire proceedings of winding up and dissolution.
Investigation
➢ If fraud has committed in respect of company, the tribunal shall :
o Order for investigation of company U/S 210; or
o Direct liquidator to file a criminal complaint against persons involved in fraud.
➢ The tribunal may give such other directions as it consider fit.
Contributories U/S 2(26)
➢ Every person liable to contribute to assets of company in the event of its being winding
up .It also includes holders of shares, which are fully paid up.
➢ The following persons are liable as contributories on winding –up of company.
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o Present members of limited company liable to contribute amount unpaid on shares.
o Past member, if he had ceased to member within 1 year before commencement of winding
up.
o Present or past director in case of limited company. This requires tribunal order.
However, he shall not be liable, if he had ceased to hold office for year or more before
commencement of winding up.
o Legal representative of deceased member.
o Assignee of contributory, if he is adjudged insolvent.
➢ Subscribers to MOA for amount remaining unpaid
Liabilities of contributories U/S 285
➢ Contributories are divided in 2 categories :
List A Contributories
➢ Means present members whose names appear in ROM on date of commencement of
winding up.
List B contributories
➢ Means past members of company, ceased to be members within 1 year preceding
commencement of winding-up of the company.
Liabilities of list A contributories
➢ if assets of company are insufficient , they may be called upon to pay by tribunal order
➢ Unpaid amount on shares/Guarantee
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Liabilities of list B contributories
➢ It is in respect of debt, which is contacted by company while he was member.
➢ It appears to the tribunal that present members are not able to satisfy the contribution
required to be made by them.
Set off the liability U/S 295
➢ If the member (contributory) is also happen to be creditor then member (contributory)
cannot set off his debt against the liability as creditor.
➢ Tribunal in specified situations ,may allow contributory to set off:
Dissolution of company by Tribunal order U/S 302
➢ Liquidator shall make application to tribunal when the affair of the company is completely
wound up for dissolution.
➢ The tribunal shall order when it is of opinion that it is just and reasonable.
➢ The company is dissolved from the date of Tribunal order.
➢ Copy of the tribunal order shall be filed by company liquidator to ROC within 30 days.
➢ Once company is dissolved no suit or proceedings will lie against company. This is
because a dissolved company has no legal existence.
➢ Dissolved company may be revived by the tribunal order(within 2 years from dissolution
date) by declaring dissolution void. Power of the tribunal is discretionary U/S 356
Example:
➢ Where applicant proved fraud in winding-up proceeding, the tribunal may declare
dissolution void.
➢ Following persons can apply for revival:
o Liquidator of company
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o Any other interested parties
➢ Application should be made within 2 years from the date of dissolution of company.
➢ Copy of cancellation order for dissolution should be filed with Registrar within 30days.
Priority Order in repayment during winding up or preferential payments U/S 326 & 327.
➢ Overriding preferential payment – section 326
➢ Cost and expenses of winding up
➢ Preferential debts under section 327
➢ Payment due under floating charges
➢ Unsecured creditors
➢ Preference shareholders
➢ Equity shareholders
➢ Deferred equity shareholders
Overriding preferential payment – section 326
➢ Workmen‘s due; and
➢ Debts due to secured Creditors
➢ Above debts shall be paid in full unless assets are insufficient to meet them ,
otherwise in equal proportions.
Preferential payments section 327
➢ In event of winding up certain payments are to rank in priority to others. The
payments to be so made first are called preferential payments. Subject to 326.
➢ The following unsecured debts shall be paid in priority of other unsecured debts:
o Revenue, taxes, cesses, due and payable within 12 months before date of commencement
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of winding-up.
o Wages, salary of employee in respect of services rendered to company and due for
maximum of 4 months within 12 months before date of commencement of winding up. The
amount shall be upto as notified by CG.
o All accrued holiday remuneration payable to employee.
o All amount due in respect of contributions payable during the 12 months before the
winding up under the employees‘ state insurance or any other law.
o Any workmen‘s compensation under employee‘s compensation act, 1923.
o All sums due to any employee from provident fund, pension fund, gratuity and all other
fund.
o The expenses of investigation.
Fraudulent preference U/S 328 to 332
➢ Fraudulent preference means transfer of property or payment made by a person who is
unable to pay his debts in favour of creditor with a view to giving him preference over other
creditors.
Essentials of fraudulent preference
➢ That transaction took place within 6 months before making the winding up petition.
Motive to prefer one creditor in preference to other creditors.
➢ It was voluntary act relating to transfer of property, money, delivery of goods etc.
➢ U/S 329, fraudulent preference made by company within one year before commencement
of its winding up shall be void against the company liquidator . But excluding :
o Transfer of property or delivery of goods made in ordinary course of business.
o Transfer of property or delivery of goods in favour of purchaser or charge holders in
good faith and for consideration.
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Liability for fraudulent preference
➢ Person responsible for transfer would be personally liable as surety for debts.
➢ Any transfer or assignment of all its property of all its creditors shall be void U/S 330
➢ Creditors to whom fraudulent preference is given shall refund the money or property.
Effect of floating charge – section 332
➢ Any floating charge created within 12 months immediately preceding the commencement
of winding up is void unless it is proved that the company after the creation of charge was
solvent.
Liability under winding up
Penalty for fraud by officer U/S 337
➢ If person was officer of company at the time of commissioning offence , which is
now under winding up, is punishable for :
o Imprisonment at least 1 year-3 Years and
o Fine at least Rs.1 lac- Rs.3 lac
Liability for fraudulent conduct of business – section 339
➢ During the course of winding up, if business of company has been carried on with intent
to defraud creditors of company or any other persons or for any fraudulent purpose in such
case the tribunal on application of the company liquidator or creditor or contributory may
order that persons who were parties to such business shall be personally liable for such debts
of the company.
➢ Every person who is knowingly a party to default shall be liable for action under section
447.
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➢ Liability U/S 339 for offences committed before or during winding up.
Liability for misfeasance U/S 340
➢ Misfeasance means an act in the nature of breach of trust and which result in loss to the
company includes improper exercise of authority, dishonesty or fraud in any conduct.
Action by the tribunal
➢ During winding up it comes to notice that any person who has taken any part in the
formation or promotion or any past or present directors or company liquidator has misapplied
or retained the property or has been guilty of any misfeasance.
➢ An application can be made By:
o Official liquidator or company liquidator
o Creditor or contributory
➢ Within 5 years from the date of winding up order or first appointment of
liquidator or of misapplication, whichever is longer.
Liability of director
➢ Even after his death and assets of deceased director were liable in the hands of his
legal representative .U/S Director shall be jointly and severally liable.
➢ Tribunal may order against director, resident abroad for misfeasance proceeding. If
director has assets in India then decree can be enforced in India.
Examples of misfeasance
➢ Payment of dividends otherwise from distributable profits
➢ Failure to take an action for realization of certain debts.
Disposal of books and papers of company – section 347 of companies act, 2013
➢ As directed by the tribunal, in case of winding up by Tribunal.
➢ No responsibility of person to whom custody of books and papers are entrusted shall
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not be liable after expiry of 5 years from dissolution.
Winding up of unregistered company U/S 375 to 378
➢ Unregistered company includes any partnership, AOP; company consisting of more
than seven members at the time petition for its winding up is presented before the tribunal.
➢ However, it does not include :
o Railway company ; or
o Company registered under companies act
➢ An illegal association is not an unregistered company.
➢ Foreign company can be wound up as unregistered company.
➢ AOP or company having 7 or less than seven members can not be would up by the
tribunal as an unregistered company.
➢ Unregistered company can be compulsorily wound up be the tribunal.
Circumstances
➢ It has ceased to carry on business. It is unable to pay its debts.
➢ The tribunal is of opinion that it is just and equitable.
Procedure
➢ Provisions and procedure of compulsorily winding up is applicable in same manner here.
Inspection of books and papers U/S 346
➢ After winding up order by tribunal, any creditor or contributory , if CG so permits,
inspect the books and papers
Information to be furnished to tribunal, if winding up is not concluded within 1 yr.
within 2M from the expiry of year and copy to ROC U/S 348
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To deposit monies into scheduled bank by Liquidator U/S 350
➢ If company liquidator retains Rs.5000 or amount as prescribed by the tribunal for
period more than 10 days, he shall:
o Pay interest @12% for excess amount retained and penalty decided by the tribunal ;
o Be liable to pay any expenses occurred by reasons of his default ;and
o Be liable to refund, remuneration, as thinks fit by Tribunal.
Voluntary winding up/Members‘ Voluntary Winding Up.
➢ Solvent companies can opt for voluntary winding up.
➢ BOD and SH are of opinion that company has no purpose and it has enough funds to
pay back creditors in full, then this process is suitable.
➢ Voluntary winding up is also known as members‘ voluntary winding up.
➢ From 1/4/2017, voluntary winding up shall be conducted under insolvency and bankruptcy
code, 2016 (hereafter referred to as ―IBC‖) and insolvency and bankruptcy board of
India (voluntary liquidation process) regulations, 2017.
➢ Voluntary Winding Up if :
o SR in the general meeting for winding up of the company.
o Resolution in GM, requiring company to be wound up voluntarily as a result of expiry of its
duration, fixed by its AOA /on occurrence of any event as per AOA
Provisions or steps for voluntary winding up
➢ Where directors and SH decide to cease trading their solvent limited company.
Step 1 – Convene BM for voluntary liquidation and declaration
➢ From majority of directors of company verified by an affidavit stating that :
o They have made a full inquiry into the affairs of company and have formed an opinion that
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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
o The company is not being liquidated to defraud any person – section 59(3) (a) of the
insolvency code, 2016.
➢ File the declaration with ROC ,documents are attached with ;
o Audited FS and business operations record for 2 PFY or for period since its
incorporation, whichever is later.
o Assets valuation report, prepared by a registered value.
Step 2- Convene a GM
➢ Within 4 weeks of above , hold the SH meeting ;
o Approve proposal of voluntary liquidation of the company. (SR)
➢ Appoint an insolvency professional to act as liquidator.
➢ File copy of SR with the ROC in form MGT-14.
Step 3 – Approval of creditors, if company owes DEBT
➢ Creditor representing 2/3rd in value of the debt within 7 days of passing of SR at
creditor‘s meeting.
➢ A voluntary liquidation for a corporate person (here company) shall be deemed to have
commenced from the date of passing of resolution (after approval from creditors).
Step 4- Public announcement by the liquidator
➢ Within 5 days from his appointment (i.e. 5 days from the date of general meeting).
➢ The public announcement shall :
o Call upon stakeholders to submit their claims as on the liquidation commencement date ;
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and
o Provide the last date for submission of claim, which shall be 30 days from
liquidation commencement date.
➢ The public announcement shall be published in newspaper/Website/website designated by
Insolvency board for this purpose.
Step 5 – Proceeding by liquidator
➢ The liquidator shall submit a preliminary report to company within 45 days from the
liquidation commencement date with necessary details about co./plan/cost
➢ The liquidator shall preserve a physical as well as an electronic copy of the reports
and records for 8 years after the dissolution.
➢ Where the books of account of the corporate person are incomplete on the liquidation
commencement date, the liquidator shall have them completed and brought up to date.
➢ The liquidator shall keep receipts for all payments made or expenses incurred by him.
Liquidator has duties & rights :
➢ The liquidator may call for such other evidence or clarification as he deems fit from a
claimant for substantiating the whole or part of its claim.
Verification of claims
➢ The liquidator shall verify the claims submitted within 30 days from the last date
for receipt of claims and may either admit or reject the claim, in completely or in part.
➢ A creditor may appeal to the adjudicating authority against the decision of the liquidator.
List of stakeholders
➢ The liquidator shall prepare the list of stakeholders within 45 days from the last date
for receipt of claims.
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o The liquidator shall prepare a list of stakeholders on the basis of proofs of claims
submitted and accepted under these regulations.
Paid money into Scheduled bank a/c
➢ The liquidator shall open a bank A/C in the name of the corporate person followed by
the words in voluntary liquidation for receipt of all moneys due to the corporate person.
➢ All payments out of the account by the liquidator above 5000/- shall be made by
cheques drawn or online banking transactions against the bank account.
Distribution
➢ The liquidator shall distribute the proceeds from realization within 6M from receipt to
stakeholders.
➢ The liquidation costs shall be deducted before such distribution is made.
Step 6- completion of liquidation
➢ The liquidation shall endeavor to wind up the affairs of corporate person within
1year commencement date. If more than 1 year, the liquidator shall:
o Call a meeting of contributories within 15 days from the end of the year in which he
is appointed, and at the end of each succeeding year; and
o Shall present a status Report indicating progress in liquidation
➢ The status report shall enclose an audited account of voluntary liquidation showing R/P
pertaining to liquidation since the liquidation commencement date.
222 | P a g e
Step 7- Preparation of final report
➢ completion of the liquidation process, liquidator shall prepare final report consisting of :
o An audited account of voluntary liquidation, showing R/P pertaining to liquidation since
the liquidation commencement date ; and
o A statement demonstrating that –
• The assets of company have been disposed of ;
• The debt of the company has been discharged s;
• No litigation is pending or sufficient provision has been made.
o Sale statement in respect of all assets containing.
Step 8- Submission of final report or application with NCLT
➢ The liquidator shall send the final report by registered post and by electronic means:
o The contributories of the corporate person;
o The registrar ; and
o The board.
➢ Where the affairs of the company have been completely wound up, and its assets
completely liquidated, the liquidator shall make an application to the NCLT in form NCLT-1
for the dissolution of such company.
Step 9 – order by NCLT
➢ The tribunal shall fix a date for the hearing of the petition.
➢ Once satisfied, NCLT to pass an order that the corporate debtors shall be dissolved
from the date of order and the corporate debtor shall be dissolved accordingly.
223 | P a g e
Step 10 – filing of order with ROC within 14 days or other time fixed by BOD
Suspension of voluntary liquidation by app to Adjudicating authority.
➢ If liquidator is of the opinion that the voluntary liquidation is being done to defraud
➢ liquidator is of the opinion that the corporate person will not be able to pay its debts in
full
Removal of name of company from the ROC (defunct Company or striking off name of
company) U/S 248-252
➢ A defunct company means company which :
o Never commenced business in India ; or
o Has ceased the business.
Method of removal of name from ROC
➢ Removal by registrar on his own motion; or
➢ Removal on application of company which has no liabilities
Procedure for striking off by ROC on his own motion U/S 248(1) (method 1)
➢ ROC may strike off the name of the company.
o When company has failed to commence business within 1 year from DOI or
o When company is not carrying on any business or operation for 2PFY and has not made
any application to get status of a dormant company.
➢ Where the registrar has reasonable cause to believe for above , he may send notice to
company and all BOD of his intention to remove name of company from records.
➢ Notice is given in writing in form STK-1.
224 | P a g e
➢ Notice shall contain reasons for such removal.
➢ Notice is given by registered AD or by speed post.
Procedure for striking off name on application of company U/S 248(2) (method 2)
➢ Application from the company. Application for strike off is made in form STK-2.
➢ The application l be accompanied with following documents:
o Indemnity bond duly notarized by every director in form STK-3.
o Statement of accounts containing A/L made up to date, maximum 30 days before
date of application and certified by CA.
o An affidavit in form STK-4 by every director.
o Copy of SR duly certified by each director
o Statement regarding pending litigation, if any
➢ Form STK-2 shall be signed by director authorized by BOD and certified by
PCA/PCS/PCWA.
➢ Company can apply to strike off name after extinguishing all its liabilities and after SR or
by consent of 75% of members in terms of paid up capital.
➢ If company is regulated by special act, approval of that regulated body needed.
➢ Application for striking off cannot be made , if at any time in previous 3 months company
o Has changed its name
o Has shifted its registered office from one state to another.
o Has made disposal for value of property or rights held by it, immediately before
cease of trade or otherwise carrying on of business.
o Has engaged in any other activity except the one which is necessary for making an
225 | P a g e
application
o Has applied to the tribunal for sanctioning of compromise or arrangement and
matter is pending
Common procedure for both methods
➢ Notice shall be published in form STK 5 or form STK 6 for information of general public
and:
o Placed on website of MCA
o Published in official Gazette
➢ Published in one English newspaper and one vernacular newspaper
➢ ROC shall intimate about proposed removal of name of company to the concerned
regulatory authorities and seek objection, if any , within 30 days.
➢ If no contrary is shown within specified time in notice, registrar shall strike off
name & publish notice in the official Gazette and placed on website of MCA.
Consequences of striking off
➢ Company shall stand dissolved.
➢ Liability of managerial personnel and members are not affected.
Liabilities for fraudulent application U/S 251
Person in charges of management is liable –
o Jointly and severally to person for any loss suffered; and
o To be punished for fraud under section 447.
226 | P a g e
Appeal to tribunal U/S 252
➢ Any person aggrieved by order of dissolving company by ROC may file an appeal to
tribunal within 3 years from date of publication of order in official gazette
➢ The tribunal may order for restoration of name after giving OBH.
➢ Once name has been struck off by ROC, the tribunal has power to restore the name if :
o Application for this purpose by company, any member, creditor, contributories or
workman.
o The company was at the time of strike off carrying on business, or otherwise it is in
interest of justice.
o The application is made before the expiry of 20 years from the publication in the official
Gazette of the notice for striking off the name of company.
o While passing an order for restoration, the tribunal may give such directions as if the
name of company had not been struck off.
o Order of the tribunal filed with registrar then Restoration becomes effective.
227 | P a g e

Paper-13 Corporate Laws: & Compliance

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Paper-13 Corporate Laws: & Compliance

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Corporate Laws &

Gyan Sagar Classes

S.N. Topic Page No.

04 Board Meeting 110-134

05 Loans & Investments 135-140

06 Accounts of Companies 141-164

07 Inspection & Investigation 165-181

08 Divisible Profits & Dividends 182-188

09 Compromise & Arrangements 189-206

from its members.

Case: Salomon v/s Salomon co. ltd.

It doesn’t’ matter by whom it is held.

3. Perpetual Succession – An incorporated Company never dies except where it is wound up as

4. Transferability of Shares – Generally in Public Co. there is free transferability of shares

but not in private company.

even can be sued in its own name.

LIFTING UP OR PIERCING THROUGH CORPORATE VEIL- Separate legal entity of a

the name of company:.

Company, where it is used for tax invasion or circumventing tax obligation.

2. Determination of enemy character of the Company: Company being an artificial person

3. Prevention of fraud: Where a Company is used for committing frauds or improper

Veil.(Gilford Motor Company vs Horne).

6. Where a Company acts as an agent of its shareholders: If there is an arrangement

of the shareholders and will have unlimited liability.

Industry Ltd. Vs Associated Rubber Industry Ltd.)

orders of the Court. Therefore, the persons at fault should be identified.

Classification of Companies – Companies are classified:

On the basis of nature of liability of members:

to the amount unpaid on the shares held by them.

On the basis of membership

Private Company - Section 2 (68):

1. Private company means which by its articles

➢ Restricts the right to transfer its shares.

➢ Limits the number of its member to 200 excluding:

o The person who are in the employment of the company.

joint shareholders, they will be counted as one member only.

2. Name of Private Company must ends with Pvt. Ltd.

3. A Private Company must have minimum 2 members.

4. A Private Company must have minimum 2 Directors. (Section 149).

Public Company - Section 2 (71):

➢ Public company means a company which is not a private company.

➢ If a private company which is subsidiary of a public company is also treated as public

➢ Has minimum members 7..

➢ Has minimum directors 3.(Section 149).

➢ The name of the public company ends with “Limited”.

One Person Company- [Section 2 (62)]:

director of the Company.

4. Legal nominee of OPC must also be an Indian citizen and resident.

5. No person can incorporate more than 1 OPC at a time.

6. It needs not to hold AGM.

7. It cannever be converted into a Section 8 company.

other companies shall also be applicable to this O.P.C.

On the basis of control:

Subsidiary Company - A co. shall be deemed to be a subsidiary of anther co. if.

o That other co. controls the composition of its board of directors.

On the basis of Government Control:

o Non Government company

Governments, and includes a company which is a subsidiary company of such a Government

Non Government company:

Other types of companies

The other types of companies are as follows-