CMA INTER DIRCTORS - Watermark - 25586055 - 2023 - 12 - 08 - 19 - 25

ARJUN CHHABRA TUTORIAL
Of Arjun Chhabra
(CS LLB LLM)
Law Maven
Directors
Need for directors
1. Company is an artificial person
• On incorporation, a company becomes a legal person.
• A company is not a natural person, i.e. it has no mind or body of its own, it has no eyes to see, no
ears to hear, no hands to sign and no brain to think and take decisions. Therefore, a company
cannot act by itself and consequently it has to depend upon some human agency to act in its name.
• The two human agencies, through which a company acts, are the members of the company and
the Board of directors. In other words, the decision-making powers of a company are vested in its
two organs, viz. the members of the company and the Board of directors. The Board is the
managerial body to whom is entrusted the whole of the management of the company. It is
constituted by the members. Directors are accountable to the members in as much as members
are empowered to appoint them and remove them.
2. Separation of ownership from management

• The members have no inherent right to participate in the management of the company. They
generally lack the expertise to manage the affairs of a company.
• Therefore, a specialised body of persons, called as directors are appointed by the members to
manage the affairs of the company.
3. Statutory requirement to have directors

• As per section 149(1), every public company shall have a minimum of 3 directors,
• every private company shall have a minimum of 2 directors and
• every one Person Company shall have a minimum of 1 director.
• The maximum number of directors shall be fifteen. A company may appoint more than 15 directors
after passing a special resolution.
Page | 1
Of Arjun Chhabra
(CS LLB LLM)
Law Maven
Meaning of 'director' and 'Board of directors' [Section 2(34) and Section 2(10)]
As per Clause (34) of Section 2 of the Companies Act, 2013, 'director' means a director appointed to the
Board of a company.
Here Appointed means:

1. A resolution has been passed to appoint a director.
2. Proposed person has consented to become director.
3. He has assumed the office of director i.e he is acting as director.
It means that a person shall be regarded as a director only if he is appointed as a director by the company.
In other words, if a person occupies the position of a director (i.e. he functions as a director), but is not
appointed as a director, he shall not be regarded as a director.
Mere designation of director does not satisfy the term ‘’appointed’’
As per Clause (10) of Section 2 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.
All the powers vested in the Board of directors are exercisable by the directors collectively, i.e. by the
Board. An individual director has no authority to act on behalf of the company, unless he is so authorised
by the Act, articles, a resolution of the Board of directors or a resolution of the members.
Page | 2
Of Arjun Chhabra
(CS LLB LLM)
Law Maven
Meaning of executive directors' and 'non-executive directors'
Executive directors Non-executive directors
• The directors who are in the employment of the • Directors who are not in the employment of the
company are called as executive directors or company are called as non-executive directors or
inside directors. part time directors or outside directors.
• A whole time director and managing director • This category includes professional directors and
are covered in this category of directors. nominee directors.
• They take active interest in the day-to-day • They are not intimately connected with the
affairs of the company. company except through attending the Board
meetings. They have an unbiased attitude towards
the working of the company.
Managing Director
Section 2(54) defines the term ‘Managing Director’
• as a director,
• who by virtue of
• the articles of a company or
• an agreement with the company or
• a resolution passed in its general meeting, or
• by its Board of Directors,
• is entrusted with substantial powers of management of the affairs of the company
• and includes a director occupying the position of Managing director, by whatever name called.
Nominee Director Section 161 (3)

A ‘nominee director’ means a director nominated by any financial institution in pursuance of the provisions
of any law for the time being in force, or of any agreement, or appointed by the Government
or any other person to represent its interests.
Whole time director [Section 2(94)]

'Whole-time director' includes a director in the whole-time employment of the company.
Page | 3
Of Arjun Chhabra
(CS LLB LLM)
Law Maven
Only individuals to be directors (Sections 149)
• The Board of directors of every company shall consist of individuals only. Thus, no body corporate,
association, firm or Limited Liability Partnership (LLP) shall be appointed as a director.
• The reason behind the provision is that the office of a director is similar to a trust. So, there should be
somebody readily available who can be held responsible for the failure to carry out obligations of such
an office.
Question 1:
Write short notes on Director Identification Number [5 Marks – Dec 19] [5 Marks – Dec 17]
Answer:
1. Director Identification Number is allotted by the central government to every individual who is to be
appointed as director of a company after receiving the application form in prescribed Form No. DIR-
3 along with the fees for the same.
2. The form shall be attested by a chartered accountant in practice or a company secretary in practice
or a cost accountant in practice.
3. The central government shall process the application form within one month of receiving the same
and allot the Director Identification Number to the applicant after approving the application or give
intimation of rejection of the application.
4. The DIN once allotted shall remain valid for the life time of the director and it will not be allotted to
any other person.
Page | 4
Of Arjun Chhabra
(CS LLB LLM)
Law Maven
5. The director on allotment of DIN is to intimate the company.
6. Every company shall within 15 days of the receipt of intimation furnish the same with the Registrar.
7. If any company fails to furnish the Director Identification Number under sub-section (1), such
company shall be liable to a penalty of twenty-five thousand rupees and in case of continuing failure,
with further penalty of one hundred rupees for each day after the first during which such failure
continues, subject to a maximum of one lakh rupees, and every officer of the company who is in
default shall be liable to a penalty of not less than twenty-five thousand rupees and in case of
continuing failure, with further penalty of one hundred rupees for each day after the first during
which such failure continues, subject to a maximum of one lakh rupees.
Prohibition of assignment of office (Section 166)
• No director shall assign his office to any other person. Any assignment of office made by a director shall
be void.
• If a director of the company contravenes the provisions of section 166, he shall be punishable with fine
which shall not be less than Rs. 1 lakh but which may extend to Rs. 5 lakh.
X' was appointed as a director for life by the articles of association of a private company incorporated on
1st June, 2014. The articles also empowered 'X' to appoint a successor. 'X' appointed, by will, 'G' to succeed
him after his death. Can 'G' succeed 'X' as a director after the death of 'X'?
Ans. No director shall assign his office to any other person. If he does, the assignment shall be void (Section
166).
In the given case, the articles of a company empowered its director to appoint a successor. The director
appointed, by his will, Mr. G to succeed him as a director after his death. The Court observed that a director
is prohibited from assigning his office. The word 'his' used in section 166 indicates that the prohibition
applies only when an office held by a director is assigned to any other person. Where a director dies, the
office held by him becomes vacant and therefore, such office cannot be assigned to any other person.
Therefore, appointment of a new person in such office does not amount to an assignment within the
meaning of section 166 [Oriental Metal Pressing Pvt. Ltd. v B.K. Thakoor (1961) 31 Comp Cas 143].
The facts of the given case are identical to the facts discussed in the above case. Accordingly, it can be said
that appointment of 'G' is valid and it does not amount to an assignment of office by 'X'.
Page | 5
Of Arjun Chhabra
(CS LLB LLM)
Law Maven
Question 2:
Enumerate the provisions of the Companies Act, 2013 relating to women director in a company. [5 Marks
– Dec 18]
Answer:
Second proviso to Section 149(1) of the Companies Act, 2013 read with Rule 3 of Companies (Appointment
and Qualification of Directors) Rules, 2014 provides that the following classes of companies shall appoint
at least one-woman director
• Every listed company;

• every other public company having
• paid up share capital Rs. 100 crores or more;
or
• turnover of Rs. 300 crores or more.
For this purpose the paid capital or turnover as on the last date of latest audited financial statements shall
be taken into account.
A company incorporated under the Companies Act 2013 shall comply with such appointment of woman
director within a period of six months from the date of its incorporation.
Any intermittent vacancy of a woman director shall be filed up by the Board at the earliest
• but not later than
• immediate next Board meeting
or
• three months from the date of such vacancy
• whichever is later.
Test Yourself:
The Board of Directors of MNP Ltd. appointed Neha as a women director in the board meeting held on
10th September, 2014. The said appointment was made to fill the vacancy of the woman director, which
had occurred as a result of resignation of Sheela on 30th June, 2014. Will your answer differ if the board
meeting of the company was held on 8th November, 2014?
Answer:
As per Rule 3 of the Companies (Appointment & Qualification of Directors) Rule, 2014 any intermittent
vacancy of a woman director shall be filled up by the Board at the earliest but not later than immediate
next Board meeting or three months from the date of such vacancy, whichever is later.
As per the above provisions, the appointment of Neha is valid. The vacancy of a woman director of MNP
Ltd. which arose on 30th June 2014, due to the resignation of Ms. Sheela, should be filled up latest by 29th
September 2014 or the day of the next board meeting, whichever is later. Since, Neha was appointed in
the next board meeting after the vacancy arose, i.e. on 10th September 2014, her appointment is valid.
Page | 6
Of Arjun Chhabra
(CS LLB LLM)
Law Maven
The answer will remain the same, even if MNP Ltd. appoints Neha in the board meeting held on 8th
November 2014, provided the said meeting is the first meeting of the Board after 30th June 2014 i.e. after
the resignation of Sheela.
Question 3:
What are the disqualifications of a person for the appointment as a director under the Companies Act,
2013? [8 Marks – Dec 19] [10 Marks – June 18] [8 Marks – MTP Dec 23 Syllabus 2016] [7 Marks MQP Set
1 Syllabus 2022]
Answer:
Grounds of disqualification [Sec. 164(1)]
A person who/against
(a) Unsound mind: Declared by a Court
(b) Undischarged insolvent
(c) Applied to be adjudicated as an insolvent + Application is pending
(d) Convicted by a Court for any offence (whether involving moral turpitude or otherwise)
+
Imprisonment (6 months or more)
✓ Disqualified for 5 years (from the expiry of sentence)
Convicted by a Court for any offence (whether involving moral turpitude or otherwise)
+
Imprisonment (7 years or more)
✓ Disqualified for lifetime.
(e) an order disqualifying him for appointment as a director has been passed by the Court or Tribunal
and the order is in force.
(f) he has not paid any calls in respect of any shares of the company held by him, whether alone or jointly
with others and six months have elapsed from the last day fixed for the payment of the call.
(g) he has been convicted of the offence dealing with related party transactions under Section 188 at any
time during the last preceding five years.
(h) he has not obtain DIN.
(i) Not complied with Sec. 165(1) [i.e. his directorships exceed the limit specified u/s 165(1)]
Provided that the disqualifications referred to in clauses (d), (e) and (g) of sub-section (1) shall continue to
apply even if the appeal or petition has been filed against the order of conviction or disqualification.
(2) No person who is or has been a director of a company which—

(a) has not filed
➢ financial statements
or
➢ annual returns
➢ for any continuous period of three financial years; or
Page | 7
Of Arjun Chhabra
(CS LLB LLM)
Law Maven
(b) has failed to
➢ repay the deposits accepted by it
or
➢ pay interest thereon
or
➢ to redeem any debentures on the due date
or
pay interest due thereon
or
➢ pay any dividend declared
and
such failure to pay or redeem continues for one year or more, shall be eligible to be re-appointed as
a director of that company or appointed in other company for a period of five years from the date on
which the said company fails to do so.
Provided that where a person is appointed as a director of a company which is in default of clause (a) or
clause (b), he shall not incur the disqualification for a period of six months from the date of his
appointment.
(3) A private company may by its articles provide for any disqualifications for appointment as a director in
addition to those specified in sub-sections (1) and (2).
Test Yourself:
State with reference to the relevant provisions of the Companies Act, 2013 whether the following persons
can be appointed as a director of a public company:
(i) Mr. A, who has huge personal liabilities far in excess of his assets and properties, has applied to the
Court for adjudicating him as an insolvent and such application is pending.
(ii) Mr. B, who was caught red-handed in a shop lifting case 2 years ago, was convicted by a Court and
sentenced to imprisonment for a period of 8 weeks.
(iii) Mr. C, former bank executive, was convicted by a Court 8 years ago for embezzlement of funds and
sentenced to imprisonment for a period of 1 year.
(iv) Mr. D is a director of DLT Ltd., which has not filed its annual returns pertaining to the annual general
meetings held in the calendar years 2014, 2015 and 2016.
Answer:
(i) As per Section 164(1), Since, Mr. A has himself applied to the Court for adjudicating himself as an
insolvent, he is disqualified to be appointed as director, even if his application is pending.
(ii) As per Section 164(1), In the present case Mr. B was caught red-handed in a shop lifting case and
was sentenced to imprisonment for a period of 8 weeks i.e. less than 6 months, he is not disqualified and
can be appointed as director.
Page | 8
Of Arjun Chhabra
(CS LLB LLM)
Law Maven
(iii) As per Section 164(1), if any person has been convicted by a Court of any offence, whether involving
moral turpitude or otherwise, and sentenced to imprisonment for 6 months or more, he is disqualified to
be appointed as director for next 5 years from the date of expiry of the sentence. Since, more than 5 years
has been elapsed form the date of expiry of the sentence, Mr. C can be appointed as a director.
(iv) As per Section 164(2); a person who is or has been a director of a company shall not be eligible to be
re-appointed as a director of that company or appointed in other company for a period of 5 years which
has not filed financial statements or annual returns for any continuous period of 3 financial years. Since,
Mr. D has not filed annual returns for continuous period of 3 financial years; he is disqualified to be
appointed as director for next 5 years.
Question 4:
“Office of a Director shall become vacant in case”. Comment [RTP-Dec 2018]
(1) The office of a director shall become vacant in case—
(a) he incurs any of the disqualifications specified in section 164;
Provided that where he incurs disqualification under sub-section (2) of section 164, the office of
the director shall become vacant in all the companies, other than the company which is in default under
that sub-section.]
(b) he absents himself from all the meetings of the Board of Directors held during a period of twelve
months with or without seeking leave of absence of the Board;
(c) he acts in contravention of the provisions of section 184 relating to entering into contracts or
arrangements in which he is directly or indirectly interested;
(d) he fails to disclose his interest in any contract or arrangement in which he is directly or indirectly
interested, in contravention of the provisions of section 184;
(e) he becomes disqualified by an order of a court or the Tribunal;
(f) he is convicted by a court of any offence, whether involving moral turpitude or otherwise and
sentenced in respect thereof to imprisonment for not less than six months:
Provided that the office shall not be vacated by the director in case of orders referred to in clauses (e) and
(f)-
(i) for thirty days from the date of conviction or order of disqualification;
(ii) where an appeal or petition is preferred within thirty days as aforesaid against the conviction resulting
in sentence or order, until expiry of seven days from the date on which such appeal or petition is disposed
of; or
(iii) where any further appeal or petition is preferred against order or sentence within seven days, until
such further appeal or petition is disposed of.]
(g) he is removed in pursuance of the provisions of this Act;
Page | 9
Of Arjun Chhabra
(CS LLB LLM)
Law Maven
(h) he, having been appointed a director by virtue of his holding any office or other employment in the
holding, subsidiary or associate company, ceases to hold such office or other employment in that
company.
(2) If a person, functions as a director even when he knows that the office of director held by him has
become vacant on account of any of the disqualifications specified in subsection (1), he shall be
punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees.
(3) Where all the Directors of a company vacate their offices under any of the disqualifications specified
in sub-section (1), the promoter or, in his absence, the Central Government shall appoint the required
number of Directors who shall hold office till the Directors are appointed by the company in the general
meeting.
(4) A private company may, by its articles, provide any other ground for the vacation of the office of
a director in addition to those specified in sub-section (1).
Test Yourself:
Nalin is a director of ABC Ltd. which has failed to repay matured deposit from 1st April, 2014 onwards and
the default continues. But ABC Ltd. is regular in filing annual accounts and annual returns. Nalin is also
director of PQR Ltd. and XYZ Ltd.
Answer the following question with reference to the relevant provisions of the Companies Act, 2013:
Page | 10
Of Arjun Chhabra
(CS LLB LLM)
Law Maven
(i) Whether Nalin is disqualified and if so, whether he is required to vacate his office of director in PQR Ltd.
and XYZ Ltd.?
(ii) Is it possible for the board of director of DEF Ltd. to appoint Nalin as an additional director at the board
meeting to be held on 15th May 2015? Would your answer be different if Nalin ceased to be director of
ABC Ltd. by resignation on 1st March 2015?
Answer:
As per Section 164(2), a person who is or has been a director of a company shall not be eligible to be re-
appointed as a director of that company or appointed in other company for a period of 5 years which has
failed to repay the deposits accepted by it or pay interest thereon or to redeem any debentures on the
due date or pay interest due thereon or pay any dividend declared and such failure to pay or redeem
continues for 1 year or more.
In the given case ABC Ltd. has failed to repay its deposits on the due date i.e. 1.4.2014 and such default
continues for more than 1 year i.e. beyond 31.3.2015.
Therefore -
- Nalin shall not be eligible to appointed as director in any other company after 31.3.2015 for a period
of 5 years. Thus, DEF Ltd. cannot appoint Nalin as an additional director on 15.5.2015.
- As per Section 167(l)(a), due disqualification under Section 164, Nairn's office of director in ABC Ltd,
PQR Ltd. & XYZ Ltd. shall become vacant on the expiry of 31.3.2015.
If Nalin had ceased to be director of ABC Ltd. by resignation on 1.3.2015, he would have escaped the
disqualification specified in Section 164(2) and thus, DEF Ltd. could appoint Nalin as an additional director
on 15.5.2015.
Question 5:
What are the qualification of independent directors? [5 Marks – MTP June 20] [RTP-Dec 2018] [RTP-Dec
2018] [June 2017 – 6 Marks]
Section 149 (4) provides that
• every listed company
• is required to appoint at least one third of the total number of directors as independent director.
• Any fraction contained in such one third numbers shall be rounded off as one.
• In case the Board contains total 10 directors in a company, the company is required to appoint 4
independent directors (10/3=3.1; fraction is rounded off to 4).
• Rule 4 provides that the following class or classes of companies shall have at least 2 directors as
independent directors-
• the Public companies having paid up share capital of Rs.10 crores or more; or
• the Public companies having turnover of Rs.100 crores or more; or
Page | 11
Of Arjun Chhabra
(CS LLB LLM)
Law Maven
• the Public companies which have, in aggregate, outstanding loans, debentures and deposits
exceeding Rs.50 crores.
The term ‘independent director’ is defined under Section 149(6) of the Act as a director other than a
Managing Director or a whole-time director or a nominee director-
Page | 12
Of Arjun Chhabra
(CS LLB LLM)
Law Maven
Page | 13
Of Arjun Chhabra
(CS LLB LLM)
Law Maven
Page | 14
Of Arjun Chhabra
(CS LLB LLM)
Law Maven
Question6
Discuss the procedure for Rotation of Directors and re-appointment of directors. [8 Marks – MTP June 20]
[5 Marks – June 23 Syllabus 2022] [MQP Set 2 Syllabus 22] [10 Marks – MQP]
Page | 15
Of Arjun Chhabra
(CS LLB LLM)
Law Maven
Page | 16
Of Arjun Chhabra
(CS LLB LLM)
Law Maven
Page | 17
Of Arjun Chhabra
(CS LLB LLM)
Law Maven
Total Directors 3 4 5 6 7 8 9 10 11 12 13 14
Rotational Directors Total Director x 2/3 (rounded up 2 3 4 4 5 6 6 7 8 8 9 10

to next)
Non-Rotational Directors Total Director - Rotational 1 1 1 2 2, 2 3 3 3 4 4 4

directors
Director that retire at AGM Rotational Directors * 1/3 1 1 1 1 2 2 2 2 3 3 3 3

(rounded to nearest)
Page | 18
Of Arjun Chhabra
(CS LLB LLM)
Law Maven
Page | 19
Of Arjun Chhabra
(CS LLB LLM)
Law Maven
Question 7:
Mr. Sohit, a Director of PQR Limited proceeding on a long foreign tour, appointed Mr. Sohan as an
alternate director to act for him during his absence. The articles of the company provide for appointment
of alternate directors. Mr. Sohit claims that he has a right to appoint alternate director. Demonstrate
whether Mr. Sohit is correct based on legal provisions? [7 Marks MQP Set 1 Syllabus 22]
Test yourself:
X, a director of a company, was appointed at the AGM. X resigned and casual vacancy was filled by the
appointment of Y at a meeting of the Board. Later on, Y resigned and the directors again invited X to fill
the vacancy created by the resignation of Y. Is the action of the Board in appointing X, in the second
instance, in accordance with the provisions of the Companies Act, 2013?
Answer:
As per Section 164(4), in the case of a public company, if the office of any director appointed by the
company in general meeting is vacated before his term of office expires in the normal course, the resulting
casual vacancy may be filled by the board of directors at a meeting of the Board.
Thus, casual vacancy created by the resignation of Y cannot be filled by the board of director. In such case
X can be appointed as additional director and in next AGM he can be appointed as regular director by
complying provisions of Section 160.
Question 8:
Discuss the rules of appointment of director elected by small shareholders in a company. [5 Marks – June
19] [5 Marks – June 23 Syllabus 2016]
Page | 20
Of Arjun Chhabra
(CS LLB LLM)
Law Maven
Answer:
Appointment of director elected by small shareholders. [Section 151]
A listed company may have one director elected by such small shareholders in such manner and with such
terms and conditions as may be prescribed.
Explanation. —For the purposes of this section “small shareholders” means a shareholder holding shares
of nominal value of not more than twenty thousand rupees or such other sum as may be prescribed.
(1) A listed company, may upon notice of

• not less than one thousand small shareholders
or
• one-tenth of the total number of such shareholders,
• whichever is lower,
have a small shareholders’ director elected by the small shareholders:
Provided that nothing in this sub-rule shall prevent a listed company to opt to have a director representing
small shareholders suo motu and in such a case the provisions of sub-rule (2) shall not apply for
appointment of such director.
(2) The small shareholders

• intending to propose a person as a candidate for the post of small shareholders’ director
• shall leave a notice of their intention with the company
• at least fourteen days before the meeting
• under their signatures
• specifying the
✓ name, address, shares held and folio number of the person whose name is being proposed for
the post of director
and
✓ of the small shareholders who are proposing such person for the office of director:
Provided that if the person being proposed does not hold any shares in the company, the details of shares
held and folio number need not be specified in the notice:
(3) The notice shall be accompanied by a statement signed by the person whose name is being proposed
for the post of small shareholders’ director stating -
(a) his Director Identification Number;
(b) that he is not disqualified to become a director under the Act; and
(c) his consent to act as a director of the company
Page | 21
Of Arjun Chhabra
(CS LLB LLM)
Law Maven
(4) Such director shall be considered as an independent director subject to, his being eligible under sub-
section (6) of section 149 and his giving a declaration of his independence in accordance with sub-section
(7) of section 149 of the Act.
(5) The appointment of small shareholders’ director shall be subject to the provisions of section 152 except
that-
(a) such director shall not be liable to retire by rotation;
(b) such director’s tenure as small shareholders’ director shall not exceed a period of three consecutive
years; and
(c) on the expiry of the tenure, such director shall not be eligible for re-appointment.
(6) A person shall not be appointed as small shareholders’ director of a company, if the person is not
eligible for appointment in terms of section 164.
(7) A person appointed as small shareholders’ director shall vacate the office if -
(a) the director incurs any of the disqualifications specified in section 164;
(b) the office of the director becomes vacant in pursuance of section 167;
(c) the director ceases to meet the criteria of independence as provided in sub-section (6) of section 149.
(8) No person shall hold the position of small shareholders’ director in more than two companies at the
same time:
Provided that the second company in which he has been appointed shall not be in a business which is
competing or is in conflict with the business of the first company.
(9) A small shareholders’ director shall not, for a period of three years from the date on which he ceases
to hold office as a small shareholders’ director in a company, be appointed in or be associated with such
company in any other capacity, either directly or indirectly.
Page | 22
Of Arjun Chhabra
(CS LLB LLM)
Law Maven
Question 9:
Can a director be removed? If so give the procedure in detail. [10 Marks – MTP June 20] [Dec 22 – 10
Marks]
Answer:
Page | 23
Of Arjun Chhabra
(CS LLB LLM)
Law Maven
Page | 24
Of Arjun Chhabra
(CS LLB LLM)
Law Maven
Question 10:
Describe the procedure for the resignation of Director under the Companies Act, 2013. [10 Marks – June
19] [9 Marks – June 17] [10 Marks – June 23 Syllabus 2016]
Answer:
(1) A director may resign from his office
• by giving a notice in writing to the company
and
• the Board shall on receipt of such notice take note of the same
and
• the company shall within thirty days from the date of receipt of notice of resignation from a
director intimate the Registrar in Form DIR-12
and
• post the information on its website, if any.
and
Page | 25
Of Arjun Chhabra
(CS LLB LLM)
Law Maven
• shall also place the fact of such resignation in the report of Directors laid in the immediately
following general meeting by the company:
Provided that a director may also forward a copy of his resignation along with detailed reasons for the
resignation to the Registrar within thirty days of resignation in Form DIR-11
Provided that in case a company has already filed Form DIR-12 with the Registrar, a foreign director of
such company resigning from his office may authorise in writing a practising chartered accountant or cost
accountant in practice or company secretary in practice or any other resident director of the company to
sign Form DIR-11 and file the same on his behalf intimating the reasons for the resignation
(2) The resignation of a director shall take effect from the date
• on which the notice is received by the company
or
• the date, if any, specified by the director in the notice, whichever is later:
Provided that the director who has resigned shall be liable even after his resignation for the offences which
occurred during his tenure.
(3) Where all the Directors of a company resign from their offices, or vacate their offices under section
167, the promoter or, in his absence, the Central Government shall appoint the required number of
Directors who shall hold office till the Directors are appointed by the company in general meeting.
Question 11:
Discuss the powers of the Board of Directors of a company as per the Companies Act, 2013. [10 Marks –
Dec 18] [MQP Set 2 Syllabus 2022]
Page | 26
Of Arjun Chhabra
(CS LLB LLM)
Law Maven
Answer:
Powers of the Board: Section 179
Section 179 of the Act deals with the powers of the board; all powers to do such acts and things for which
the company is authorised is vested with board of directors.
But the board can act or do the things for which powers are vested with them and not with general
meeting.
The following (section 179(3) read with Rule 8 of Companies (Management & Administration) Rules, 2014
powers of the Board of directors shall be exercised only by means of resolutions passed at meetings of the
Board, namely:-
(1) to make calls on shareholders in respect of money unpaid on their shares;

(2) to authorise buy-back of securities under section 68;
(3) to issue securities, including debentures, whether in or outside India;
(4) to borrow monies;
(5) to invest the funds of the company;
(6) to grant loans or give guarantee or provide security in respect of loans;
(7) to approve financial statement and the Board’s report;
(8) to diversify the business of the company;
(9) to approve amalgamation, merger or reconstruction;
(10) to take over a company or acquire a controlling or substantial stake in another company;
(11) to make political contributions;
(12) to appoint or remove key managerial personnel (KMP);
(13) to appoint internal auditors and secretarial auditor;
The Board may, by a resolution passed at a meeting, delegate to any committee of directors, the managing
director, the manager or any other principal officer of the company or in the case of a branch office of the
company, the principal officer of the branch office, the powers specified in (4) to (6) above on such
conditions as it may specify.
The banking company is not covered under the purview of this section.
The company may impose restriction and conditions on the powers of the Board.
Page | 27
Of Arjun Chhabra
(CS LLB LLM)
Law Maven
Question 12:
Enumerate the provisions relating to Restrictions on powers of Board. [Dec 17 – 7 Marks] [MQP Set 2
Syllabus 2022]
Answer:
Section 180 of the Companies Act 2013: Restrictions on powers of Board
The board can exercise the following powers only with the consent of the company by special resolution,
namely –
(a) to sell, lease or otherwise dispose of the whole or substantially the whole of the undertaking of the
company or where the company owns more than one undertaking, of the whole or substantially the whole
of any of such undertakings.
(b) to invest otherwise in trust securities the amount of compensation received by it as a result of any
merger or amalgamation;
(c) to borrow money, where the money to be borrowed, together with the money already borrowed by
the company will exceed aggregate of its paid-up share capital and free reserves, apart from temporary
loans obtained from the company's bankers in the ordinary course of business;
(d) to remit, or give time for the repayment of, any debt due from a director.
The special resolution relating to borrowing money exceeding paid up capital and free reserves specify the
total amount up to which the money may be borrowed by Board.
Page | 28
Of Arjun Chhabra
(CS LLB LLM)
Law Maven
The title of buyer or the person 'who takes on lease any property, investment or undertaking on good faith
cannot be affected and also in case if such sale or lease covered in the ordinary business of such company.
The resolution may also stipulate the conditions of such sale and lease, but this doesn't authorise the
company to reduce its capital except the provisions contained in this Act.
The debt incurred by the company exceeding the paid capital and free reserves is not. Valid and effectual,
unless the lender proves that the loan was advanced on good faith and also having no knowledge of limit
imposed had been exceeded.
Page | 29
Of Arjun Chhabra
(CS LLB LLM)
Law Maven
Refer module Page 401
Page | 30
Of Arjun Chhabra
(CS LLB LLM)
Law Maven
Page | 31
Of Arjun Chhabra
(CS LLB LLM)
Law Maven
Page | 32
Of Arjun Chhabra
(CS LLB LLM)
Law Maven
Page | 33
Of Arjun Chhabra
(CS LLB LLM)
Law Maven
Question 13:
Which will not form part of the remuneration of a director? [8 Marks – MTP Dec 23 – Syllabus 2016]
Answer:
Section 197 (1) provides that the total managerial remuneration payable by a public company to its
directors, including Managing Director and a Whole time director in respect of any financial year shall not
exceed 11% of the net profits of the company. The company, in general meeting may, authorize the
payment of remuneration exceeding 11% of the net profits of the company. Where the company has
defaulted in payment to bank/PFI or NCD or any secured creditor, prior approval of the bank/PFI shall be
obtained before the special resolution.
If any director draws or receives, directly or indirectly, by way of remuneration any such sums in excess of
the limit prescribed or without approval required under this section, he shall refund such sums to the
company and until such sum is refunded hold it in trust for the company.
Remuneration to MD or WTD
The second proviso to Section 197(1) provides that the remuneration payable to any one Managing
Director or whole time director or manager shall not exceed 5% of the net profits of the company. If there
are more than one whole time director remuneration shall not exceed 10% of the net profits to all such
directors and manager taken together.
Remuneration payable to directors

The remuneration payable to directors, who are neither Managing Directors nor Whole Time directors,
shall not exceed 1% of the net profits, if there is a Managing Director or Whole time director or manager.
In other cases, it shall not exceed 3% of the net profits.
Remuneration when there is no profit

Section 197(3) provides that if, in any financial year, a company has no profits or its profits are inadequate,
the company shall not pay to its directors including Managing Directors or whole time director by way of
remuneration any sum exclusive of any fees payable. Remuneration may be payable in such a situation in
accordance with the provisions of Schedule V
Sitting fees
A director may receive fee for attending the meetings of the Board or Committee thereof or for any other
purpose whatsoever as may be decided by the Board. Such fees shall not exceed one lakh rupees per
meeting of the Board or Committee thereof. The independent directors and women directors may receive
the fees not less than the fee payable to other directors.
Professional fee
Any remuneration for services rendered by any such director in other capacity shall not be included if the
services rendered are of a professional nature and in the opinion of the Nomination and Remuneration
Committee or the Board of Directors, the director possesses the requisite qualification for the practice of
the profession.
Page | 34
Of Arjun Chhabra
(CS LLB LLM)
Law Maven
Periodicity of payment
Section 197(6) provides that a director may be paid remuneration either by way of monthly payment or at
a specified percentage of the net profits of the company or partly by one way and partly by other.
Insurance premium
Section 197 (13) provides that where any insurance is taken by a company on behalf of its managing
director, whole time director for indemnifying any of them against any liability in respect of any negligence,
default, misfeasance, breach of duty or breach of trust for which they may be guilty in relation to the
company, the premium paid on such insurance shall not be treated as part of the remuneration payable
to such director. If such person is proved to be guilty, the premium paid on such insurance shall be treated
as part of remuneration.
Section 181: Contributions to Charitable Funds and Political Parties
•The power of making contribution to ‘bona fide’ charitable and other funds is available to the board
subject to certain limits.
• Further, the permission of company in general meeting is required if such contribution exceeds five
percent of its average net profits for the three immediately preceding previous years
Question 14:
Discuss the prohibitions and restrictions regarding political contributions made by a company under the
companies Act,2013 [Dec 22 – 5 Marks] [June 20 MTP] [June 23 MTP]
Answer:
Section 182: Prohibitions and Restrictions Regarding Political Contributions
According to Section 182 of the Act, a company, other than a Government company and a company which
has been in existence for less than three financial years, may contribute any amount directly to any political
party.
The contribution must be authorised by Board in its meeting by resolution and such resolution shall be
deemed to be the justification in law for such contribution.
The donation may be directly or indirectly. If the contribution so made is likely to affect the public support
for a political party shall also be deemed to be the contribution for political purpose. The expenditure
incurred on advertisement in any publication souvenir, brochure, tract, pamphlet or the like is also deemed
as political contribution, if such publication is by or on behalf of political party or if not, then for the
advantage to such political party for a political purpose.
Every company shall disclose in its profit and loss account the total amount contributed by it under this
section during the financial year to which the account relates. The contribution under this section shall not
be made except by an account payee cheque drawn on a bank or an account payee bank draft or use of
electronic clearing system through a bank account.
Section 183: Power of Board and other Persons to make Contributions to
National Defence Fund, etc.
• The Board is authorised to contribute such amount as it thinks fit to the National Defence Fund or any
other fund approved by the Government for the purpose of national defence.
• The company is required to disclose in its profit and loss account the total amount or a mounts
contributed by it during the financial year.
Page | 35
Of Arjun Chhabra
(CS LLB LLM)
Law Maven
Question 15:
Mr. A, a national of Nepal, intends to be appointed as a Director of ABC Ltd., an Indian Company. He is
desirous of making an application to the Central Government for allotment of DIN (Director Identification
Number). State the procedure for Allotment or Rejection of DIN to Mr. A [MTP June 23 – 10 Marks]
Answer:
According to section 154, the Central Government shall allot a Director Identification Number (DIN) to Mr.
A in the prescribed manner within one month from the receipt of application.
Rule 10 of the Companies (Appointment and Qualifications of Directors) Rules, 2014 provides the following
procedure for rejection or allotment of DIN:
(i) Generation of application number- On the submission of the Form DIR-3 on the portal and on payment
of the requisite fees, an application number shall be generated by the system automatically.
Provided that no application number shall be generated in case of the person applying for Director
Identification Number is a national of a country which shares land border with India, unless necessary
security clearance from the Ministry of Home Affairs, Government of India has been attached along with
application for Director Identification Number.
(ii) Communication of issue of DIN- After generation of application number, the Central Government shall
process the applications received for allotment of DIN and decide on the approval or rejection thereof and
communicate the same to the applicant along with the DIN allotted in case of approval by way of a letter
by post or electronically or in any other mode, within a period of one month from the receipt of such
application.
Page | 36
Of Arjun Chhabra
(CS LLB LLM)
Law Maven
(iii) In case of defective/incomplete application- If the Central Government, on examination, finds such
application to be defective or incomplete in any respect, it shall give intimation of such defect or
incompleteness, by placing it on the website and by email to the applicant who has filed such application.
The applicant shall be directed to rectify the defects or incompleteness by resubmitting the application
within a period of 15 days of such placing on the website and email.
It is provided that the Central Government shall –

(a) reject the application and direct the applicant to file fresh application with complete and correct
information, where the defect has been rectified partially or the information given is still found to be
defective;
(b) treat and label such application as invalid in the electronic record in case the defects are not removed
within the given time; and
(c) inform the applicant either by way of letter by post or electronically or in any other mode.
(iv) In case of rejection or invalidation of application, the fee so paid with the application shall neither be
refunded nor adjusted with any other application.
Note 1: All DINs allotted to individual(s) by the Central Government before the commencement of these
rules shall be deemed to have been allotted to them under these rules.
Note 2: The DIN so allotted under these rules is valid for the life-time of the applicant and shall not be
allotted to any other person.
Since Mr. A is a national of Nepal, which shares land border with India, necessary security clearance from
the Ministry of Home Affairs, Government of India needs to be attached along with application for Director
Identification Number for the generation of Application Number.
Question 16:
What are the different duties of a director in a company as per the Companies Act, 2013? [7 Marks – Dec
19] [RTP-Dec 2018] [RTP-Dec 2018] [6 Marks – Dec 21] [8 Marks – Dec 17]
Answer:
To act
1. in accordance with the articles
2. in good faith
to promote the objects of the company for the benefit of its members
in the best interests of the company, its employees, the shareholders, the community and for the
protection of environment.
3. To exercise his duties with due and reasonable care, skill and diligence and shall exercise independent
judgment.
4. Not to get involved in a situation where his interest may conflict with the interest of the company.
5. Not to achieve undue gain or advantage either to himself or to his relatives, partners, or associates. If
found guilty, then, liable to pay the amount of gain to the company.
Page | 37
Of Arjun Chhabra
(CS LLB LLM)
Law Maven
6. Not to assign his office. Any assignment of office shall be void.
7. Contravention: Min Fine: 1 Lakh | Max Fine: 5 Lakhs.
Question 17:
"Directors are agents of the company." — Discuss. [5 Marks – June 18]
Answer:
The company can act only through Directors, and so the relationship between the company and the
Director is that of Principal and Agent. Contract entered into by a person as a director of a company, will
be binding on the Company. However, Directors are not Agents of Members of the company.
Directors have personal liability. They would be personally liable under the following circumstances:
• Director acts in his own name,
• Director enters into an agreement/ contract which does not state clearly as to whether the Director
signing in his personal capacity or in his representative capacity as an Agent of the Company.
Rights of the Company:

• Contract executed by the Director in excess of his authority, is binding on the Company. However, the
Company may claim damages from the Director for breach of implied warranty of authority.
• When Directors act properly on behalf of the Company, they do not incur personal liability; they do not
exceed their powers.
Page | 38
Of Arjun Chhabra
(CS LLB LLM)
Law Maven
Section 134 Financial Statement, Board’s Report, etc.
1. Contents of a) The web address, if any, where annual return (prepared as per Sec. 92) has been
Board’s Report of placed.
a company other b) Number of meetings of the Board.
than a One Person c) Directors’ Responsibility Statement [for the contents of Directors’ Responsibility
Company and Statement, refer to Sec. 134(5)].
small company d) details in respect of frauds reported by auditors under sub- section (12) of section
143 other than those which are reportable to the Central Government.
e) a statement on declaration given by independent directors under sub-section (6)
of section 149.
f) in case of a company covered under sub-section (1) of section 178, company’s
policy on directors’ appointment and remuneration including criteria for
determining qualifications, positive attributes, independence of a director and
other matters provided under sub-section (3) of section 178.
g) explanations or comments by the Board on every qualification, reservation or
adverse remark or disclaimer made by the auditor in his report and by the
company secretary in practice in his secretarial audit report.
h) particulars of loans, guarantees or investments under section 186.
i) particulars of contracts or arrangements with related parties referred to in sub-
section (1) of section 188 in the prescribed form.
j) the state of the company’s affairs.
k) the amounts, if any, which it proposes to carry to any reserves.
l) the amount, if any, which it recommends should be paid by way of dividend.
m) material changes and commitments, if any, affecting the financial position of the
company which have occurred between the end of the financial year of the
company to which the financial statements relate and the date of the report.
n) the conservation of energy, technology absorption, foreign exchange earnings
and outgo, in such manner as may be prescribed; a statement indicating
development and implementation of a risk management policy for the company
including identification therein of elements of risk, if any, which in the opinion of
the Board may threaten the existence of the company.
o) the details about the policy developed and implemented by the company on
corporate social responsibility initiatives taken during the year; in case of a listed
company and every other public company having such paid-up share capital as
may be prescribed, a statement indicating the manner in which formal annual
evaluation of the performance of the Board, its Committees and of individual
directors has been made, among other things.
2. Approval The FS, including CFS, if any, shall be approved by the Board of Directors before they
are signed on behalf of the Board.
3. Signing (a) The FS, including CFS, if any, shall be signed on behalf of the Board, at least by -
(i) the chairperson of the company, where he is authorised by the Board, or by 2
directors, one of whom shall be MD, if any;
Page | 39
Of Arjun Chhabra
(CS LLB LLM)
Law Maven
(ii) CEO, wherever he is appointed;
(iii) CFO, wherever he is appointed; and
(iv) CS, wherever he is appointed.
(b) In the case of a OPC, the FS, including CFS, if any, shall be signed by one director
only.
4. Submission The FS, including CFS, if any, shall be submitted to the auditor after they have been
approved by the Board and signed on behalf of the Board.
POWERS AND DUTIES OE AUDITORS AND AUDITING STANDARDS

(Section 143)
1. Rights and Right of ■ The auditor shall have access, at all times, to the books of account and
duties as per access to vouchers of the company.
Sec. 143(1) books
■ His right extends to all the books, whether kept at the registered office of
the company or at any other place.
■ The auditor shall also have access to the records of all the subsidiary
companies and associate companies, in so far as access to the books of
subsidiary companies and associate companies is required for the purpose
of consolidation of financial statements of the company with its subsidiary
companies and associate companies.
Right to The auditor shall be entitled to require from the officers of the company such
require information and explanation as he may consider necessary for the
information performance of his duties as auditor.
Duty to (a) Whether loans and advances made by the company
make
inquiries —> on the basis of security
—> have been properly secured
—> and whether the terms on which they have been made
—> are prejudicial to the interests of the company or its members.
(b) Whether transactions of the company
—> which are represented merely by book entries
—> are prejudicial to the interests of the company.
(c) —> In case of any company
—> other than an investment company or a banking company,
—> whether so much of the assets of the company
—> as consist of shares, debentures and other securities
Page | 40
Of Arjun Chhabra
(CS LLB LLM)
Law Maven
—> have been sold
—> at a price less than that at which they were purchased by the company.
(d) —> Whether loans and advances made by the company
—> have been shown as deposits.
(e) —> Whether personal expenses
—> have been charged to revenue account.
(f) —> Where it is stated in the books and documents of the company
—> that any shares have been allotted for cash,
—> whether cash has actually been received in respect of such allotment, -»
and if no cash has actually been so received,
—> whether the position as stated in the account books and the B/S
—> is correct, regular and not misleading.
2. Duty to ■ The auditor shall make a report to the members of the company.
Make Report
[Sec. 143(2)]
■ In his audit report, the auditor shall report on -
(a) the accounts examined by him; and
(b) FS which are required to be laid before the company in GM.
■ The auditor shall state in his report as to whether the accounts examined by him
and FS give a true and fair view of-
(a) the state of the company’s affairs as at the end of its FY;
(b) the profit or loss for the year; and
(c) cash flow for the year.
■ The auditor shall state in his report such other matters as may be prescribed.
■ The auditor shall prepare his report after taking into account the provisions of this
Act, the Accounting Standards and the Auditing Standards.
3. Report on (a) -> whether he has sought and obtained all the information and explanations
principal
assertions
[Sec. 143(3)]
-> which, to the best of his knowledge and belief were necessary for the
purpose of his audit
-> and if not, the details thereof and the effect of such information on the FS
(b) -> whether, in his opinion, proper books of account as required by law have
been kept by the company
-> so far as appears from his examination of those books
-> and proper returns adequate for the purposes of his audit have been
received from branches not visited by him
(c) -> whether the report on the accounts of any branch office of the company
-> audited by a person other than the company’s auditor
Page | 41
Of Arjun Chhabra
(CS LLB LLM)
Law Maven
-> has been sent to him and the manner in which he has dealt with it in
preparing his report
(d) whether the company’s B/S and P&L A/c dealt with in the report are in
agreement with the books of account and returns
(e) -> whether, in his opinion,
-> the FS comply with the Accounting Standards
(f) -> the observations or comments of the auditors on FS or matters
-> which have any adverse effect on the functioning of the company
(g) -> whether any director is disqualified from being appointed as a director u/s
164(2)
(h) -> any qualification, reservation or adverse remark
-> relating to the maintenance of accounts and other matters connected
therewith
(i) -> whether the company has adequate internal financial controls with
reference to financial statements in place and the operating effectiveness
of such controls
For the FYs commencing on or after 1st April, 2015, the report of the auditor shall
state about existence of adequate internal financial controls with reference to
financial statements and operating effectiveness of such controls. However, for
the FY commencing on or after 1st April, 2014 and ending on or before 31st March,
2015, the auditor may voluntarily include such statement in the audit report.
This requirement shall not apply to a private company -
(i) which is OPC or a small company; or
(ii) which has turnover less than Rs. 50 crore as per latest audited FS and which
has aggregate borrowings from banks or financial institutions or any body
corporate at any point of time during the FY less than Rs. 25 crore if such company
has not committed any default in filing with the Registrar its financial statements
under section 137 or annual return under section 92.
(j) -> such other matters as may be prescribed.
4. Other The auditor shall include in his report, his views and comments on the following matters:
matters to
be included (a) Whether the company has disclosed the impact, if any, of pending litigations on its
in auditor’s financial position in its FS.
report (Rule (b) Whether the company has made provision, as required under any law or Accounting
11) Standards, for material foreseeable losses, if any, on long term contracts including derivative
contracts.
(c) Whether there has been any delay in transferring amounts, required to be transferred,
to the Investor Education and Protection Fund by the company.
(d) * * * [Omitted]
Page | 42
Of Arjun Chhabra
(CS LLB LLM)
Law Maven
(e) (i) Whether the management has represented that, to the best of its knowledge and
belief, other
than as disclosed in the notes to the accounts, no funds have been advanced or loaned or
invested (either from borrowed funds or share premium or any other sources or kind of
funds) by the company to or in any other person(s) or entity(ies), including foreign entities
(“Intermediaries”), with the understanding, whether recorded in writing or otherwise, that
the Intermediary shall, whether, directly or indirectly lend or invest in other persons or
entities identified in any manner whatsoever by or on behalf of the company (“Ultimate
Beneficiaries”) or provide any guarantee, security or the like on behalf of the Ultimate
Beneficiaries.
(ii) Whether the management has represented, that, to the best of its knowledge and belief,
other than as disclosed in the notes to the accounts, no funds have been received by the
company from any person(s) or entity(ies), including foreign entities (“Funding Parties”),
with the understanding, whether recorded in writing or otherwise, that the company shall,
whether, directly or indirectly, lend or invest in other persons or entities identified in any
manner whatsoever by or on behalf of the Funding Party (“Ultimate Beneficiaries”) or
provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries; and
(iii) Based on such audit procedures that the auditor has considered reasonable and
appropriate in the circumstances, nothing has come to their notice that has caused them to
believe that the representations under sub-clause (i) and (ii) contain any material mis-
statement.
(f) Whether the dividend declared or paid during the year by the company is in compliance
with Sec. 123 of the Companies Act, 2013.
(g) Whether the company, in respect of FYs commencing on or after the 1st April, 2022, has
used such accounting software for maintaining its books of account which has a feature of
recording audit trail (edit log) facility and the same has been operated throughout the year
for all transactions recorded in the software and the audit trail feature has not been
tampered with and the audit trail has been preserved by the company as per the statutory
requirements for record retention. '
5. Reasons Where any of the matters required to be included in the audit report is answered in the
to be given negative or with a qualification, the report shall state the reasons thereof.
[Sec. 143(4)]
SPECIAL PROVISIONS W.R.T. GOVERNMENT COMPANIES [Sec. 143(5),

(6) and (7)
1. Directions by ■ In the case of a Government company or any other company owned or controlled,
CAG to the directly or indirectly, by CG or SG(s) or partly by CG and partly by SG(s), CAG shall direct
auditor [Sec. the auditor the manner in which the accounts of the Government company are required
143(5)] to be audited.
■ The auditor shall submit a copy of his audit report to CAG.
Page | 43
Of Arjun Chhabra
(CS LLB LLM)
Law Maven
■ The audit report shall, among other things, include - ‘
(i) the directions, if any, issued by CAG;
(ii) the action taken in pursuance of directions issued by CAG; and
(iii) the impact on the accounts and FS of the company.
2. Right of CAG to CAG shall, within 60 days from the date of receipt of the audit report, have the following
conduct rights:
supplementary
Audit or Supplementary ■ CAG may order conduct of a supplementary audit of the FS of the
supplement the audit company.
audit report [Sec. ■ Supplementary audit shall be conducted by such person(s) as CAG
143(6)] may authorise in this behalf.
■ CAG may authorise such person(s) to obtain such information as
may be required for conduct of supplementary audit.
Supplement or ■ CAG may comment upon the audit report.

comment ■ CAG may supplement the audit report.
■ Any such comments or supplement shall be sent by the company
to every person entitled to copies of audited FS.
■ Any such comments or supplement shall also be placed before the
members in the AGM at the same time and in the same manner as
the audit report.
3. Test Audit CAG may, by an order, cause test audit to be conducted of the accounts of the company.
[Sec. 143(7)]
BRANCH AUDIT [Sec. 143(8)]

1. Branch in The accounts of any branch office in India, shall be audited by -
India - (a) the company’s auditor; or
Appointment of
auditor (b) any other person qualified for appointment as an auditor of the company.
2. Branch The accounts of any branch office outside India, shall be audited by -
outside India -
(a) the company’s auditor; or
Appointment of (b) an accountant or by any other person duly qualified to act as an auditor of the
auditor accounts of the branch office in accordance with the laws of that country.
3. Duties and The duties and powers of the company’s auditor with reference to the audit of the branch
powers of the and the branch auditor, shall be such as may be prescribed.
Page | 44
Of Arjun Chhabra
(CS LLB LLM)
Law Maven
company’s
auditor
Duties and powers of the company’s auditor prescribed under the Rules (Rule 12).
(a) The duties and powers of the company’s auditor with reference to the audit of the
branch and the branch auditor, if any, shall be as contained in sub-sections (1) to (4) of
Sec. 143.
(b) The provisions regarding reporting of fraud by the auditor shall also extend to such
branch auditor to the extent it relates to the concerned branch.
4. Report of ■ The branch auditor shall prepare a report on the accounts of the branch examined by
Branch Auditor him.
■ The branch auditor shall send his report to the auditor of the company.
■ The auditor of the company shall deal with the report of the branch auditor, in his
report in such manner as he considers necessary.
AUDITOR TO COMPLY WITH AUDITING STANDARDS [Sec. 143(9) and

(10)
1. Nature of Every auditor shall comply with the Auditing Standards.
duty
2. CG to Stages in prescribing the Auditing Standards are as follows:

prescribe (i) At the first stage, ICAI recommends the Standards of Auditing.
auditing
standards (ii) At the second stage, these Standards of Auditing shall be examined by the National
Financial Reporting Authority (NFRA). NFRA may also make its own recommendations.
(iii) At the third stage, CG examines the recommendations made by NFRA. Then, CG may
prescribe, after consultation with NFRA, the Auditing Standards.
3. Position, Until any Auditing Standards are notified, any standard or Standards of Auditing specified
until Auditing by ICAI shall be deemed to be the Auditing Standards.
Standards are
notified
AUDIT REPORT TO INCLUDE A STATEMENT ON PRESCRIBED MATTERS

[Sec. 143(11)]
> CG may, in consultation with the National Financial Reporting Authority,
> by general or special order,
> direct, in respect of such class or description of companies, as may be specified in the order,
Page | 45
Of Arjun Chhabra
(CS LLB LLM)
Law Maven
> that the auditor’s report shall also include a statement on such matters as may be specified therein.
As per the Companies (Removal of Difficulties) Order, 2016, until the National Financial Reporting Authority
is constituted u/s 132, CG may (instead of holding consultation with the National Financial Reporting
Authority) hold consultation with a Committee consisting of-
(a) an officer of the rank of Joint Secretary or equivalent in the Ministry of Corporate Affairs, who shall be
the Chairman of such Committee;
(b) a representative from the Institute of Chartered Accountants of India;
(c) a representative from the Industry Chambers;
(d) special invitees from the National Advisory Committee on Accounting Standards;
(e) special invitees from the office of the Comptroller and Auditor-General of India.
REPORTING OF FRAUD BY AN AUDITOR [Sec. 143(12) to (15)

1. Reporting (a) If an auditor of a company has reason to believe that a fraud involving such amount as
of frauds may be prescribed, is being or has been committed in the company by its officers or
involving Rs. 1 employees, the auditor shall report the matter to CG.
crore or As per Rule 13, any fraud which involves or is expected to involve individually an amount of
above [Sec. Rs. 1 crore or above is required to be reported to CG.
143(12)]
(b) The auditor shall report such fraud within such time and in such manner as may be
prescribed.
As per Rule 13, the manner of reporting of such fraud shall be as follows:
1. The auditor shall report such fraud to the Audit Committee or to the Board, immediately
but not later than 2 days of his knowledge of the fraud. The auditor shall seek the reply or
observations of the Audit Committee or the Board, within 45 days.
2. If the auditor receives the reply or observations of the Audit Committee or the Board,
the auditor shall, within 15 days of receipt of such reply or observations, forward to the
Central Government -
(a) his report;
(b) the reply or observations of the Audit Committee or the Board; and
(c) his comments on the reply or observations of the Audit Committee or the Board.
3. If the auditor fails to receive the reply or observations of the Audit Committee or the
Board within 45 days, he shall forward to CG -
(a) his report; and
(b) a note containing the details of his report that was earlier forwarded to the Board or
the Audit Committee for which he has not received any reply or observations.
4. The report shall be sent -
Page | 46
Of Arjun Chhabra
(CS LLB LLM)
Law Maven
- to the Secretary, Ministry of Corporate Affairs
- in a sealed cover
- by Registered Post with Acknowledgement Due or by Speed Post.
5. After the report is sent, an e-mail shall also be sent to the Secretary, Ministry of
Corporate Affairs in confirmation of the report sent.
6. The report shall be on the letter-head of the auditor containing postal address, e-mail
address and contact telephone number or mobile number.
7. The report shall be signed by the auditor with his seal and shall indicate his Membership
Number. .
8. The report shall be in the form of a statement as specified in Form ADT-4.
9. These provisions shall also apply, mutatis mutandis, to -
(a) a cost auditor during the performance of his duties u/s 148; and
(b) a secretarial auditor during the performance of his duties u/s 204.
2. Reporting (a) In case of a fraud involving lesser than Rs. 1 crore, the auditor shall report the matter to
of frauds -
involving less
(i) the audit committee constituted u/s 177; or
than Rs. 1
crore [Sec. (ii) the Board, in case the company is not required to constitute the audit committee.
143(12)] (b) The auditor shall report such fraud within such time and in such manner as may be
prescribed.
As per Rule 13, the auditor shall report such fraud to the Audit Committee or to the Board,
immediately but not later than 2 days of his knowledge of the fraud. The auditor shall
specify the following points in his report:
(a) Nature of fraud with description;
(b) Approximate amount involved; and
(c) Parties involved.
(c) The company shall disclose the details about such frauds in the Board’s report in such
manner as may be prescribed.
As per Rule 13, the following details of each such fraud shall be disclosed in the Board's
Report:
(a) Nature of fraud with description;
(b) Approximate amount involved;
(c) Parties involved, if remedial action is not taken; and .
(d) Remedial actions taken.
Page | 47
Of Arjun Chhabra
(CS LLB LLM)
Law Maven
3. No liability An auditor shall not be deemed to be guilty for breach of any of his duties by reason of his
of auditor reporting any matter to CG if such reporting is done in good faith.
[Sec. 143(13)]
4. Provisions The provisions w.r.t. reporting of fraud shall mutatis mutandis apply to -
applicable to (a) the cost accountant conducting cost audit u/s 148; or
other
auditors [Sec. (b) the company secretary in practice conducting secretarial audit u/s 204.
143(14)]
5. If any auditor, cost accountant, or company secretary in practice does not comply with the
Punishment provisions of Sec. 143(12), he shall, -
for non-
(a) in case of a listed company, be liable to a penalty of Rs. 5 lakh; and
compliance
[Sec. 143(15)] (b) in case of any other company, be liable to a penalty of Rs. 1 lakh.
Audit Committee (Section 177)

Question 18
Write briefly about Audit Committee according to Section 177 of Companies Act. 2013? [MQP Set 1 Syllabus
22]
Demonstrate the functions of audit committee are contained in Sec. 177 of the Companies Act 2013. [MQP
Set 2 Syllabus 22]
1. The Board of Directors of every listed public company and such other class or classes of companies, as
may be prescribed, shall constitute an Audit Committee.
2. The Audit Committee shall consist of a minimum of three directors with independent directors forming
amajority:
Provided that majority of members of Audit Committee including its Chairperson shall be persons
with ability to read and understand, the financial statement.
3. Every Audit Committee of a company existing immediately before the commencement of this Act shall,
within one year of such commencement, be reconstituted in accordance with sub-section (2).
4. Every Audit Committee shall act in accordance with the terms of reference specified in writing by
the Board which shall, inter alia, include, –
i) the recommendation for appointment, remuneration and terms of appointment of auditors
of the company;
ii) review and monitor the auditor’s independence and performance, and effectiveness of audit
process;
iii) examination of the financial statement and the auditors’ report thereon;
iv) approval or any subsequent modification of transactions of the company with related parties;
Provided that the Audit Committee may make omnibus approval for related party transactions proposed
tobe entered into by the company subject to such conditions as may be prescribed;
Page | 48
Of Arjun Chhabra
(CS LLB LLM)
Law Maven
Provided further that in case of transaction, other than transactions referred to in section 188, and
where Audit Committee does not approve the transaction, it shall make its recommendations to the
Board:
Provided also that in case any transaction involving any amount not exceeding one crore rupees is
entered into by a director or officer of the company without obtaining the approval of the Audit
Committee and it is not ratified by the Audit Committee within three months from the date of the
transaction, such transaction shall be voidable at the option of the Audit Committee and if the
transaction is with the related party to any director or is authorised by any other director, the director
concerned shall indemnify the company againstany loss incurred by it:
Provided also that the provisions of this clause shall not apply to a transaction, other than a transaction
referred to in section 188, between a holding company and its wholly owned subsidiary company.
v) scrutiny of inter-corporate loans and investments;
vi) valuation of undertakings or assets of the company, wherever it is necessary;
vii) evaluation of internal financial controls and risk management systems;
viii) monitoring the end use of funds raised through public offers and related matters.
5. The Audit Committee may call for the comments of the auditors about internal control systems,
thescope of audit, including the observations of the auditors and review of financial statement before
their submission to the Board and may also discuss any related issues with the internal and statutory
auditors and the management of the company.
6. The Audit Committee shall have authority to investigate into any matter in relation to the items
specifiedin sub-section (4) or referred to it by the Board and for this purpose shall have power to obtain
professional advice from external sources and have full access to information contained in the records
of the company.
7. The auditors of a company and the key managerial personnel shall have a right to be heard in the
meetings of the Audit Committee when it considers the auditor’s report but shall not have the right to
vote.
8. The Board’s report under sub-section (3) of section 134 shall disclose the composition of an Audit
Committee and where the Board had not accepted any recommendation of the Audit Committee, the
sameshall be disclosed in such report along with the reasons therefor.
9. Every listed company or such class or classes of companies, as may be prescribed, shall establish a vigil
mechanism for directors and employees to report genuine concerns in such manner as may be
prescribed.
10. The vigil mechanism under sub-section (9) shall provide for adequate safeguards against victimisation
of persons who use such mechanism and make provision for direct access to the chairperson of the
Audit Committee in appropriate or exceptional cases:
Page | 49
Of Arjun Chhabra
(CS LLB LLM)
Law Maven
Provided that the details of establishment of such mechanism shall be disclosed by the company on its
website, if any, and in the Board’s report.
The Board of Directors of every listed public company and such other class or classes of companies, as
may be prescribed, shall constitute an Audit Committee. The Audit Committee shall consist of a
minimum of three directors with independent directors forming a majority:
Provided that majority of members of Audit Committee including its Chairperson shall be persons with
ability to read and understand, the financial statement.
Every Audit Committee of a company existing immediately before the commencement of this Act shall,
withinone year of such commencement, be reconstituted in accordance with section 177 (2).
Every Audit Committee shall act in accordance with the terms of reference specified in writing by the
Board which shall, among other things, include, the recommendation for appointment, remuneration
and terms of appointment of auditors of the company; review and monitor the auditor’s independence
and performance, and effectiveness of audit process; examination of the financial statement and the
auditors’ report thereon; approval or any subsequent modification of transactions of the company with
related parties; scrutiny of inter-corporate loans and investments; valuation of undertakings or assets
of the company, wherever it is necessary; evaluation of internal financial controls and risk management
systems; monitoring the end use of funds raised through public offers and related matters.
However, the Audit Committee may call for the comments of the auditors about internal control
systems, the scope of audit, including the observations of the auditors and review of financial statement
before their submission to the Board and may also discuss any related issues with the internal and
statutory auditors and the management of the company.
Additionally, the Audit Committee shall have authority to investigate into any matter in relation
to theitems specified in sub-section (4) or referred to it by the Board and for this purpose shall have
power to obtain professional advice from external sources and have full access to information
contained in the records of the company.
The auditors of a company and the key managerial personnel shall have a right to be heard in the
meetings ofthe Audit Committee when it considers the auditor’s report but shall not have the right to
vote.
Moreover, every listed company or such class or classes of companies, as may be prescribed, shall
establish avigil mechanism for directors and employees to report genuine concerns in such manner as
may be prescribed. The vigil mechanism shall provide for adequate safeguards against victimisation of
persons who use such mechanism and make provision for direct access to the chairperson of the Audit
Committee in appropriate or exceptional cases.
Page | 50
Of Arjun Chhabra
(CS LLB LLM)
Law Maven
Rights of Shareholders [June 23 Syllabus 22 – 10 Marks]
Section 2(55) of the Companies Act,2013 defines a member as:
The Subscribers to the Memorandum of a company shall be deemed to have agreed to become members
ofthe company, and on its registration, shall be entered as member in its register of members.
1. Every other person who agrees in writing to become a member of a company and whose name is entered
in its register of members, shall be a member of the company.
In Herdilia Unimers Ltd. v. Renu Jain [1995], it was held that the moment the shares were allotted and share
certificate signed and the name entered in the Register of members, the allottee became the
shareholder, irrespective of the allottee receiving the shares or not.
A person whose name is not entered into register of members of company cannot be treated as member
or deemed member-Sant Chemicals (P) Ltd. v. Aviat Chemicals (P.) Ltd.
2. Every person holding shares of the company and whose name is entered as beneficial owner in the
records of a depository.
On this basis, apart from signing of the memorandum two pre- requisites for a person to become a
member of a company are:
i) The agreement in writing to take shares of the company; and
ii) The registration of his name in its register of members.
Besides, a person may also become a member of a company through the depository system.
Thus, a person can agree to take shares of a company either as the subscriber to the memorandum at the
initial stage of its formation or in any of the following manner:
a) by subscribing to its further or new shares;
b) on transfer of its shares from an existing member;
c) on acquisition or purchase of its share(for example, take-over bid, renunciation of right s by an
existing members);
d) on acquisition of its shares by devolution (for example, transmission of shares to legal of a
deceasedmember, on insolvency, upon merger/amalgamation through the Tribunal’s order); and
e) on conversion of convertible debentures or loans pursuant to the terms of issue of such debentures
or loanagreement respectively.
The fundamental difference between the subscribers who agree to take shares at the time of
formation of the company and persons who agree to take shares later is that the former become
members immediately on incorporation of the company, that is, they automatically become members.
The latter, through having agreedto take shares, become members only after their names are entered
in the register of members of the company.
A member by virtue of the contract with the company and any other members via the Memorandum
and Articles is entitled to have his name on the Register of members, to vote at the meeting of
Page | 51
Of Arjun Chhabra
(CS LLB LLM)
Law Maven
members, to receive dividends when declared, to exercise the right of pre-emption, return of capital on
winding-up or on reduction ofshare capital of the company.
As a member he also has certain other rights which may or may not arise out of a contract. In exercise
of such rights, he is entitled of such rights he is entitled to bring action to restrain the company from
doing an ultra viresact, to attend and take part in the proceeding of meetings of the company and to
move amendments.
A person who is a shareholder of a company has many rights under the Act. Some of them are:
i) The right to vote at all meetings [Sec.47];
ii) The right to requisition an extraordinary general meeting of the compay [Sec.100];
iii) The right to receive notice of a general meeting [Sec.101];
iv) The right to appoint proxy and inspect proxy register [Sec.105]
v) In the case of a body corporate which is a member, the right to appoint a representative
to attend a general meeting on its behalf [Sec.113]; and
vi) The right to require the company to circulate resolution [Sec.111].
vii) To have certificate of share held ready for delivery to him within two months from the date of
allotment
[Sec.56]
viii) To Transfer shares subject to the provisions of the Act and Article of Association [Sec.44].
ix) To inspect the Register of members and Register of debenture-holders and get
extracts therefrom[Sec.94].
x) To obtain, on request, minutes of proceedings at general meetings as also to inspect the minutes
[Sec.119].
xi) To apply to the Tribunal to have any variation of shareholders rights set aside [Sec.48].
xii) To participate in the removal of directors by passing an ordinary resolution [Sec.169]
Certain other rights of a member spelt out by the Supreme Court in Life Insurance Corporation of India
v. Escorts Ltd. [1986] are:
i) To elect directors and thus to participate in the management through them;
ii) To enjoy the profits of the company in the shape of dividends;
iii) To apply to the court (now Tribunal) for relief in case of oppression;
iv) To apply to the court (now Tribunal) for relief in case of mismanagement;
v) To apply to the court (now Tribunal) for winding-up of the company; and
vi) To share in the surplus on winding-up
Page | 52

CMA INTER DIRCTORS - Watermark - 25586055 - 2023 - 12 - 08 - 19 - 25

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

CMA INTER DIRCTORS - Watermark - 25586055 - 2023 - 12 - 08 - 19 - 25

Uploaded by

Copyright:

Available Formats

ARJUN CHHABRA TUTORIAL

2. Separation of ownership from management

3. Statutory requirement to have directors

Here Appointed means:

Mere designation of director does not satisfy the term ‘’appointed’’

Nominee Director Section 161 (3)

Whole time director [Section 2(94)]

• Every listed company;

(2) No person who is or has been a director of a company which—

(g) he is removed in pursuance of the provisions of this Act;

Rotational Directors Total Director x 2/3 (rounded up 2 3 4 4 5 6 6 7 8 8 9 10

Non-Rotational Directors Total Director - Rotational 1 1 1 2 2, 2 3 3 3 4 4 4

Director that retire at AGM Rotational Directors * 1/3 1 1 1 1 2 2 2 2 3 3 3 3

(1) A listed company, may upon notice of

(2) The small shareholders

(a) his Director Identification Number;

(c) his consent to act as a director of the company

(a) such director shall not be liable to retire by rotation;

(1) to make calls on shareholders in respect of money unpaid on their shares;

Refer module Page 401

Remuneration payable to directors

Remuneration when there is no profit

It is provided that the Central Government shall –

Rights of the Company:

POWERS AND DUTIES OE AUDITORS AND AUDITING STANDARDS

SPECIAL PROVISIONS W.R.T. GOVERNMENT COMPANIES [Sec. 143(5),

Supplement or ■ CAG may comment upon the audit report.

BRANCH AUDIT [Sec. 143(8)]

AUDITOR TO COMPLY WITH AUDITING STANDARDS [Sec. 143(9) and

2. CG to Stages in prescribing the Auditing Standards are as follows:

AUDIT REPORT TO INCLUDE A STATEMENT ON PRESCRIBED MATTERS

REPORTING OF FRAUD BY AN AUDITOR [Sec. 143(12) to (15)

Audit Committee (Section 177)

You might also like