Company Law Cropped

INDEX
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k e r- s o ft w a k e r- s o ft w a
01
1
Preliminary to
11
02
INCORPORATION OF COMPANY 12
to
AND MATTERS INCIDENTAL THERETO 29
03
Prospectus and Allotment of 30
to
Shares 42
04
43
SHARE CAPITAL to
65
Acceptance of Deposit by
companies 05 66
to
77
06
REGISTRATION OF 78
to
CHARGES 83
07
84
General Meetings to
106
08
Declaration and 107
to
Payment of Dividend 115
09
116
Accounts of Companies to
136
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UNIT Preliminary
1
Section 1
Short Title = Companies Act, 2013 Signed by President = 29th Aug

Extent = Whole of India 2013
Commencement = Sec 1 w.e.f. 30th Aug, Notified = 30th Aug 2013
2013 and other sections on different dates
Application = Refer below
Applicability of Companies Act, 2013 =

The provisions of this Act shall apply to—
• Companies incorporated under this Act or under any previous company law;
• Insurance Companies, only to the extent it is not inconsistent with Insurance Act,
1938 or the Insurance Regulatory and Development Authority Act, 1999
• Banking companies, only to the extent it is not inconsistent with the provisions of
the Banking Regulation Act, 1949
• Electricity Company, only to the extent it is not inconsistent with inconsistent with
the provisions of the Electricity Act, 2003
• Company governed by any special Act
• Body corporate notified by CG. (Eg. NHAI, FCI)
Definition of Company – Section 2(20)
Under Companies Act 2013

Any Company Incoportaed OR
under any previous Company Law
Is Company Citizen?
No, because as per Constitution of India and Citizenship Act, 1955 only a natural
person can become citizen.
Is company Resident?
Yes, company may be resident depending upon its place of incorporation.
Inter CA Company Law Revision Lectures 1

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Types of company –
Company
Private Company Public Company
On the basis of members
One-person Private Company Public Company Small Company

Company (OPC) section 2(68) section 2(71) section 2(85)
Section 2(62)
• PRIVATE COMPANY – section 2(68)
Private company means the company which is having a minimum paid

up share capital as may be prescribed and which by its articles
Restrict transfer Prohibits any invitation to the public Limits the

of shares for subscriptions of securities. members to 200
Provided (condition)
- Joint members/ holders to be treated as single member
- Person who is in the employment of the company and is member of the company
shall not be included in the limitation of 200 members (Employee + Member)
- Person who was in the employment of the company and was member of
company and continued to be member of company even after the cessation of
the employment shall not be included in the limitation of 200 members (Former
Employee + Member)

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Note –
a) The name of the private company should end with the word “private limited”
b) Private company should have minimum 2 directors.
• PUBLIC COMPANY – section 2(71)

A company which is not private company is known as public company.
• ONE PERSON COMPANY – section 2 (62)

1. One-person company means a company having only one person as a member
2. Who can be member of OPC –
Natural person + Citizen of India + Whether or not resident of India
Note –
- The term “resident in India” means a person who has stayed in India for a
period of not less 120 days immediately preceding one financial year.
- Even an NRI can incorporate OPC in India.
- Minor cannot become member in OPC
3. Nomination clause in OPC –

a) The shareholder shall nominate the other person who shall act as a nominee in the
case of death/incapacity of the original member.
b) Such nominee shall also be –
Natural person + Citizen of India + Whether or not resident of India
Note –
• The term “resident in India” means a person who has stayed in India for a
period of not less 120 days immediately preceding one financial year.
• Even an NRI can become nominee of OPC in India.
• Minor cannot become nominee in OPC.
4. Minimum number of directors –

a) 1 director.
b) Person who is the sole member also can himself be the sole director.
5. Restrictions on membership and nomination –

a) Person shall not be the member of more than one OPC at any point of time and the
said person shall not be the nominee of more than one OPC.
b) It means a person can have one membership and one nomination at the same time.

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c) If becomes member/nominee in more than one OPC should comply with the aforesaid
provision within 180 days.
6. Restriction on business activities –

a) Such company cannot carry out Non-Banking Financial Investment activities
including investment activities in securities of any Body Corporate.
b) OPC cannot be incorporated as or converted into section 8 company
• SMALL COMPANY – section 2(85)

1. Maximum paid up capital =
2 crores rupees or such higher amount as may be prescribed not exceeding 10 crore rupees.
2. Maximum turnover =
20 crore rupees or such higher amount as may be prescribed not exceeding 100 crore
rupees.
Sec 2(85) is not applicable to (following companies shall not be treated as small companies):
• Holding or subsidiary company
• Company registered under sec 8
• Company generated under special act.

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On basis of control
Holding company – Subsidiary company – Associate Company -

Section 2 (46) Section 2 (87) Section 2(6)
“holding company”, Subsidiary company means a Associate Company

in relation to company in which the holding means a company
one or more company— in which that other
other companies, a) controls the composition of the company has a
means a company Board of Directors; or significant influence, but
of which such b) exercises or controls more than which is not a subsidiary
companies one-half of the total share company of the company
are subsidiary capital either at its own or having such influence and
companies; together with one or more of includes a joint venture
its subsidiary companies. company.
Note –
Subsidiary company of a
subsidiary company shall be
deemed to be subsidiary company
of ultimate holding company.
A) On the basis of liability
Company limited by shares – Company limited by Company having unlimited

Liability will be limited up to the guarantee liability –
unpaid value of shares, if any Liability will be unlimited
Having Share capital – Not having share capital –

Liability will be limited up to the guarantee Liability will be limited up
amount, and unpaid value of shares, if any to the guarantee amount
Liability = Guarantee amount + Unpaid value of
shares

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On the basis of listing
Listed company – Section Unlisted company –

2(52)
Company other than

listed company is called
as unlisted company
Following classes of companies will not be considered as listed companies –

1) Public companies which have not listed their equity shares on a recognized
stock exchange but have listed their –
a) non-convertible debt securities issued on private placement basis in
terms of SEBI (Issue and Listing of Debt Securities) Regulations, 2008; or
b) non-convertible redeemable preference shares issued on private
placement basis in terms of SEBI (Issue and Listing of Non-Convertible
Redeemable Preference Shares) Regulations, 2013; or
2) Private companies which have listed their non-convertible debt securities on

private placement basis on a recognized stock exchange in terms of SEBI (Issue
and Listing of Debt Securities) Regulations, 2008;
3) Public companies which have not listed their equity shares on a recognized
stock exchange but whose equity shares are listed on a stock exchange in a
jurisdiction as specified in sub-section (3) of section 23 of the Act
 OTHER TYPES OF COMPANIES -
• Government company - sec 2 (45)

At least 51% of share capital should be owned by central government, state government
two or more state government or partly by state government and partly by central
government.

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Note –
For the purposes of this clause, the “paid-up share capital” shall be construed as “total
voting power”, where shares with differential voting rights have been issued.
In simple words, if company is having shares with DVRs then for the purpose of calculation
of 51%, voting rights should be considered and not the paid-up share capital.
• Foreign company - sec 2(42)

Foreign company means a company which is incorporated outside India having place of
business in India either by physical person or by electronic means or any other mode as may
be prescribed.
• Associate company – sec 2(6)

“Associate company”, in relation to another company, means a company in which that
other company has a significant influence, but which is not a subsidiary company of the
company having such influence and includes a joint venture company.
Explanation – For the purposes of this clause, “significant influence” means
control of at least 20% of total share capital, or of business decisions
under an agreement;
• Dormant company - sec 455

According to Section 455 of the Companies Act 2013, where a company is formed and
registered under this Act for a future project or to hold an asset or intellectual property
and “has no significant accounting transaction”, such a company or an Inactive Company
may make an application to the Registrar for obtaining status of dormant company.
Note –
1) SIGNIFICANT ACCOUNTING TRANSACTIONS –
Significant accounting transactions means transactions other than –
a) Payment of fees by company to ROC
b) Payment of fees to maintain its office and record
c) Payment made by company to fulfill the requirement of this act or under any
other law.
d) Allotment of shares to fulfill the requirement of this act.
2) Inactive company
‘Inactive company’ means a company which has not been carrying on any business

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or operation or has not made any significant accounting transaction during the last
two financial years or has not filed financial statements and annual returns during
the last two financial years.
• Company not for profit/Non-Profit companies (Section 8 Company) –
1) Objective of Section 8 Company –

Section 8 company is formed to promote the charitable objects of commerce, art,
science, sports, education, research, social welfare, religion, charity, protection of
environment etc.
2) Restrictions on such company –

a) Company is prohibited from declaring any dividend to its members
b) Company has to apply its surplus only in promoting its objects.
3) Power of Central government to issue the license –

CG has the power to register section 8 Company. However, CG has delegated power
to ROC.
4) Revocation of license –
The Central Government may by order revoke the licence of the company where –
a) Company contravenes any of the requirements or the conditions of this sections
subject to which a licence is issued
b) where the affairs of the company are conducted fraudulently
c) Company violates its objects
d) where the affairs of the company are conducted prejudicial to public interest.
Note –
- CG has delegated power to revoke license to RD.
- CG must give opportunity of being heard before revocation.

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5) Effect of revocation –
Where a license is revoked, the Central Government may, by order, direct that
The company has to The company be wound The company be amalgamated

converts its status and up under this Act with another company
change its name registered under this section
6) Important Points –
a) A firm may be a member of the company registered under section 8
b) A company registered under this section shall not alter the provisions of its
memorandum or articles except with the previous approval of the Central
Government
7) Penalty/ punishment in contravention –

Company Fine: Minimum 10 lakhs upto 1 crore
Directors and every officer of the Fine: Minimum 25000 upto 25 lakhs
company who is in default rupees,
Note –
Where it is proved that the affairs of the company were conducted fraudulently, every
officer in default shall be liable for action under section 447.
• Nidhi company – Section 406

A company which has been incorporated as a Nidhi with the object of cultivating the
habit of thrift (cost cutting) and savings amongst its members, receiving deposits
from, and lending to, its members only, for their mutual benefits and which complies
with such rules as are prescribed by the Central Government for regulation of such
class of companies.

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Conversions of Companies –
Private company into Public Company and vice versa – section 18
Conversion of a Private Company into a Conversion of a Public Company into a

Public Company – Private Company –
1) Pass special resolution for 1) Pass special resolution for
alteration of its articles thereby alteration of its articles thereby
deleting the three restrictions of a adding the three restrictions of a
private company private company + Obtain Central
2) Pass special resolution for Government (CG) Approval
alteration of its memorandum 2) Pass special resolution for
for changing its name thereby alteration of its memorandum
deleting the word ‘private’ from for changing its name thereby
its name adding the word ‘private’ from its
3) File following documents with name
ROC within 15 days – 3) File following documents with
a) Copy of altered Articles ROC –
b) Copy of altered Memorandum a) Copy of altered Articles
4) File copy ofthe specialresolution b) Copy of altered Memorandum
with the Registrar of Companies c) Copy of CG Approval
within 30 days from the date of 4) File copy of the special resolution
passing such resolution in Form with the Registrar of Companies
No. MGT. 14. within 30 days from the date of
5) The Registrar of Companies shall passing such resolution in Form
register and issue fresh certificate No. MGT. 14.
of incorporation 5) Registrar of Companies shall
6) Further, if the number of members register and issue fresh certificate
is below 7, steps should be of incorporation
taken to increase the number of 6) Further, if the number of members
members to atleast 7 and that exceeds 200 then steps should
the number of directors should be be taken to reduce the number of
increased to atleast 3, if they are members to 200.
only 2 directors.

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Conversion Of OPC To Private/ Public Company – Section 18

1) OPC can get itself converted into a Private or Public company after increasing the
minimum number of members to 2/7 and directors to 2/3 as the case may be.
2) Pass resolutions for alteration of memorandum and articles
3) File an application to the Registrar
4) The Registrar, who shall after satisfying himself that the provisions applicable for
registration of companies have been complied with, close the former registration
of the company and issue fresh certificate of incorporation
Conversion of Private Company to OPC (Section 18)


1) A private company other than a company registered under section 8 (non-profit
company) of the Act may convert itself into one person company by passing a
special resolution in the general meeting.
2) Obtain No objection in writing from members and creditors.
3) File copy of the special resolution with the Registrar of Companies within 30 days
from the date of passing such resolution in Form No. MGT. 14.
4) The company shall file an application in Form No. INC.6 for its conversion into One
Person Company by attaching the following documents, namely –
a) 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,
b) The list of members and list of creditors;
c) The latest Audited Balance Sheet and the Profit and Loss Account; and
d) The copy of No Objection letter of secured creditors.
5) On being satisfied and complied with requirements stated herein the Registrar
shall issue the Revised Certificate of Incorporation, mentioning that now it has
become a One Person Company

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INCORPORATION OF COMPANY
UNIT AND MATTERS INCIDENTAL
2 THERETO
 FORMATION OF COMPANIES
Promoters of company –
promoter is a firm or person who does the preliminary work incidental to

the formation of a company, including its promotion, incorporation,
and flotation, and solicits people to invest money in the company,
usually when it is being formed.
On the basis of members
Who is named as Having controlling person as per whose

promoter in Annual interest by virtue directions BOD are
Report u/s 92 or in of shareholding, accustomed to act
prospectus directorship or otherwise
Note – Does not include
person giving advice under
professional capacity
Pre — Incorporation / Preliminary / Promoters’ Contract

- Before incorporation, a company is non-existent and has no capacity to contract.
- Hence, the pre-incorporation contracts are entered by a promoter on behalf of the
company
- pre-incorporation contracts never binds the company because at the time the
contract was concluded, the company was not in existence.
- The promoters alone remain personally liable for any contract they intend to make
on behalf of the company unless company adopts the contract after its incorporation

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 Formation of companies – Section 3

1) Company may be formed for any lawful purpose by
• Two or more persons in case of private company
• Seven or more persons in case of public company.
• One person in case of one-person company.
By subscribing their name or his name to memorandum of association and complying
with requirement of registration.
Company so formed may be either –
Company limited by Company limited by unlimited company

shares guarantee
 Members severally liable in certain cases – Section 3A

If at any time the number of members of a company is reduced,
- in the case of a public company - below seven,
- in the case of a private company - below two,
and the company carries on business for more than six months while the number of
members is so reduced, every person who is a member of the company during the time
that it so carries on business after those six months and is cognizant (aware) of the fact
that it is carrying on business with less than seven members or two members, as the case
may be, shall be severally liable for the payment of the whole debts of the company
contracted during that time, and may be severally sued therefor.
 Procedure for Registration – Section 7

A) Following documents are required as per sec 7 while incorporating such documents
should be filed with ROC –
• MOA and AOA duly signed
• A declaration of compliance stating that all the requirements and rules relating
to registrations have been complied with. Such declaration can be signed by –
a) Advocate PCS, PCA, PCWA and
b) by any person named as director /secretary in the articles of the company.
Such declaration should be in form INC - 8
• A declaration from each of the subscribers of memorandum and from persons
named as first directors in the articles (if any) in form INC-9 stating that –
a) He is not convicted in any offence in connection with promotion, formation

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or management of company.
b) He has not been found guilty of fraud or misfeasance or breach of duty in
any company in previous 5 years.
c) All the documents filed with ROC contains information that is true, correct,
complete, accurate and no information being omitted or concealed.
• The address of correspondence till its registered office is established.
• The details of each subscribers to MOA in form INC-10.
• Details of the first director of the company, mentioned in the articles of the
company.
• Particulars of interest of a person mentioned in the articles as first director in
other firms and bodies and their willingness to act as director.
B) Issue of certificate of incorporation –

Registrar on the basis of documents and information filed shall register all the
documents and information and issue the certificate of incorporation.
C) Conclusive evidence –
a) Certificate of incorporation once issued by ROC shall be a conclusive evidence
that all the requirements with respect to registration mentioned under this act
has been complied.
b) If any procedural defect being discovered after issuing certificate of
incorporation, then such subsequent defect shall not invalidate certificate of
incorporation.
c) However, after the issuance of certificate of incorporation if the object of the
company has been found illegal then certificate can be cancelled as certificate
of incorporation cannot legalize an illegal object contained in MOA.
D) Allotment of corporate identity number –

Distinct identity number for a company shall be given by ROC and it should be
mentioned in the certificate of incorporation.
E) Maintenance of copies of all documents and information –

Till the company dissolves all the information and documents filed shall be preserved
by the company.

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F) Effect of furnishing false information –
Furnishing of false or incorrect Furnishing of false or incorrect information or

information or suppression suppression of material factor representation
of material fact at the time or by suppressing any material fact (i.e. post
of incorporation(i.e. during incorporation)
incorporation process) ↓
↓ 1. The promoters, the persons named as
If any person furnishes any the first directors of the company and the
false or incorrect particulars of persons making declaration under this
any information or suppresses section shall each be liable for action for
any material information, of fraud under section 447.
which he is aware in any of
the documents filed with the 2. Order of the Tribunal:
Registrar in relation to the The Tribunal may, on an application made
registration of a company, he to it, on being satisfied that the situation so
shall be liable for action for warrants—
fraud under section 447. (i) Pass such orders, as it may think fit,
for regulation of the management
of the company including changes, if
any, in its memorandum and articles,
in public interest or in the interest of
the company and its members and
creditors; or
(ii) Direct that liability of the members
shall be unlimited; or
(iii) Direct removal of the name of
the company from the register of
companies; or
(iv) Pass an order for the winding up of the
company; or
(v) Pass such other orders as it may deem
fit:
Provided that before making any order,—
(i) The company shall be given a
reasonable opportunity of being heard
in the matter; and
(ii) The Tribunal shall take into
consideration the transactions entered
into by the company, including the
obligations, if any, contracted or
payment of any liability.

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 Memorandum of association – Section 4

• It is a constitutional document/chartered document of the company.
• It specifies the purpose or object for which company being incorporated
• MOA is a public document.
Form of Memorandum of a company shall be in respective of forms specified in

Memorandum Tables A,B,C,D and E in Schedule I as may be applicable to the company.
Table A Memorandum of Association of a company limited by shares
Table B Memorandum of Association of a company limited by guarantee and not
having share capital
Table C Memorandum of Association of a company limited by guarantee and
having a share capital;
Table D Memorandum of Association of an unlimited company and not having
share capital
Table E Memorandum of Association of an unlimited company and having share
capital.
Contents of MOA:
1) Name clause
2) Situation clause
3) Object clause
4) Liability clause
5) Capital clause
6) Nomination clause
7) Subscription clause
1) Name clause:
• Name of the company should end with word ‘private limited’ in case of private
company.
• Name of company should end with word ‘limited’ in case of public limited company
• In case of sec 8 of company the world ltd or private ltd need not to be written
• In case of one-person company, the name should end with OPC.
• The name of the company should not be identical or similar with existing name of
company or trademarks.
• The name of the company should not be undesirable or create confusion in public
or should be undesirable in the opinion of CG.

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Application for reservation of name:

• Application shall be made in e-form of RUN (Reserve Unique Name) with prescribed
fees.
• Period for which name shall be reserved –

Upon receipt of application the registrar on the basis of information and documents
provided reserve the name –
in case of new companies companies in case of existing

company changing its name
for the period of 20 days
registrar may reserve the name for
60 days.
• Consequences for furnishing false information –

Where the reservation of name was applied by furnishing wrong or incorrect
information then:
If the company has not been If the company has been incorporated –
incorporated – Reserved name shall a) Direct to change the name of the
be cancelled and the person making company within 3 months and
application for reservation of name company should change its name
shall be liable for Rs 1 lakh. by passing OR (ordinary resolution).
b) Take action for striking off the name
of the company.
c) Take action for winding up under
section 273.
 Alteration of name clause – Section 13

A) How name clause can be altered?
• By passing special resolution; and
• Obtaining prior CG approval.

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No CG approval required –
Approval of the Central Government is not required, in case where the change in the
name of the company relates to the addition/deletion of the word ‘Private’ to the name
of the company consequent to the conversion of a company into a public company and
vice versa
B) Registrar shall enter the new name in the register of companies –

When any change in the name of a company is made the Registrar shall enter the
new name in the register of companies in place of the old name and issue a fresh
certificate of incorporation with the new name and such change in the name shall
be complete and effective only on the issue of such a certificate
Note –
- change of name shall not affect any rights or obligations of the company
- proceedings commenced by the company cannot be continued in its former name but
can be continued under its new name
C) In case of an application for reservation of name or for change of its name by an

existing company, the Registrar may reserve the name for a period of 60 days from
the date of approval
D) Change of name not allowed – Rule 29 of Companies (Incorporation) Rules, 2014

the change of name shall not be allowed to a company –
• which has not filed annual returns or financial statements due for filing with
the Registrar
• which has failed to pay or repay matured deposits or debentures or interest.

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E) Rectification of Name – Section 16
Central Government gives directions The registered proprietor of a trade

to the company suo moto to rectify mark that the name is identical with
its name if in its opinion, the name or too nearly resembles to an existing
registered is identical with or too trade mark makes an application to
nearly resembles the name, by which Central Government.
a company in existence has been
previously registered. Central Government gives directions
to company to rectify the name on
The company- shall change its name the basis of application received ↓
within a period of 3 months from the The company- shall change its name
issue of such directions after passing within a period of 3 months from the
an ordinary resolution. issue of such directions after passing
an ordinary resolution.
A registered trade mark owner has

to file an application to the Central
Government for rectification of name
which is similar to name of its trade
mark within 3 years of incorporation of
company or change of name.
If company defaults in complying with

the order of CG for changing its name,
the CG shall allot new name and ROC
will register new name in its register
Situation clause –
• The state in which the registrar office of the company is situated.
• If the state is having more than one ROC, then the jurisdiction of ROC needs to be
mentioned.

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 Alteration of Registered Office Clause –
Change of Registered Office
Change within Change within Change within the Change of

the local limits of same state and same State but Registered office
same town same ROC different ROC from one State to
another

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• Methods of shifting of Registered Office within same state:
Change within the Change from one city to Change from one city to another within the
local limits of same another within the same State same State involving change of jurisdiction
‘town [Section 12]: and which does not involve of Registrar of Companies [Sec. 12]:
A company can the change of jurisdiction of A special resolution has to be passed in
change its registered Registrar of Companies, [Sec. the general meeting of the company.
office from one place 12]: Apply to Regional Director for approval
to another within the ↓ ↓
local limits of the A special resolution has to Regional Director shall communicate
city, town or village, be passed in the general within a period of 30 days from the date
where it is situated meeting of the company. of receipt of application
by passing a Board The special Resolution shall ↓
Resolution. be passed by Postal Ballot The company shall file the confirmation
↓ in case of public company. with the Registrar within a period of 60
A notice of the ↓ days of the date of confirmation
change is to be given Form No. MGT.14 shall be ↓
to the Registrar of filed to the Registrar of ROC shall register the same and certify
Companies in Form Companies within 30 days the registration within a period of 30
INC.22 within 30 days of passing the special days from the date of filing of such
of such change. resolution. confirmation.
☻This change of ↓ ↓
registered office does Also within 30 days of the Form No. MGT.14 shall be filed to the
not involve alteration change of the registered Registrar of Companies within 30 days
of memorandum. office, a notice to the of passing the special resolution.
Registrar should be given ↓
of the new location of the Also within 30 days of the change of the
office in Form No. INC.22. registered office, a notice to the Registrar
☻ This change of registered should be given of the new location of
office also does not involve the office in Form No. INC.22.
alteration of memorandum. ☻ This change of registered office also does
not involve alteration of memorandum.
☻ This provision is applicable only in those
states where there is more than one office
of Registrar of Companies. At present there
are two states, where there are more than
one office of ROCs. They are Maharashtra
and Tamil Nadu. In Maharashtra, the two
offices of ROCs are located at Mumbai
and Pune; whereas in Tamil Nadu, the two
offices of ROCs are located at Chennai and
Coimbatore.

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• Change from one State to another State (Section 13)

A special resolution has to be passed in the general meeting of the company.
↓
Apply to Central Government for approval. Now Central Government has delegated
the power to Regional Director.
↓
Central Government shall communicate within a period of 60 days from the date of
receipt of application
The Central Government, before passing its order, may satisfy itself that:
 The alteration has the consent of the creditors, debenture-holders and other
persons concerned with the company or
 That the sufficient provision has been made by the company either for the due
discharge of all its debt and obligations or
 That adequate security has been provided for such discharge.
↓
File following documents with Registrar of both states:
a) A certified copy of the order of the Central Government approving the alteration
for change.
b) Altered copy of MOA
↓
The ROC of the State where the registered office is being shifted to, shall issue a
fresh certifcate of incorporation indication the alteration.
↓
Also Form No. MGT.14 shall be filed to the Registrar of Companies within 30 days of
passing the special resolution. Also within 30 days of the change of the registered
office, a notice to the Registrar should be given of the new location of the office in
Form No. INC 22.
☻ A State Government cannot oppose shifting of the registered office of a company
from one state to another on the ground that by this change the State would
be deprived of its revenue. The question of loss of revenue to one state would
have to be considered in the context of total revenue of the Republic of India
and in the interest of the country as a whole.
☻ It was held that employees’ union, which is a registered body and which
represents quite a number of the employees employed at a registered office
of the company, has the right to appear and to oppose the application made
to the Central Government under Section 13 on the ground that their interests

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would be likely to be prejudicially affected if such special resolution would be

confirmed by the Central Government.
☻ This change of registered office INVOLVES alteration of memorandum.
Change in Place of
Registered office
Within a From One State to

Within a State
Within a state (from Another
(From one ROC to
city one city to (Change in Place Clause
another)
another) Section 13(4),(5).46)
Board Special Special Special

Resolution Resolution Resolution Resolution
Notice to ROC Notice to ROC Permission Approval

(30 days) (30 days) of Regional of Central
Director Government
30/60/30 60/30
RD/Co./ROC 05/CO.
Conclusive Fresh Certificate

Evidence of Incorporation
Shifting of Registered Office Effect on MOA

Change within the local limits of same town No alteration required
Change within same state and same ROC No alteration required
Change within the same State but different ROC No alteration required
From one state to another MOA to be altered
Object Clause –
It determines the purpose and the capacity of the company. It indicates the purpose
for which the company has been set up and its actual capability, besides its sphere of
activities.

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Conditions for alteration of object clause –

1) Pass board resolution
2) Pass special resolution
3) File form MGT 14 within 30 days of passing the special resolution
4) Such resolution shall also be published in the 2 newspapers, one in English and one
in vernacular language and shall also be placed on the website of the company
5) the dissenting shareholders shall be given an opportunity to exit by the promoters
and shareholders having control in accordance with SEBI regulations.
Liability clause –
Liability
Company limited by shares Company limited by Company having unlimited

– guarantee liability –
Liability will be limited Liability will be unlimited
up to the unpaid value of
shares, if any
Having Share capital – Not having share capital –

Liability will be limited up Liability will be limited up
to the guarantee amount, to the guarantee amount
and unpaid value of
shares, if any
Liability = Guarantee
amount + Unpaid value of
shares
Alteration of Liability Clause
In general, liability clause of a company cannot be altered.
However, Section 18 permits a company of any class registered under this Act to
convert itself in some other class of company by altering its memorandum and articles
of association.

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Capital Clause –
Following details are disclose in capital clause –
a) Authorized share capital
b) Face value of share.
c) Number of shares (1/2)
 Alteration of capital clause – Section 61
Types of alteration of capital clause

• increase in authorised share capital
• Consolidation of share capital
• Conversion of shares into stock
• Sub-division of share capital
• cancellation of unissued share capital
Particulars No.of shares Amount Face value

Increased in authorized
↑ ↑ 
Share Capital
Consolidation of Share
↓  ↑
Capital
Subdivision of Share
↑  ↓
capital
Conversion of shares
  
into stock
cancellation of unissued
↓ ↓ 
share capital
• Pass board resolution

• Pass Ordinary resolution
• File form SH.7 with 30days of passing ordinary resolution
• If the alteration of capital results into alteration of AOA, then company need to
pass special resolutions and file form MGT.14

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 Alteration of capital clause – Section 61

• In this clause, the persons (includes a body corporate) subscribing to the memorandum
declare their desire to be formed into a company and agree to take the shares
indicated opposite their respective names.
• Following are the statutory requirements regarding subscription of memorandum:-
a) The memorandum must be signed by each subscriber in the presence of at
least one witness who must attest the signatures;
b) Each subscriber must take at least one share; if any and
c) Each subscriber must write opposite his name the number of shares (if any)
which he agrees to take.
 Articles of association - Section 5

• It is an internal document of a company specifies rules and regulations
• AOA cannot contradict Companies Act and MOA and it is subordinate to MOA.
Form of AOA Contents

Table F Company limited by shares
Table G Articles of Association of a company limited by guarantee and having a share
capital
Table H Articles of Association of a company limited by guarantee and not having
share capital;
Table I Articles of Association of an unlimited company and having a share capital
Table J Articles of Association of an unlimited company and not having a share
capital.
 Alteration Of AOA – Section 14

• Pass board resolution
• Pass special resolution
• File form MGT 14 within 30 days of passing special resolution
• If the alteration of AOA results into conversion of public company into private
company, then obtain prior CG approval
• In case of listed company pass special resolution by passing ballot.

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Important points on alteration of AOA.

• Alteration should be in the bonafide interest of the company and not of any
particular class of shareholder
• Alteration shall be made from the prospective date not from retrospective date
• Alteration of AOA should not dilute the requirement of companies act rather it
should meet the requirement more stringent.
• Alteration of AOA should not result into contradicting or overriding the requirements
of MOA and AOA.
• Alteration should not result into creating a fraud on minority.
• Alteration should not affect the contractual obligation of the company.
 Act to overwrite MOA and AOA – Section 6

Company has an overwriting effect on MOA and AOA. if in case of contradiction between
companies act or MOA and AOA then companies act shall prevail.
 Effects of MOA and AOA – Section 10

a) MOA and AOA once registered with ROC shall be binding upon to company and its
members as if they have signed it personally.
b) All money payable by any member to the company shall be a debt due from him to
the company.
c) MOA and AOA binds
- Company with the members
- Members with the members
- But does not bind company with the outsiders as outsiders are not part of the
contract.
 Sec 10A – Commencement of business

1) A company incorporated after the commencement of the Companies (Amendment)
Act, 2019 and having a share capital shall not commence any business or exercise
any borrowing powers unless—
a) a declaration is filed by a director within a period 180 days of the date of
incorporation of the company, with the Registrar that every subscriber to the
memorandum has paid the value of the shares agreed to be taken by him on
the date of making of such declaration; and
b) the company has filed with the Registrar a verification of its registered office as
provided in sub-section (2) of section 12.

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2) Penalty –
If any default is made in complying with the requirements of this section, the
company shall be liable to a penalty of fifty thousand rupees and every officer who is
in default shall be liable to a penalty of one thousand rupees for each day during which
such default continues but not exceeding an amount of one lakh rupees.
3) Where no declaration has been filed with the Registrar under clause (a) of sub-section
(1) within a period of one hundred and eighty days of the date of incorporation of
the company and the Registrar has reasonable cause to believe that the company
is not carrying on any business or operations, he may, initiate action for the removal
of the name of the company from the register of companies under
 Sec 10A – Commencement of business

A subsidiary company shall not hold shares in its holding company either by himself
or through its nominees or if any allotment is made by holding company to subsidiary
company then shall be void.
Exceptions –
• Where the subsidiary company holds such shares as legal representative of the deceased
member of holding company.
• Where the subsidiary company hold such shares as trustees
• Where the subsidiary company is a shareholder even before it become subsidiary company
of holding company
Provided further that subsidiary company shall have voting rights in respect of shares held by
its legal representatives or trustee.
Important doctrines (rules) inferred from MOA and AOA

Doctrine of ultra vires – Ashbury railway carriage and iron company limited v/s Riche
• A company can only due to those acts which is mentioned in MOA.
• Any act done by the company beyond its MOA shall be ultra vires transactions
• An ultra vires transaction shall be void and it cannot be ratified even by 100% of
shareholders.
• An ultra vires transaction shall not affect assets and liabilities of the company.
• The director/ signatory shall be personally liable for all the losses suffered by
company due to ultra vires transaction.

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Doctrine or constructive notice

• MOA and AOA are public documents and any person dealing with the company
are expected to have knowledge.
• If any third party enters into ultra vires transactions with the company, then such
transactions shall not bind the company and shall not affect assets and liabilities
of company.
• In case of ultra vires transactions an outsider cannot file legal case against the
company.
• Therefore, it protects company from the claim of outsiders
Doctrine of indoor management – Royal British Bank v/s Turquand
• An outsider only needs to assure that company is having desired authority or
power to enter into an agreement / transaction.
• The company is required to ensure that it fulfills all internal procedure or
requirement for affecting the transaction and if company fails to fulfill its internal
requirements then it shall be default of the company and not of the outsider.
• In such case, the outsider shall have the right to initiate legal action against the
company and shall be entitled to get their claim from the company.
• The company in such case shall be entitled to initiate legal action against such
defaulting persons.
• This doctrine protects the interest of outsiders against company.
Exceptions:
a) In case of fraud/ false transactions
b) In case of negligence by third party
c) Where outsider having no knowledge about MOA and AOA.
d) Where outsider has knowledge irregularity.

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Prospectus and
UNIT
Allotment of Shares
3
Securities can be allotted by the

company in two ways
Public offer Section 23-41 Private placement Section 42

Part 1 of chapter 3 Part 2 of chapter 3
How securities can be issued? –

Section 23
In case of public company In case of private company
- Through public offer (IPO / FPO) - Through right issue

- Through private placement - Through bonus issue
- Through right issue - Through private placement
- Through bonus issue
Note –
a) If company is listed, then
company will have to comply
with SEBI regulations as well
b) Public offer includes IPO as well
as FPO

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 What is prospectus?
Section 2(70) of the Companies Act, 2013 defines a prospectus as
any document described or issued as a includes –
prospectus and a) red herring prospectus,

b) shelf prospectus or
c) any notice, circular,
advertisement or other
document involving offers from
the public for the subscription
or purchase of any securities of
a body corporate.
A document shall be called a prospectus if it satisfies below given points:

1. It invites subscription to shares or debentures or invites deposits.
2. The invitation is made to the public.
3. A document is deemed to be issued to the public if the invitation to subscribe is
open to anyone.
4. The invitation must be made by or on behalf of the company
Types of prospectus
• Red Herring • Shelf Abridged • Abridged

Prospectus Prospectus prospectus prospectus
 Shelf Prospectus – Section 31

1. Shelf prospectus can be defined as a prospectus that has been issued by any public
financial institution, company or bank for one or more issues of securities or class of
securities as mentioned in the prospectus
2. When a shelf prospectus is issued then the issuer does not need to issue a separate
prospectus for each offering
3. He can offer or sell securities without issuing any further prospectus.
4. The validity period of shelf prospectus is maximum 1 year.
5. In case of any issue during the said period, a company is just required to file an

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information memorandum intimating the changes that have happened since the
last issue.
6. Information memorandum along with shelf prospectus shall be deemed to be prospectus.
7. Where a company has received applications for the allotment of securities along
with advance payments of subscription before the making of any such change, the
company shall intimate the changes to such applicants and if they express a desire
to withdraw their application, the company shall refund all the monies received as
subscription within 15 days
8. Information memorandum shall be filed in form PAS-2 within one month prior to the
issue of a second or subsequent offer of securities
 Red herring prospectus – Section 32

1. Red-herring prospectus means a prospectus which does not include complete
details with respect to price or quantum of securities.
2. A company in case of public issue, through book building process issues red-herring
prospectus.
3. Company issues a red herring prospectus prior to the issue of a prospectus.
4. It shall be filed with the registrar at least 3 days prior to the opening of the
subscription list.
5. It shall carry the same obligations as that of the prospectus
 Abridged Prospectus – Section 33

1. Abridged prospectus means a prospectus which contains such information as
specified by SEBI.
2. Such prospectus shall be attached with the application form for purchase of
securities of the company.
 Deemed prospectus – Section 25

1. Where a company allots or agrees to allot any securities of the company with a view
to all or any of those securities being offered for sale to the public, any document
by which the offer for sale to the public is made shall be deemed to be a prospectus
issued by the company;
2. In case of deemed prospectus, all the provisions of section 26 and liability for
misstatement in prospectus will be applicable.

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3. For a document to be considered as deemed prospectus, any one of the following

conditions need to be satisfied –
a) that an offer of the securities or of any of them for sale to the public was made
within six months after the allotment or agreement to allot; or
b) that at the date when the offer was made, the whole consideration to be
received by the company in respect of the securities had not been received by
it.
Has the allottee sold shares

to Public within 6 Months
Yes No
Has the allottee paid Full Yes Not a Deemed
Consideration to Company
Prospectus
before offer for sale to Public
No
Deemed Prospectus

 Matters to be stated in the prospectus – Section 26

1. Every prospectus shall be signed and dated
2. Every prospectus should contain such details as specified by SEBI in consultation with
CG.
3. Company should make declaration that it has complied with the applicable rules
and regulations of SEBI
4. The prospectus is not to be issued by a company or on its behalf unless on or
before the date of publication, a copy of the prospectus is delivered to the registrar for
registration.
5. The copy should be signed by every person whose name has been mentioned in the
prospectus as a director or proposed director or the assigned attorney on his behalf.
6. The prospectus should mention that its copy has been delivered to the registrar on
its face.
7. No prospectus shall be valid if it is issued more than 90 days after the date on which
a copy thereof is delivered to the Registrar.
8. Penalty –
If a prospectus is issued in contravention of the provisions of this section, penalty
shall be as follow –

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a) Upon company –
Fine – Minimum 50,000 but may extend to 3 lakhs
b) Upon every person who is knowingly a party to the issue of such prospectus shall be
punishable with –
Fine – Minimum 50,000 but may extend to 3 lakhs; or both
Statement made Experts –

A prospectus issued shall not include a statement:
- Made by an expert who is engaged or interested in the formation or promotion or
management, of the company or
- Made by an expert whose written consent is not obtained or
- Made by an expert whose written consent is obtained but he has withdrawn such
consent before the delivery of a copy of the prospectus to the Registrar for filing.
 Variation in terms of prospectus – Section 27

1. For making any changes in the prospectus after it is issued, company need to pass
special resolution.
2. Details of such resolution shall also be published in 2 newspaper –
a) one English newspaper and
b) one vernacular language newspaper where the registered office of the company
is situated.
3. The shareholders who do not agree to variation in prospectus are called as dissenting
shareholders.
4. Dissenting shareholders should be given exit opportunity as specified by SEBI.
 OFFER FOR SALE BY CERTAIN MEMBERS OF A COMPANY – SECTION 28

1. Members of a company, in consultation with Board of directors, can offer the whole
or a part of their holdings of shares to the public.
2. The document by which the offer of sale to the public is made shall be deemed to
be a prospectus issued by the company.
3. All laws and rules in this case as to the contents of the prospectus shall apply as if
this is a prospectus issued by the company.
4. The section lays that the members, whether individuals or bodies corporate or both,
whose shares are proposed to be offered to the public, shall collectively authorise
the company, whose share were offered for sale to the public, to take all actions

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in respect of offer of sale for and on their behalf and they shall reimburse the
company all expenses incurred by it on this matter.
 Liabilities and punishment for non-compliance –
Remedies against Company Remedies against Directors/

1. Rescind the contract.
Promoters/Expert:
2. A person, who takes shares on the
faith of a prospectus containing
false statements, may apply to Criminal Liability Civil Liability for
the Court for the contract to be set for mis-statement mis-statement in
aside, and his name to be struck off
in prospectus prospectus
from the register of members.
3. He may also claim his money back.
4. Sue the company for damages for Explained in depth
deceit.
on next page
☻ But the allottee must act within
reasonable time, before any
proceedings to wind up the • Mens rea • Loss or
company have been commenced.
(guilty mind) damage is
He will lose his right to rescind if
he attempts to sell the shares or is an essential an essential
attends a general meeting of the condition condition
company, or receives dividends.
• Criminal • Civil
☻ This right is available only those
persons who subscribe the shares. Procedure Code, Procedure
The word ‘subscribed’ denotes that 1973 applicable Code, 1908
the shares were acquired directly
• Offence is applicable
from the company by allotment.
A subsequent purchase of shares regarded • Offence
in the open market has no remedy committed against the
against the company or the directors
against the state counterparty
or promoters.

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Penalty under section 447 of Companies Act, 2013
Fine Imprisonment
Fraud of less than 10 lakh Upto 50 Lakhs or Upto 5 years
rupees or 1% of turnover
whichever is less
Fraud of equal to or more Min: amount of fraud and Min: 6 months
than 10 lakh rupees or 1% Max: (amount of fraud) x 3 Max: 10 Years
of turnover whichever is
less
Involving Public Interest Min: amount of fraud and Min: 3 years
Max: (amount of fraud) x 3 Max: 10 Years

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Liability for mis-statements in

prospectus –
Criminal liability – Section 34 Civil liability – Section 35
Where a prospectus, issued, 1) Where a person has subscribed to the securities of the
circulated or distributed, includes company based on the mis-statements made in the
any statement which is untrue or prospectus then every person who –

- director of the company at the time of issuing
misleading or where any inclusion
prospectus
or omission of any matter is likely
- has authorised his name as director in the prospectus
to mislead,
- is a promoter of the company
 - has authorised issue of prospectus
every person who authorises the - is an expert shall be liable to compensate the person
issue of such prospectus shall be who has sustained damage/loss
liable under section 447:
 2) Above mentioned persons shall not be liable if they prove –
- after consenting to become director of the company,
Provided that nothing in this
he withdrew the consent before issuing prospectus
section shall apply to a person if
- prospectus was issued without his authority
he proves that such statement or
- prospectus was issued without his knowledge or
omission was immaterial or that he consent and that on becoming aware of its issue, he
had reasonable grounds to believe forthwith gave a reasonable public notice that it was
and did up to the time of issue of issued without his knowledge or consent
the prospectus believe, that the - statement made by the expert was genuine and valid
statement was true, or the inclusion or he did not consent in writing for inclusion of his
statement in the prospectus.
or omission was necessary.
3) if it is proved that the prospectus was issued with

the intention to defraud the applicants for the
securities of a company or any other person or for
any fraudulent purpose,

every person referred above shall be personally
responsible, without any limitation of liability, for
all or any of the losses or damages that may have
been incurred by any person who subscribed to the
securities on the basis of such prospectus.

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Liability for Misstatement
Criminal Liability Civil Liability
Every person who Company, director, Proposed director,

authorized prospectus. Promoter, Expert, one who authorized
Punishable u/s 447 Pay compensation to Investors
Defenses Defenses
Reasonable Withdrew Believed on Issued without

Immaterial
ground to consent to he Consent u/s his Knowledge,
believed director 26(5) Public Notice
 Punishment for fraudulently inducing persons to invest money – Section 36
Section 36 prescribes punishment for any person who fraudulently induces persons to
invest money by making statement which is false, deceptive, misleading or deliberately
concealing any material facts. He will be held guilty for fraud punishable with
imprisonment and fine under section 447, an offence which is non-compoundable.
 CONDITIONS OF ALLOTMENT –
1. It should be made by proper authority i.e. it can only be done by board of directors
or a committee on behalf of the board.
2. It should be made within reasonable time. Once allotted, securities must be issued
within a period of 2 months from the date of allotment.
3. Allotment should be absolute and unconditional.
4. It must be communicated. Posting of letter of allotment or allotment advice will be

taken as a valid communication.

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5. Allotment should always be against the application.
6. It should not be in contravention of any law.
7. No allotment shall be made, until minimum subscription has been received on such
share applications.
8. Minimum subscription shall be at least 90% of the total issue size.
9. The application money shall be at least 5% of nominal value of the amount of security.
10. The application money received should be deposited in a separate account (Escrow
Account) in a Scheduled Bank before making any allotment. Such money can be
utilized only for the following two purposes:
a) For adjustment against allotment of securities, where listing is permitted; or
b) For repayment of money, where the company is for any other reason unable to
allot securities.
11. It must be received within a period of 30 days from the issue of prospectus or such
other date as may be prescribed by SEBI.
12. If the money is not received within the stipulated period, it shall be returned within
15 days from the closure of issue or else it shall attract payment of interest @ 15%
p.a.
13. A return of allotment is required to be submitted in Form PAS-3 within 30 days of

such allotment.
 Application to Stock Exchange – Section 40

1. Every company before making public offer shall make an application to recognized
stock exchange seeking their permission to list the securities.
2. Prospectus shall also state the name or names of the stock exchange in which the
securities shall be listed.

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 Payment of underwriting commission – Section 40 read with Rule 13
A company may pay underwriting commission subject to following conditions –

1) Authority to pay underwriting commission –
a) Payment of underwriting commission shall be authorised by AOA.
b) Commission may be paid out of proceeds of issue or the profit of the company
or both.
2) Maximum rate of commission –

a) In case of shares –
5% of price at which shares are issued
whichever is lower
or
rate specified in the AOA,
b) In case of debentures –
2.5% of price at which shares are issued
whichever is lower
or
rate specified in the AOA,
3) The prospectus of the company shall disclose –

• Name of the underwriters;
• Rate and amount of commission to be paid;
• Number of securities to be underwritten;
• Such other details as may be prescribed.
Note –
a copy of the contract for the payment of commission is delivered to the Registrar at the
time of delivery of the prospectus for registration.
 Private placement of shares – Section 42 + Rule 14 of Companies (Prospectus and Allotment

of securities) Rules, 2014
Meaning Private placement means offer to a select group of persons, to

subscribe to the securities of the company for making an invitation,
who have been identified by the Board (herein referred to as “IDENTIFIED
PERSONS”)

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Maximum As per 50 persons persons shall not

number of section 42 Or such higher include QIBs and
persons to number as may Employees who
whom securities be prescribed have been allotted
can be offered shares under
under private As per
200 persons section 62(1)(b)
placement Rule 14
Since higher number 200 is prescribed, we take the maximum number as
200.
Note –
1) The above limits should be counted individually for each kind of
security that is equity share, preference share or debenture [i.e. 200
for equity shares, 200 for preference shares and 200 for debentures].
2) The above limits is for one financial year.
Who can issue A public company or private company can issue shares on private
securities placement basis by passing special resolution
through private
plcement ?
Other Conditions 1. Private Placement Offer letter shall be made to IDENTIFIED
for private PERSONS accompanied by an application form serially
placement numbered & addressed either physically or in electronic form
within 30 days of recording of names of such invitees.
2. The private placement offer and application shall NOT carry
any right of RENUNCIATION.
3. The company is not allowed to advertise such issue in any form
or in any form of print media. It is strictly given on private basis.
4. Company cannot make two offer of private placement
simultaneously –
A company cannot make fresh offer or invitation under this
section until the allotments with respect to any offer or
invitation made earlier have been completed or that offer or
invitation has been withdrawn or abandoned by the company.
5. All the monies collected shall be kept in a separate bank
account & can only be collected by way of cheques and not in
cash.

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6. Offer Letter under such issue shall be filed in Form PAS-4 with
ROC within 30 days from the date of circulation of private
placement offer letter.
7. Allotment shall be made within a period of 60 days from the
receipt of the application. If not, money received shall be repaid
within 15 days after the expiry of 60 days. If the company fails
to repay the application money within the aforesaid period, it shall
be liable to repay that money with interest at the rate of 12% per
annum from the expiry of the 60th day.
8. Return of Allotment is required to be filed in Form PAS-3 with
the ROC along with prescribed fee within 15 days of allotment.
9. A company shall not utilise monies raised through private
placement unless allotment is made, and the return of
allotment is filed with the Registrar.

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UNIT SHARE CAPITAL

4
 Meaning of capital –
Capital means the money raised by the company by issuing various securities, shares,
debentures, deposits etc. Broadly, capital consists of two components namely
Share capital and Debt capital.
equity shares preference shares debentures, deposits, bonds etc.
 Meaning of capital –
Kinds of Share Capital
Preference Share Equity Share
On the basis On the On the With voting With

of dividend basis of basis of rights differential
payout convertibility redeemability rights as to
of shares dividend,
voting or
• Cumulative • Convertible • Redeemable otherwise
• Non-cumulative (Mandatorily • Irredeemable
• Participatory or optionally,
• Non- partially or
Participatory fully)
• Non-
convertible

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 MEANING AND NATURE OF SHARE – SECTION 2(84)
Section 2(84) of the Act defines a share, as a share in the share capital of the company
& includes stock.
Nature of Shares –
1) A share gives the right to participate in the profits of the company while it is a
going concern.
2) In India, shares are regarded as goods as per SOGA, 1930.
3) Shares issued by the company have distinctive numbers.
4) Any amount raised by way of shares constitutes share capital.
Equity capital is also known as “Common Stock” or common share capital that represents
ownership in a company.
 Issue of shares at premium - Section-52

1. Company can issue securities at premium (i.e. more than its face value) for any
amount.
2. The securities premium amount shall be deposited in a separate account called as
Securities Premium account.
3. Securities premium is not forming part of free reserve under section 2(43) and
therefore it shall not be available for declaration of dividend.
4. Securities premium can only be used for the following purposes – Section 52(2)
a) For issuing fully paid up bonus shares
b) For writing off pre-incorporation expenses.
c) For writing off expense/discount/commission on issue of shares and debentures
d) For writing off premium on redemption of preference shares/debentures
e) For buy-back of securities.
5. Notwithstanding anything contained in section 52(2), securities premium account of
the companies whose financial statement comply with AS under section 133 shall
be utilized only for the following purposes –
a) For issuing fully paid up bonus shares
b) For writing off expense/discount/commission on issue of shares and debentures
c) For buy-back of securities.
Note - If the securities premium being used for any other purpose other than the 5
purposes or 3 purposes as mentioned above then it amounts to reduction of share capital
& requirement of section 66 of Companies Act, 2013 need to be complied.

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 Prohibition to issue of shares at discount – Section 53

1. Company shall not issue shares at discount except in following 2 cases –
a) sweat equity shares under section 54.
b) company may issue shares at discount to its creditors when its debt is converted
into shares pursuant to statutory resolution plan or debt restructuring scheme
in accordance with the guidelines specified by RBI under RBI Act, 1934 or under
Banking Regulation Act, 1949.
2. If the share being issued at discount, then such allotment shall be void.
3. Consequences of issuing shares at discount –

If the company fails to comply with the requirements of sec 53, then company
and every officer in default shall be liable for a penalty which may extend up to the
amount raised by issue of shares at discount or rupees 5,00,000 whichever is lesser and the
company will also be required to refund all the money received along with interest @12%
p. a from the date of issue of such shares to the person to whom such shares have
been issued.
Note:
a) As per sec 53, company can issue debentures at discount.
b) Also, company may issue forfeited shares at discount as it amounts to reissue of
shares.
 Publication of authorized, subscribed and paid up share capital – Section 60

1. If the authorized share capital of the company being mentioned on any notice,
advertisement or any other publications including business letter, letter head, etc
then the company is also required to publish/ mention its subscribed and paid up
share capital.
2. If the requirement of sec 60 has not been complied, then its amount to default and
penalty shall be levied.

Upon the company upon every officer in default
Fine – Rs 10,000 fine – Rs 5,000

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 ISSUE OF SHARES WITH DIFFERENTIAL VOTING RIGHTS - SECTION 43 + Rule 4 of

Companies (Share Capital and Debentures) Rules, 2014
If a company wants to issue shares with differential voting rights then it shall fulfill the
following conditions –
1. It is authorized by its Articles of Association.
2. If there is no authority in AOA then company need to alter its AOA by passing SR and
then proceed for issue of shares with DVRs
3. The issue is authorized by an ordinary resolution. In case of listed companies, it shall

be passed through postal ballot
4. The voting power in respect of shares with differential rights of the company shall
not exceed 74% of total voting power including voting power in respect of equity shares
with differential rights issued at any point of time
5. The Company has not defaulted in filing financial statements and annual returns in
the last 3 preceding financial years.
6. The company has not defaulted in -

a) Payment of declared dividend
b) Repayment of matured deposit
c) Redemption of preference shares
d) Redemption of debentures
e) Payment of dividend on preference shares or
f) Repayment of term loan raised from scheduled commercial bank or PFI or
state level financial institution or schedule bank or crediting the amount in
investor education protection fund under section 125.
Provided that a company may issue equity shares with differential rights upon expiry
of five years from the end of the financial year in which such default was made good.
7. The company has not been penalized by any court or tribunal during the last 3
years for any offence under RBI Act, SEBI Act, SCRA (Securities Contract Regulation
Act,1956) or FEMA.

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Points to remember –
a) The company shall not convert its existing equity share capital with voting rights
into equity share capital carrying differential voting rights and vice versa.
b) The holders of the equity shares with differential rights enjoys all other rights such
as bonus shares, right shares etc., which the holders of equity shares are entitled
to, subject to the differential rights with which such shares have been issued.
c) When a company issues equity shares with differential rights, the Register of
Members shall contain all the particulars of the shares so issued along with details
of the shareholders.
 ISSUE OF SWEAT EQUITY SHARES – SECTION – 54 + Rule 8
Meaning – Sweat Equity shares means equity shares issued by a company to its
Section 2(88)
directors or employees
at a discount or for consideration other than cash for
- providing know-how or
- making available rights in the nature of
intellectual property rights or
- value additions, by whatever name called.
Meaning of ‘‘Employee’’ means-
employee (a) a permanent employee of the company who has been working
in India or outside India; or
(b) a director of the company, whether a whole-time director or
not; or
(c) employee or a director of a subsidiary, in India or outside India,
or of a holding company of the company;

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Conditions for The following conditions are required to be fulfilled for issue of
issuing sweat sweat equity shares namely:
equity shares 1. It shall be authorized by a special resolution in the General
Meeting.
2. Explanatory statement is required to be attached to the notice of
such meeting.
3. The special resolution passed for sweat equity shall be valid for
a period of 12 months from the date of special resolution.
4. Issue of such equity shares shall not exceed 15% of the existing
paid up equity share capital in a year or the shares of the issue
value of Rs. 5 crores, whichever is higher & 25% of the paid-up
equity capital of the company at any time.
Provided further that a start-up company, may issue sweat equity
shares not exceeding 50% of its paid-up capital up to 10 years from
the date of its incorporation or registration.
5. The price of sweat equity shall be determined by a registered
valuer.
6. The company shall maintain the register in Form SH3.
7. Depending upon whether company is listed or an unlisted
company it shall comply with SEBI rules or company rules as
the case may be.
8. The holders of such shares shall rank pari-passu with other
equity shareholders.
9. The sweat equity shares issued to directors or employees shall
be locked in for a period of three years from the date of allotment.
 Issue and Redemption of preference shares – Section 55
1) Company cannot issue preference shares which are irredeemable in nature.

2) For issuing preference shares, there should be authority in the AoA of the company.
3) Company needs to pass special resolution for issuing preference shares

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4) Maximum period for which preference shares can be issued
For normal For companies engaged in

companies Infrastructural projects
20 years 30 years
Condition –
Redemption of minimum of 10% of such
preference shares per year beginning from
21st year on a proportionate basis.
5) Preference shares shall be redeemed only when they are fully paid.
6) Preference shares shall be redeemed only out of
profits of the OR proceeds of fresh issue of

company shares
7) If the shares are redeemed out of the profit of the company, then a sum equivalent to
the nominal value of shares so redeemed shall be transferred to Capital Redemption
Reserve Account (CRR).
Note – if the preference shares being redeemed out of proceeds of fresh issue then no CRR
is required to be created.
8) Premium on such shares, if any, shall be paid out of securities premium account.
However, it is subject to conditions mentioned under section 52.
9) When the company is not in the position to redeem preference shares –
a) In case, if the company is not able to redeem the preference shares, it shall with
the permission of shareholders holding 3/4th in value of such shares and with the
approval of the tribunal issue equal amount of redeemable preference shares.
b) On such issue, the unredeemed preference shares shall be deemed to have
been redeemed.
However, the tribunal will order for the redemption of preference shares of preference
shareholders who have not consented shall be redeemed immediately.

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Voting Rights of a Member – Section 47
Voting rights of equity shareholder – Voting rights of preference shareholder –

↓ ↓
Every member of the company shall Normally preference share holder cannot
have voting right on every resolution vote.
placed before the company. ↓
↓ But in following cases preference share
Voting right on a poll shall be in holder can vote on:
proportion to his share in the paid-up ↓
equity share capital of the company 1) Resolutions which directly affects their
rights
2) Resolution for the winding up of the
company
3) Resolution for the repayment or
reduction of its equity or preference
share capital
4) All the resolutions placed before the
company if the dividend in respect of a
class of preference shares has not been
paid for a period of 2 years or more
Voting Rights of a Member – Section 47

1) Rights of particular class of shareholders can be varied with the consent in writing
of the holders of not less than three-fourths of the issued shares of that class
2) If variation by one class of shareholders affects the rights of any other class of
shareholders, the consent of three-fourths of such other class of shareholders shall
also be obtained and the provisions of this section shall apply to such variation.
3) Where the holders do not consent to such variation,
↓
Holders holding at least 10% of the issued shares of a class did not consent to such
variation
↓
May apply to the Tribunal within 21 days to have the variation cancelled, and where
any such application is made, the variation shall not have effect unless and until it is

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confirmed by the Tribunal

↓
The decision of the Tribunal on any application shall be binding on the shareholders.
↓
The company shall, within 30 days of the date of the order of the Tribunal, file a copy
thereof with the Registrar
 Bonus shares – Section 63
Bonus shares – 1. Authority for issuing bonus shares needs to be there in the AOA
Section 63 of the company.
2. If there is no authority in AOA then company need to alter its
AOA by passing SR and then proceed for issue of bonus share.
1. Bonus share can be issued out of -
Free reserves Securities Capital redemption

premium reserve
Note: Bonus share cannot be issued from revaluation reserve.

3. Bonus share shall be issued only on fully paid-up shares.
4. Bonus shares cannot be given/issued in lieu(place) of dividend.
5. Bonus shares shall be issued on the recommendation of BOD.
6. For issuing bonus shares company need to obtain prior
shareholder approval by passing ordinary resolution.
7. Bonus shares once announced by company shall not be
subsequently withdrawn by BOD – Rule 14 of Companies (Share
Capital and Debenture) Rules,2014.
8. Company should not have made default in payment of statutory
dues of employees such as contribution to provident fund,
gratuity and bonus;
9. Company should not have made default in payment of principal
or interest in fixed deposit debt securities.

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 Further issue of share capital – Section 62
Further issue of share capital - section 62
Right issue - ESOP - preferential allotment -

Section 62(1)(a) Section 62(1)(b) Section 62(1)(c)
 Right Issue – Section 62(1)(a)
Meaning - If at any time, a company proposes to increase its subscribed

capital by issue of further shares, such shares would be offered
first to the existing shareholders on proportionate basis.
- Such issue of shares is known as rights issue of shares.
Conditions 1. The right issue offer period should be open for minimum 15 days
and maximum 30 days.
Note – in case of private company the right issue offer period can be
lesser than 15 days if the consent in writing for the same being given
by 90% of the members of the company.
2. Letter of offer need to be dispatched to all the shareholder at
least 3 working days before the opening of issue.
3. Right of renouncement needs to be given to existing shareholder
4. Offer under right issue which has not been accepted or no reply
being received from such shareholder then board of directors
shall have the right to dispose of such offer in such manner which
is not disadvantageous to the shareholder of the company.
5. The provisions of section 62 are applicable to all types of
companies except the Nidhi companies

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 ESOP – Section 62(1)(b)
Meaning As per section 2(37) ESOP means right or an option given to the –
- Directors; or
- Officers; or
- Employees
of a company or of its holding company or subsidiary company or
companies, which gives such director, officers or employees, the
benefit or right to purchase or to subscribe for the shares of the company
in future at a pre-determined price.
Eligibility (who is 1. A permanent employee working in or outside India.
eligible to receive 2. A director whether whole time or not but excluding an
ESOP) independent director.
3. An employee of a subsidiary, in India or outside India, or of a
holding company of the company.
Employee does not include –
i. any employee who is a promoter or part of the promoter group;
or
ii. A director who either himself or through his relative or through
any body corporate holds more than 10% of the total equity share
capital of the company
Provided that in case of a startup company, the conditions mentioned
in sub-clause (i) and (ii) shall not apply up to 10 years from the date
of its incorporation or registration
 Preferential Allotment – Sec 62(1)©
Meaning ‘Preferential Offer’ means an issue of shares or other securities, by a

company to any select person or group of persons on a preferential
basis and does not include shares or other securities offered through
a public issue, rights issue etc.

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Restriction on Purchase by Company or giving of Loans by it for Purchase of its Shares –

Section 67
Company cannot buy its own shares – Company cannot give loan, guarantee
↓ or any financial assistance –
Company limited by shares or by ↓
guarantee and having a share capital Company cannot give loan, guarantee
shall not have power to buy its own or any financial assistance to any
shares except in case of reduction of person for the purpose of purchase or
share capital as per section 66. subscription of shares in the company
or in its holding company.
Exceptions: There are, however, certain exceptions

where the company may provide the financial
assistance, namely –
1) The lending of money by a banking company in
the ordinary course of its business;
2) lending of money due to ESOP scheme approved
by company through special resolution for the
purchase of securities by the trustees for the
benefit of the employees of the company
3) lending of money by the company to the
employee of the company other than its directors
or key managerial personnel for an amount not
exceeding their salary or wages for a period
of 6 months with a view to enabling them to
purchase or subscribe for fully paid-up shares in
the company or its holding company
 Non-Applicability of section 67 –
Section 67 shall not apply to:
1) Private company/ Specified IFSC public company —
a) In whose share capital no other body corporate has invested any money; and
b) If the (borrowings of such a company from banks or financial institutions/ Body
corporate) < [2 (Paid up share capital) or `50 crores, whichever is lower]; and

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c) Such a company is not in default in repayment of such borrowings subsisting

at the time of making transactions under this section.
2) In case of Nidhi company, when shares are purchased by the company from a
member on his ceasing to be a depositor or borrower and it shall not be considered
as reduction of capital under section 66 of the Companies Act, 2013.
 Penalty for non-compliance –
Where any default is made in complying with the provisions of this section, following
penalty is payable:
For company = Fine: Minimum Rs. 1 lakh upto Rs. 25 lakhs
Every officer of the company who is in default = Fine: Minimum Rs. 1 lakh upto Rs. 25
lakhs Or Imprisonment: Upto 3 years Or Both
 Buyback of securities – Section 68, 69 & 70
Meaning Buy back of securities means the company buys its own shares and
extinguishes the same before the name of the company is entered in
its register of members.
Authority for 1. Authority should be there in the AoA.
doing buyback 2. If there is no authority in AoA then company need to first alter
AoA by passing special resolution.
If the quantum of buyback is
Up to 10% of paid-up share Up to 25% of paid-up share

capital and free reserves capital and free reserves
Company need to pass only Company need to pass board

board resolution resolution + Special resolution
3. In case of a listed company, approval of shareholders shall be
obtained only by postal ballot

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Sources of buy company may purchase its own securities out of -

back
its free reserves the securities the proceeds of

premium account any shares or other
specified securities
Quantum of Buy a) Board of directors can approve buy-back up to 10% of the total
Back paid-up equity capital and free reserves of the company.
b) Shareholders by a special resolution can approve buy-back
up to 25% of the total paid-up capital and free reserves of the
company.
c) In respect of any financial year, the shareholders can approve by
special resolution up to 25% of total equity capital in that year.
Conditions for 1. Debt equity ratio post buy back of securities shall be 2:1.
Buy Back 2. Securities bought back shall only be fully paid securities.
3. A declaration of solvency signed by at least two directors of the
company, one of whom shall be the managing director, if any,
in Form No. SH.9 and verified by an affidavit to the effect that
the Board of Directors of the company has made a full inquiry
into the affairs of the company as a result of which they have
formed an opinion that it is capable of meeting its liabilities
and will not be rendered insolvent within a period of one year
from the date of declaration adopted by the Board.
Time period for 1. The offer for buy-back shall remain open for a period of
buy back offer minimum period of 15 days and for a maximum period of 30 days
from the date of dispatch of the letter of offer.
2. Buy back shall be completed within a period of one year from the
date of its approval the shareholders or board of directors of
the company, as the case may be.
3. Where all members of a company agree, the offer for buy-back
may remain open for a period less than fifteen days.

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Methods of buy a) from the existing shareholders or security holders on a

back proportionate basis;
b) from the open market;
c) by purchasing the securities issued to employees of the
company pursuant to a scheme of stock option or sweat equity
Extinguishment Securities bought back shall be extinguished within a period of 7 days
of securities from the date of completion of buy back.
bought back
Prohibition on Once the securities are bought back, it shall not issue securities of
further issue of the same kind within 6 months except by way of bonus issue.
securities
Gap between The gap between 2 buy-back offers shall be at least of one year.
two buy back
offers
Register of buy Company shall maintain register for buy back in form SH-10
back containing all the materials and relevant matters.
Return of buy A company shall, file with the Registrar and SEBI, a return of buy-
back back within thirty days of such completion in Form No. SH.11, a
certificate in Form No SH.15 signed by two directors of the company
including the managing director.
Penalty If the requirement of section 68 has not been complied or any other
provision w.r.t buyback of securities, then it shall be considered as
default and penalty shall be levied upon
Upon the company upon every officer in default
Fine – Min – Rs. 1 lakh fine – Min – Rs. 1 lakh

Max – Rs. 3 lakhs Max – Rs. 3 lakhs
Transfer to CRR – If the buyback is made from free reserves or securities premium
Section 69 account then a sum equal to the nominal value of shares so
purchased shall be transferred to CRR

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Prohibition A company shall not purchase its own securities,

on buyback – directly or indirectly
Section 70
Through if the company if such company

-Subsidiary has made default has made default
company with respect to -: in compliance with
- Investment requirement of-:
company
i.e. selling stake - Repayment - Annual

in of deposit Return –
Subsidiary/ - Redemption Section 92
investment of - Declaration
company of debenture. of dividend –
company - Redemption Section 123
in exchange of of preference - Financial
Shares shares statement –
bought back.) - Payment Section 129
This is not of declared - Filing of FS
allowed as dividend with ROC –
Investors rights - Repayment Section 137
remain of loan
Unprotected & raised
NCLT. from bank/
Approval is Financial
required institution
Note – however company is not prohibited to buy back its securities

after default being remedied and the period of 3 years has elapsed
after such default cease to subsist

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 Reduction of share capital – Section 66
With NCLT without NCLT approval

approval
It is called diminution
It is called reduction of share capital
of share capital
It includes –
1. Forfeiture
2. Surrender
3. Buyback
4. Redemption of
preference shares
5. Cancellation, etc.
 Important points on reduction of share capital (sec 66)

1. Authority for reduction of share capital need to be there in AOA of the company.
If authority is not there in AOA, then company needs to alter its AOA by passing
special resolution.
2. For capital reduction, company need to pass special resolution and need to obtain
NCLT confirmation order.
3. The regulatory framework for capital reduction is applicable upon-:

• Company limited by guarantee having share capital
• Company limited by shares.
4. Reduction of share capital shall not be affected by the company, if the

company is in arrears in the repayment of deposit accepted before or after the
commencement of company Act, 2013 or any interest payable there upon.
5. For capital reduction, application need to be made to NCLT for obtaining its
confirmation by filing petition along with the scheme of proposed capital
reduction.

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6. NCLT on receipt of such application in the form of petition shall give notice of
such application to-:
i. CG
ii. ROC
iii. SEBI (in case of listed company)
iv. Creditor
7. The aforesaid persons are required to submit their representation to NCLT within
3 months from the date of receipt of notice.
8. However, if no representation being made to NCLT within said period of 3

months then it shall presume that they have no objection to the proposed
scheme of capital reduction.
9. NCLT before confirming the scheme of capital reduction shall ensure that
the debt or claim of every creditor of the company has been discharged or
determined or has been made secure or consent of such creditor being obtained.
10. NCLT shall not issue its confirmation order for the proposed scheme of capital
reduction unless the auditor provides a certificate confirming that the accounting
treatment under the proposed scheme of capital reduction is in conformity with
the accounting standard specified under section 133 of companies Act, 2013.
11. NCLT confirmation order confirming the reduction of share capital shall be
published by the company in such manner as the NCLT shall direct
12. The company shall file the certified copy of NCLT confirmation order along with
the minutes approved by NCLT to the ROC within 30 days of the receipt of NCLT
confirmation order.
13. Such minutes duly approved by NCLT shall specify the following-:
i. Amount of share capital
ii. Number of shares
iii. Face value of each share
iv. Amount of paid up share capital

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14. ROC shall register the NCLT confirmation order confirming the scheme of
capital reduction and shall issue a certificate of registration which shall be
a conclusive evidence that all the requirements of capital reduction has been
duly complied.
15. If any officer of the company commits any default or conceals any fact or
makes any misrepresentation, then he shall be liable under section 447.
 Transfer of Shares (Section 56 to 58) –

1) A proper instrument of transfer duly stamped, dated and executed by or on behalf
of the transferor and the transferee has been delivered to the company by the
transferor or the transferee within a period of 60 days from the date of execution
(+)
The certificate relating to the securities, or if no such certificate is in existence, along
with the letter of allotment of securities.
2) In case a company has partly —paid shares and where the company has received
any instrument of transfer of such shares from transferor, the company shall give a
notice by registered post to the transferee and shall register the transfer only when
no objection is received from the transferee within 2 weeks from the date of receipt
of notice.
3) What company will do?
Company may register the Company may refuse to register

transfer the transfer
↓ ↓
Company shall issue share Section 58 will come into picture
certificate within 1 month of
registering the transfer
Refusal of registration and application against refusal – Section 58
If an application is made for transfer of shares and company refuses to transfer the
shares then it needs to inform the concerned parties within 30 days

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STATUTORY REMEDY AGAINST

REFUSAL
In case of private companies In case of public companies
If reply is received – If no reply is received If reply is received If no reply is received

within 30 days from – within 60 days from –
the date of receipt Within 60 days the date of receipt Within 90 days from
of reply from the date of reply the date of delivery
of delivery of of instrument of
instrument of transfer
transfer
Make an application with the Tribunal
Tribunal shall within a period of 10 days after hearing the parties either dismiss the
appeal or order transfer or transmission of such securities.
Penalty for non-compliance of section 58 –
If any person contravenes the order of tribunal under this section then he shall be punishable
with –
imprisonment fine
Minimum - 1 year Minimum - 1 lakh rupees
Maximum – 3 years Maximum 5 lakh rupees
Debentures
 Definition of Debentures – Section 2(30)

According to Section 2(30) of Companies Act, 2013, “debenture” includes debenture stock,
bonds or any other instrument of a company evidencing a debt, whether constituting a
charge on the assets of the company or not.

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Regulatory Framework for debentures
Rule 18 of Companies (Share capital

Section 71 of Companies Act, 2013
and Debentures) Rules, 2014
 Issue of debentures – Section 71(1)

a) For issuing debentures, company should pass special resolution.
 No voting rights – Section 71(2)

No company shall issue any debentures carrying any voting rights.
 Conditions for issuing secured debentures – Section 71(3) + Rule 18

Secured debentures may be issued only when the following conditions are fulfilled –
1) Maximum tenure of debenture –
Maximum tenure of secured debenture is 10 years from the date of issue.
However, company engaged in the setting up of infrastructure projects may issue
secured debentures for a period exceeding 10 years but not exceeding 30 years;
following classes of companies may issue secured debentures for a period exceeding
ten years but not exceeding thirty years –
a) Companies engaged in setting up of infrastructure projects;
b) ‘Infrastructure Finance Companies’
c) Infrastructure Debt Fund Non-Banking Financial Companies
d) Companies permitted by a Ministry or Department of the Central Government
by Reserve Bank of India or by the National Housing Bank or by any other
statutory authority
2) Issue of secured debenture –
Issue of debentures shall be secured by the creation of a charge on the properties
or assets of the company or its subsidiaries or its holding company or its associates
companies, having a value which is sufficient for the due repayment of the amount
of debentures and interest thereon
3) Appointment of debenture trustee –

- The company shall appoint a debenture trustee before the issue of prospectus
or letter of offer for subscription of its debentures.
- Company shall execute a debenture trust deed to protect the interest of the

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debenture holders within 60 days after the allotment of the debentures.
4) Manner of creating security –

the security for the debentures by way of a charge or mortgage shall be treated in
favour of the debenture trustee.
 Appointment of Debenture Trustees – Section 71(5)

1) Appointment of trustee –
a) Company before making issue of prospectus or an offer or inviting public or
members to more than 500 persons, shall appoint one or more debenture
trustees.
b) The names of the debenture trustees shall be stated in letter of offer inviting
subscription for debentures and also in all the subsequent notices or other
communications sent to the debenture holders.
c) Before the appointment of debenture trustee, a written consent shall be
obtained
2) Who may not be appointed as debenture trustee? (disqualifications for debenture trustees)
Any person who –
a) beneficially holds shares in the company;
b) is promoter, director or key managerial personnel or any other officer or an
employee of the CHAS;
c) is beneficially entitled to moneys which are to be paid by the company otherwise
than as remuneration payable to the debenture trustee;
d) is indebted to the CHAS or a subsidiary of such holding company;
e) has furnished any guarantee in respect of the principal debts secured by the
debentures or interest thereon;
f) has any pecuniary (monetary) relationship with the company amounting to 2%
or more of its gross turnover or total income or fifty lakh rupees, whichever is
lower, during the 2 immediately preceding financial years or during the current
financial year;
g) is relative of any promoter or any person who is in the employment of the
company as director or key managerial personnel.

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Important points regarding debenture trustee–

• Vacancy –
The board may fill any casual vacancy in the office of the trustee but while any
such vacancy continues, the remaining trustee or trustees, if any, may act. If the
vacancy is caused by the resignation of the debenture trustee, the vacancy shall
only be filled with the written consent of the majority of the debenture holders
• Removal of debenture trustee –
Any debenture trustee may be removed from office before the expiry of his term
only if it is approved by the holders of not less than three fourth in value of the
debentures outstanding at their meeting.
 Trust Deed –
a) Company shall execute trust deed with debenture trustee.
b) Trust deed shall be executed in form SH 12 within 3 months of closure of the issue or
offer.
c) Trust deed shall be open for inspection by any member or debenture holders in the
same manner as if it were the register of members of the company.
d) A copy of the trust deed shall be forwarded to any member or debenture holder of
the company, at his request, within 7 days of the making, on payment of fee.
 Liability of debenture trustee –

1) Any clause in the trust deed exempting or indemnifying trustee from the liability
arising due to breach of trust or due to failure to exercise care and due diligence
shall be void.
2) The liability of the debenture trustee shall be subject to such exemptions as may
be agreed upon by a majority of debenture-holders holding not less than three-
fourths in value of the total debentures at a meeting held for the purpose.

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Acceptance of
UNIT
Deposit by companies
5
 Meaning of deposit – Section 2(31)
• As per section 2(31) any receipt of money by way of deposit or loan shall be considered
as deposit by the company except the exceptions which has been specified in Rule
2(1)(c) of Companies (Acceptance of deposit) Rules, 2014.
• Exceptions under Rule 2(1)(c) of Companies (Acceptance of deposit) Rules, 2014

1) Any amount received from SG or CG or local authority.
2) Loan or financial assistance received from bank or financial institution.
3) Loan or financial assistance received from multilateral financial institution,

international bank, foreign bank, foreign govt, person resident outside India
(PROI), foreign authority, etc.
4) Amount received by the company by issue of money market instrument such

as commercial paper, etc.
5) Amount received by one company from other company (inter corporate loans)
6) Securities application money received by the company shall not be considered

as deposit
Provided the securities shall be allotted within 60 days of receipt of application amount
and if not allotted then refund need to be made in next 15 days after the expiry of 60 days
and if not refunded then after the expiry of 75 days it shall be considered as deposit.
7) Any amount received by the director of the company or from the relative of director
of the private co. shall not be considered as deposit.
PROVIDED
a. Such director of the co. or relative of director of the private co. provides declaration
in writing that such fund is their own fund and not the borrowed fund.

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8) Any amount received from the co. towards issue of debentures / Bonds shall not be
considered as deposits.
PROVIDED either of the two sides condition is satisfied as given below.
Condition 1 – Condition 2 –
a) Such debt/bonds are secured a) Such debt/bond should be
against the tangible property of compulsory convertible into
the co. and shall not be created equity shares.
upon the intangible property of b) Such conversion shall take place
the co. within 10 years from the date of
b) Market value of such security issue.
is determined by registered
valuer and such market value
should be at least or more than
the redemption value of such
debentures.
9) Any amount received by the company by issue of unsecured non- convertible

debenture shall not be considered as deposits
PROVIDED
a. Such debenture is listed on stock exchange.
b. Such debenture being issued as per SEBI regulations.
10) Any amount received by the employee of the company shall not be considered as
deposits
PROVIDED
a. Such amount should not be more than annual salary of such employee.
b. Such amount should not carry any interest.
11) Any amount received by the co. in trust shall not be considered as deposit provided
such amount should not carry any interest.

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12) Any advance amount received by the co. in the ordinary course of business towards
the supply of goods/services shall not be considered as deposits
PROVIDED
a. Such advance amount shall be adjusted against the supply of goods/services within
365 days from the date of receipt of advance.
b. However, if the advance amount is subject to any litigation then time period of 365
days shall not apply.
c. the aforesaid amount becomes refundable on account of not getting the requisite
approval/permission, then the money should be refunded within fifteen days from the
date it becomes due for refund, otherwise it shall be treated as deposit
13) Any advance amount received by the company as purchase consideration towards
the transfer of immovable property shall not be considered as deposit provided
such advance amount being adjusted as per the terms of such transfer.
14) Any advance amount received by the co. as security deposit for the performance of
contract for supply of goods/services shall not be considered as deposit.
15) Any amount received by the co. under long term capital project for supply of capital
goods shall not be considered as deposits.
16) Any amount received by the company towards consideration for providing future
services in form of warranty contract or maintenance contract shall not be considered
as deposits
PROVIDED
a. Such warranty contract or maintenance contract shall be as per the written agreement.
b. Period for providing such future services should not exceed the period as per the
common business practice or 5 years whichever is lesser.
17) Any advance amount received and allowed by any sectoral regulator as per the
directions of CG/SG shall not be considered as deposits.
18) Any advance amount received by the company for subscription towards publication
whether in print media or electronic media shall not be considered as deposit

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19) Any unsecured loan received by the company from his promoter which has been
provided due to the condition/stipulation mentioned in loan agreement, entered
between the company and lending institution
Shall not be considered as deposit Shall be considered as deposit

 Such amount being provided If such amount being retained by the
by promoter or by relative of company even after the loan being
promoter or both. repaid to the lending institution.
 Such amount being provided by
promoter in order to fulfil the
condition mentioned in the loan
agreement entered between
the company and the lending
institution.
 Such amount being retained
by the company only till the
repayment of loan to the
lending institution.
20) Any amount received by the NIDHI COMPANY from its member u/s 406 of companies
Act,2013.
21) Any amount received by way of subscription in respect of “chit fund” under chit fund
Act,1982.
22) Any amount received by the company under collective Investment Scheme under
SEBI Regulations.
23) Any amount of Rs.25 lakhs or more received by start-up company by the way of
convertible note in a single trench from a single person shall not be considered as
deposit.
Note –
- “convertible note” means an instrument evidencing receipt of money as debt which
is repayable at the option of the holder or which is convertible into equity shares of
startup co. upon the occurrence of specified event and convertible into equity shares
or repayable within period not exceeding 10 years from date of issue.

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24) any amount received by the company from AIF (Alternative Investment Fund) ,
domestic VCF(Venture Capital Fund), Infrastructure investment trust and mutual fund
registered with SEBI in accordance with SEBI registration, shall not be considered as
deposit.
Depositor means
Any member of the company who Any person who has made deposit
has made deposit with the company with the public company as per
as per section 73. section 76
 TENURE OF DEPOSIT – Rule 3 of Companies (Acceptance of Deposits) Rules, 2014
Tenure of deposit
Minimum Tenure - Max Tenure -

6 months from the date of 36 months from the date of
acceptance of deposits acceptance of deposits.
However, company can accept deposit

for a period less than 6 months subject
to following conditions –
a) Minimum tenure of such deposit=
3 months from date of acceptance
of deposits.
b) Maximum amount of such deposit=
10% [PUSC+FR+ SP]

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Tenure of deposit
By companies other By government

By eligible companies
than eligible companies companies
• From existing Please refer note below From member/non-

member= 10% member = 35% (PUSC +
(PUSC + FR + SP) FR + SP)
• From another
public = 25% (PUSC
+ FR + SP)
Note – For companies other than eligible companies

A) For Private Companies –
Only from existing member = 100% (PUSC + FR + SP)
Provided further that the maximum limit in respect of deposits to be accepted from
members shall not apply to following classes of private companies: -
a) a private company which is a start-up, for ten years from the date of its
incorporation;
b) a private company which fulfils all of the following conditions, namely:
• which is not an associate or a subsidiary company of any other company;
and
• the borrowings of such a company from banks or financial institutions
or any body corporate is less than twice of its paid-up share capital or
50 crore rupees, whichever is less; and
• such a company has not defaulted in the repayment of such borrowings
subsisting at the time of accepting deposits under section 73:
B) For Specified IFSC public company –
Only from existing member = 100% (PUSC + FR + SP)
C) For other public companies which are not eligible companies –
From existing member = 35% (PUSC + FR + SP)
Common note for all companies –
The above limits include any existing deposits as well as proposed deposits. (Existing +
Proposed)

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Eligible company is a public company
Having net worth of atleast Rs.100cr. or turnover of atleast Rs.500cr
Has obtained prior approval of shareholder by passing special resolution in general

meeting
1). Has filed such special resolution with ROC before making any invitation to public
for acceptance of deposits
Note –
If (Proposed deposits from the public together with the existing borrowings of the
company) ≤ (Paid-up share capital + Free Reserves + Securities Premium), then an
eligible company may accept deposits by means of an ordinary resolution.
 Miscellaneous –
1) Rate of interest –
Maximum rate of interest as prescribed by RBI for acceptance of deposits by NBFC.
2) Variation in terms of deposits –

The company shall not reserve to itself directly or indirectly a right to make variation
in any terms and conditions of deposit trust deed after issuance of circular or circular
in the form of advertisement and deposit being accepted which prejudice the interest
of depositor.
3) Credit rating –
Every eligible company shall obtain once in a year credit rating for deposit accepted
by it and the copy of rating shall be submitted to ROC along with the return of
deposit in from DPT-3.
 Prohibition on Acceptance of Deposits from Public – Section 73 (Acceptance of deposits

from members)
Conditions for accepting deposits from members – Company should pass resolution and
should fulfill following conditions –

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a) Company shall issue circular in form DPT-1 to its members including a statement
showing –
• the financial position of the company;
• the credit rating obtained;
• the total number of depositors; and
• the amount due towards deposits in respect of any previous deposits accepted
by the company; and
• such other particulars as may be prescribed
b) Such circular and advertisement shall be field with ROC at least 30 days before the
date of issue of such circular.
c) deposit on or before the 30th April each year, such sum which shall not be less than
20% of the amount of its deposits maturing during the following financial year and
kept in a scheduled bank in a separate bank account to be called deposit repayment
reserve account;
d) Company should certify that it has not committed any default in repayment of
deposit or payment of interest.
Provided, where a default had occurred, the company made good the default and a period
of 5 years had elapsed since the date of making good the default
e) Providing security for the repayment of deposit, if any Provided, if the company has
not secured deposits then it shall be called as ‘unsecured deposits’
Exception: Points (a) to (d) above shall not apply to private Companies:
• Which accepts from its members upto 100%, of aggregate of the Net worth,
and such company files the details of monies so accepted to the Registrar in
prescribed manner, OR
• Which is a start-up, for 5 years from the date of its incorporation; OR
• Which fulfils all of the following conditions, namely
 Which is not an associate or a subsidiary company of any other Company
 If the (borrowings of such a company from banks or financial institutions/
Body corporate) < [2 (Paid up share capital) or `50 crores, whichever is
lower]
 Such a company has not defaulted in the repayment of such borrowings
subsisting at the time of accepting deposits under this section

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 Acceptance of Deposits from Public – Section 76
Provisions of section 73 shall mutatis mutandis apply for accepting deposits from public
along with following additional conditions –
1) Credit rating must be obtained for every year during the tenure of the deposit
2) Every company accepting secured deposits from the public shall within 30 days of
such acceptance, create a charge on its assets of an amount not less than the amount
of deposits accepted in favor of the deposit holders in accordance with such rules as
may be prescribed
 Creation of Security –
1) Company accepting deposits need to secure such deposits by creating charge upon
the tangible property of the company within 30 days.
2) The vale (market value) of such property upon which charge being created should
be more than or equal to redemption value of deposit.
3) Such charge shall be created in favor of deposit trustee.
 Appointment of Trustee for Depositors –

1) Company accepting deposit shall appoint one or more deposit trustee before issuing
circular/advertisement.
2) Before appointment of deposit trustee, a written consent should have been obtained
and disclosure of such consent need to be made in circular/advertisement.
3) The company shall execute deposit trust deed in form DPT-2 at least 7 days before
issuance of circular/advertisement.
4) Deposit trustee need to be an independent person having no connection with the
company and depositors.
Following persons shall not be eligible to be appointed as deposit trustee –
• Director, key managerial personnel or any other officer or an employee of the
CHAS or a depositor in the company
• Any person who is indebted to the CHAS or a subsidiary of such holding
company.
• Any person who has any material pecuniary relationship with the company.
• Any person who has entered into any guarantee arrangement in respect of
principal debts secured by the deposits or interest
• Any person who is related to any person specified in sub point 1 above.
5) After the issuance of circular/advertisement deposit trustee shall not be removed

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before the expiry of his tenure except with the consent of all the directors present at
the board meeting.
 Registers of Deposits –
1) Every company accepting deposits shall maintain register of deposits.
1) Register of deposits shall be maintained at its registered office.
2) Contents of register –
• name, address and PAN of the depositor/s.
• particulars of guardian, in case of a minor.
• particulars of the nominee.
• deposit receipt number.
• date and the amount of each deposit.
• duration of the deposit and the date on which each deposit is repayable
• rate of interest or such deposits to be payable to the depositor.
• due date for payment of interest.
• date or dates on which the payment of interest shall be made.
• particulars of security or charge created for repayment of deposits
• any other relevant particulars.
Note –
a) Entries in the register shall be made within 7 days from the date of issuance of deposit
receipt.
b) Register shall be authenticated by a director or secretary of the company or by any other
officer authorised by the Board.
c) Register shall be preserved for a period of 8 years from the financial year in which the
latest entry is made in the register.
 Deposit repayment reserve –

A) Every eligible company and every company other than eligible company shall on or
before 30th April of every year deposit minimum 20% of its amount of deposit maturing
during the following financial year (immediate next year) and such amount shall be
kept in a separate bank account to be called as ‘Deposit Repayment Reserve A/c’ in a
schedule bank and such amount shall not be utilized for any other purpose other
than for the repayment of deposit.
However, the amount remaining deposited shall not at any time fall below 20% of the
amount of deposit maturing during the financial year (current FY).

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Example –
FY in Date of Amount Tenure of Repayment Redemption FY in
which acceptance of deposit value of date of which
deposit is of deposit deposit deposit deposit deposit
accepted accepted being
redeem
2017-18 1-1-18 100cr. 2 years 150cr. 1-1-2020 2019-
20
2018-19 1-10-18 200cr. 2 years 300cr. 1-10-2020 2020-
21
2019-20 1-4-19 300cr. 2 years 400cr. 1-4-2021 2021-
22
Calculation –
Calculation of 20% of Calculation of 20% of current Minimum amount
following year (next year) year to be kept in DRR
By 30-4-2018 20% [deposit maturing in 30cr.
20% [deposit maturing 2018-19]
during 2019-20] =20%[NIL]
= 20%[150cr.] =NIL
= 30cr.
By 30-4-2019 20% [deposit maturing in 60cr.
20% [deposit maturing 2019-20]
during 2020-21] =20%[150cr.]
= 20%[300cr.] =30cr.
= 60cr.
By 30-4-2020 20% [deposit maturing in
20% [deposit maturity during 2020-21]
2021-22] =20%[300cr.] 80cr.
= 20%[400cr.] =60cr.
= 80cr.
By 30-4-2021 20% [deposit maturing in
= 20% [deposit maturing 2021-22]
during 2022-23] =20%[400cr.] 80cr.
= 20%[NIL] =80cr.
=NIL

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 Deposit repayment reserve –
Penalty
As per rule 17 As per section 75 As per section 76A
Every company shall This Section is removed

pay penalty @18% from syllabus as per
p.a. for the deposit ICAI Notification
remaining unpaid.

Upon Company Fine – Upon every officer in default
a) Minimum – 1 crore or twice Imprisonment –
the amount of deposit accepted • up to 7 years; and Fine –
(whichever is less). • Minimum – 25 lakhs
• Maximum – 2 crores.
b) Maximum – 10 crores • If it has been established that the
officer in default has contravened
the provisions knowingly or with
fully with the intention to deceive
the company/its shareholders/
depositor/creditors/taxation
authorities then penalty shall be
under section 447.

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UNIT REGISTRATION OF
6 CHARGES
Charge means control / rights of the creditor on the assets of the company
Definition of charge – Section 2(16)

“Charge” has been defined as an interest or lien created on the property or assets of a
company or any of its undertakings or both as security and includes a mortgage.
KINDS OF CHARGE
Fixed or Specific Charge Floating Charge

 A fixed charge is against security of  A floating charge is a charge on a
certain specific property e.g., land, class of assets present and future
buildings, or heavy machinery.  A floating charge is not attached
 The company loses the right-to to any definite property but covers
dispose off that property property of a fluctuating type e.g.
stock - in - trade, debtors, etc.
and is thus necessarily equitable.
 The company free to deal with
the property as it sees fit until the
holders of charge take steps to
enforce their security.
When floating charge is converted into fixed charge? (Also called as crystallization of
charge)
a) when the terms and conditions of floating charge are violated
b) company ceases to continue its business
c) company goes into liquidation
d) creditors enforce the security covered by the floating charge

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BASIS FOR COMPARISON FIXED CHARGE FLOATING CHARGE

Meaning Fixed charge refers to Floating charge refers to a
a charge that can be charge that is created on
ascertained with a specific the assets of circulatory
asset, while creating it. nature.
Nature Static Dynamic
Preference First Second
Asset type Non-Current Asset Current Asset
Dealing in asset The company has no right The company can use
to deal with the property, or deal with asset, until
but subject to certain crystallization.
exceptions.
Duty of the company to register charges – Section 77

If company creates any charge in India or outside India on any of its property/asset/
undertaking whether tangible or intangible then such charge is required to be registered
with ROC
↓
charge is required to be registered with ROC within 30 days of creation of charge.
↓
For registration of charge the company is required to file form CHG-1 with ROC within 30
days of creation of charge.
↓
If the company has issued debenture which is secured against the asset of the company,
then company is required to file form CHG – 9 within 30 days of creation of charge

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Charge created
Before 2nd Nov, 2018 On or after 2nd Nov, 2018
Register charge within 30 Register charge within 30

days of creation days of creation
 If not registered in 30 days

Register within 300 days Register in next 30 days (i.e.
of creation on payment of within 60 days from creation)
additional fees with additional fees
If not registered If not registered in
in 300 days 300 days
Register within 6 months
from 2nd Nov, 2018 with
additional fees. Register within a further
Different fees for different period of 60 days with
classes of companies. advalorem fees
Once charge is registered, ROC will issue certificate of registration of charge in Form
CHG-2.
 Registration of modification of charge – Section 79

If the company fails to register charge within 30 days of creation of charge, then
↓
Application for registration of charge shall be made by the charge holder to ROC by filing
form CHG -1/CHG-9.
↓
On receipt of such application from the charge holder, ROC shall issue notice to the
company requiring a company to submit their representation within 14 days on receipt of
such notice.
↓
The company on receipt of such notice may either make application for registration of
charge or explain why such charge should not be registered and if no reply/representation
being received from the company within 14 days after giving notice to the company then
ROC shall register the charge based on the application filed by the charge holder
↓

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If the charge holder incurs any expenses towards fees or additional fees paid by the
charge holder to ROC for the purpose of registration of charge then such charge holder
shall be entitled to recover the same from the company.
 Registration of modification of charge – Section 79
As per sec 79, modification of charge implies
• Company acquiring any property • Making modification in terms and

which is subject to charge conditions of any charge already
registered.
Examples of modification of charge –

1) Change in repayment schedule of loan
2) Change in rate of interest (other than bank rate)
3) Change in tenure of loan
4) Partial release of the charge on a particular asset or property
On registration of charge with ROC, ROC shall issue
Certificate of registration of certificate of registration of

Creation of charge modification of charge
 
In form CHG-2 In form CHG-3
NOTE: the aforesaid certificate issued by ROC shall considered to be a conclusive

evidence that all the requirement of registration has been duly complied.
 Deemed notice of Charge – Section 80

If any person has acquired the assets or even part of it which has been registered for
charge then he shall be deemed to have the notice of charge from date of its registration
i.e. we shall assume that he knows about the charge on assets from date of registration
by company

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 Company to report satisfaction of charge – Section 82

Once the company has made entire repayment of loan then such company is required
to file an intimation of satisfaction of charge in form CHG-4 with ROC within 30 days of
satisfaction of charge.
(In case of a specified IFSC public company, time period is 300 days instead of 30 days)
↓
If company fails to make application within 30 days, then it can apply within 300 days
from the date of satisfaction of charge
↓
If company fails to make an application within above 300 days, then it can apply to
CG (RD) for condonation of delay in Form CHG-8. If CG (RD) condones the delay then
company shall submit form INC-28 along with CHG-4
↓
On receipt of application for registration of satisfaction of charge in form CHG – 4 the
ROC shall send a notice to the holder of the charge calling upon him to show cause
within 14 days, as to why payment or satisfaction in full should not be recorded.
If no cause is shown by the charge- If any cause is shown by the charge-

holder holder
The Registrar shall order entering The Registrar shall record a note to
of a memorandum of satisfaction in that effect in the register of charges
the register of charges kept by him and inform the company
and accordingly, he shall inform the
company of having done so
Note –
a) No notice is required to be sent, in case the intimation to the Registrar in this regard
is in Form CHG-4 and signed by the holder of charge.
b) In case the Registrar enters a memorandum of satisfaction of charge in full, he shall
issue a certificate of registration of satisfaction of charge in Form No. CHG-5

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 Power of Registrar to Make Entries of Satisfaction and Release in Absence of Intimation

from Company – Section 83
The Registrar may after receiving evidence with respect to any

registered charge –
• that the debt for which the • that part of the property or
charge was given has been paid or undertaking charged has been
satisfied in whole or in part; or released from the charge or
has ceased to form part of the
company’s property or undertaking,
ROC will enter in the register of charges a memorandum of satisfaction that –

• the debt has been satisfied in whole or in part; or
• the part of the property has been released from the charge or has ceased to form
part of company’s property.
 Intimation of appointment of receiver – Section 84

• If any person being appointed as receiver or manager to manage the property which
is subject to charge, or whenever such receiver is removed then intimation of such
appointment shall be filed with ROC in form CHG – 6 within 30 days of appointment
or removal.

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UNIT General Meetings

7
Meetings
Meeting of BOD Meeting of members Meeting of -

- creditors
- Preference
shareholders
Board Meeting [Sec.
General Meeting - Debenture holders
173-176]
Class
Annual General Meeting Extra- ordinary General Meeting
(AGM) [Section 96] Meeting (EGM)
[Section100]
 Definition Financial Year – Section 2(41)
• Financial year in relation to company or body corporate means a period

ending on 31st day of March every year.
• However, if the company is being incorporated on or after 1st January,

then 1st Financial year shall be ending on 31st March of the next year.
• If a Company or Body Corporate is a holding company or Subsidiary

company or Associate Company of Company incorporated outside India
and is required to follow a different Financial year for the purpose of
consolidation of accounts outside India than Amendment Application
shall be made to Regional Director
RD, if it is satisfied may allow any period for its financial year whether or not that
period is a year.

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 Annual General Meeting – Section 96

1) Every company other than a One Person Company shall in each year hold in addition
to any other meetings, a general meeting as its annual general meeting and
2) Maximum gap between 2 AGM should not be more than 15 months
AGM of the company
First AGM - Subsequent AGM -
- 1st AGM of the company shall - Subsequent AGM shall be held

be held within a period of 9 within a period of 6 months,
months from the date of closing from the date of closing of the
of the first financial year of the financial year
company. - ROC has the power to grant
- if a company holds its first AGM extension of 3 months for
as specified above, it shall not holding subsequent AGM for
be necessary for the company any special reason.
to hold any annual general - Extension shall be granted only
meeting in the year of its once for an AGM
incorporation Note – extension of 3 months shall not
be given for holding 1st AGM
3) Important points –
• Every AGM shall be called during business hours, that is, between 9 a.m. and 6
p.m.
• AGM can be called on any day that is not a National Holiday
• AGM shall be held either at the registered office of the company or at some other
place within the city, town or village in which the registered office of the company is
situated
• Provided that annual general meeting of an unlisted company may be held at
any place in India if consent is given in writing or by electronic mode by all the
members in advance:

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 Power of tribunal to call AGM – Section 97

1) Tribunal has the power to call AGM on an application made to it by any member of
the company if the company fails to hold AGM as per the provisions of the Act.
2) Tribunal may provide such orders for holding AGM as it may deem fit.
3) Provided that such directions may include a direction that one member of the
company present in person or by proxy shall be deemed to constitute a meeting.
 Default in holding the GM – Section 99

If any default is made in holding a meeting of the company in accordance with section
96 or section 97 or section 98 or in complying with any directions of the Tribunal, the
company and every officer of the company who is in default shall be punishable with fine which
may extend to one lakh rupees and in the case of a continuing default, with a further fine which
may extend to five thousand rupees for every day during which such default continues.
 Extra Ordinary General Meeting – Section 100

A) Meaning –
General meeting called between two Annual General Meetings is called as extra-
ordinary general meeting (EGM)
B) Who can call EGM?

- By company itself through BOD for urgent matter for which company cannot
wait till AGM
- By company on the request of members [Requisitionists]
- By requisitionists themselves
- By order of NCLT

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Member (Requisitionists) Company (BOD) EGM
1) Members Shall make request 1) If company 1) If company fails to

to BOD to hold EGM. accepts such hold EGM within
2) Minimum number of members request, then it 45 days than such
who shall make application – shall send notice members can hold
a) in the case of a company of such EGM to EGM themselves after
having a share capital, all other member the expiry of 45days
such number of 2) Company shall 2) Company shall
members who hold, on hold EGM 45 provide details of
the date of the receipt days of receipt of all other members
of the requisition, not request to such member
less than one- tenth of [Requisitionsits]
such of the paid-up share 3) Such member shall
capital of the company as send notice of EGM
on that date carries the to all other member
right of voting; and shall hold EGM
b) in the case of a company in same manner as
not having a share company would have
capital, such number of conducted EGM
members who have, on 4) All reasonable
the date of receipt of the expenses for
requisition, not less than conducting such EGM
one- tenth of the total shall be reimbursed
voting power of all the by the company to
members having on the such members
said date a right to vote, 5) Such member shall
3) Company shall accept/ reject hold EGM within 3
such request within 21days of months from date on
receipt of such request which requisition was
made to the company

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Important points on EGM –
a) EGM can be held on any day.
However, EGM called by requistionists should be conducted on any day except a
national holiday.
b) EGM can be held at any place within India.
A Meeting called by the requisitionists shall be held either at the registered office
of the company or at some other place within the city, town or village in which the
registered office of the company is situated
 EGM on the order of NCLT – Section 98

As per section 98 if it is impractical to call the meeting of the company then the tribunal
may Suo moto or on the application of any member or director who is entitled to vote
at a meeting,
- NCLT will issue order for conducting the meeting in the manner as NCLT may deems fit
and shall also provide such further direction as considered necessary for conducting
the meeting.
- Such direction may also include that one member of the company present in person
or proxy shall deem to constitute a meeting.
 Business to be transacted at General Meeting –Section 102

Business to be transacted at General Meeting
Ordinary Business Special Business

Ordinary business is transacted only • Business other than Ordinary
at AGM Following businesses shall be Business are called Special
considered as Ordinary Business – Business
1) Adoption of Accounts (financial • Special business is transacted at
statements, board’s report, both – AGM & EGM
auditor’s report) • For Special business explanatory
2) Appointment of Director in place statement is required to be
of retiring director. provided.
3) Declaration of dividend (final • For Special Business the company
dividend) needs to pass a Special Resolution
4) Appointment of auditor or Ordinary resolution depending
Note – upon the nature of business.
For ordinary business no explanatory NOTE: All Business transacted at EGM
statement is required to be provided. are Special Business
For Ordinary business, company need to
pass Ordinary Resolution

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 Notice of General Meeting – Section 101
A) Notice of GM –
a) A general meeting of a company may be called by giving not less than 21 clear
days' notice either in writing or through electronic mode in such manner as
maybe prescribed.
b) In case of section 8 company, 14 days’ clear notice is required instead of 21
days.
‘Clear days’ means days exclusive of the day of the notice of service and of the day
on which the meeting is held.
If the notice is sent by post then it shall be deemed that notice is received after
the expiry of 48 hours after the letter is posted
B) Shorter Notice for holding General Meeting

1) If 21 days advance notice cannot be given for holding General meeting then
company can hold General meeting by giving shorter notice provided consent
being obtain from the members in writing or by electronic means.
2) Consent for holding General meeting by giving shorter notice need to be obtain
by member
In case of AGM - In case of EGM

Consent need to be obtained from
95% of members entitle to vote.
In case of Company having In case of Company not having

Share Capital – Share Capital –
Consent need to be Consent needs to be
obtained from 51% majority obtained from members
in number of members holding minimum 95%of
entitled to vote holding voting rights
minimum 95% of the total
paid-up Share Capital of
the company having voting
right

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Note –
a) If a member is entitled to vote only on few resolution proposed to be moved at the
meeting and not on the other matter then vote of the member shall be considered
for the purpose of sec. 101 ( for shorter notice ) for those matter where he is entitled
to vote and not in those matter where he is not entitled to vote.
b) Such written consent needs to be obtained before holding the General and not at
the General Meeting.
 Quorum – Section 103

A) Meaning of Quorum –
Minimum number of members required to be present for conducting meeting.
Quorum
In case of public company In case of private company
If company has 5 members 2 members

members up to personally present personally present
1,000
If company has 15 members
members is more personally present
than 1,000 but up to
5,000
If company has 30 members
members more than personally present
5,000.
B) Other important points –

1) If AOA of the company prescribes for higher quorum then company will have
to follow quorum prescribed in AOA.
In simple words, quorum as per AOA or as per section 103, whichever is higher.
2) The term ‘Personally Present’ means member attending the meeting himself
and not through proxy or through video conferencing.
3) If the member of the company being body corporate / President of India /
Governor of state then such member can appoint an authorized representative

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and such authorized representative shall be vested with some power as vested
with the member of the company and shall be counted while calculating
Quorum.
C) Adjournment of Meeting –
1) If the quorum is not present within half-an-hour from the time appointed for
holding a meeting of the company-
a) the meeting shall stand adjourned to the same day in the next week at
the same time and place, or to such other date and such other time and
place as the Board may determine; or
b) the meeting, if called by requisitionists under section 100, shall stand
cancelled:
2) If there is any change in the time, day or place of adjourned general meeting
then company shall give notice at least 3 days before the meeting to members
either individually or by publishing in two newspaper, one English newspaper
and one vernacular language newspaper.
3) If in adjourned meeting also quorum is not present within half-hour then
members present in the meeting shall be the quorum for the meeting
4) In the adjourned general meeting no new business matter shall be transacted
but matter which has not been transacted and left pending in the original
general meeting shall be transacted
 Chairman – Section 104

1) For every meeting the Chairman needs to be appointed
2) Unless the articles of the company otherwise provide, the members personally
present at the meeting shall elect one of themselves to be the Chairman thereof on
a show of hands.
3) If the Chairman is not present within 15 minutes schedule time of General Meeting
or he is not willing to act as a Chairman than the director present shall act as a
Chairman of meeting and if no director being present and no director is willing to act
as member than the member present can act as a Chairman unless AOA provides
otherwise and such election can be done by show of hand.
4) If poll being demanded for election of a Chairman than such poll shall be taken
immediately and the chairman elected by show of hands shall continue to be the
chairman of the meeting until some other person is elected as chairperson as a result
of poll and such other person shall be the chairman for the rest of the meeting.

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 Proxies – Section 105

1) Who can appoint proxy?
a) Member entitled to attend and vote at General Meeting can also appoint
Proxies in place of himself to attend and vote at General Meeting on behalf of
such member.
b) A Proxy need not be the member of the company.
However, in case of Section 8 company, only a member can be appointed as Proxy
c) A Proxy can act on behalf of Members not exceeding 50 and holding in the
aggregate not more than 10% of the total share capital of the company
carrying Voting Rights
d) However, member holding more than 10% of total Share Capital of the company
having voting right may appoint single person as Proxy and such person shall
not act as a Proxy for any other shareholder
Note –
A notice of General Meeting of company having Share Capital or a company whose AOA
provides for voting by Proxy at a meeting shall specify that member entitled to attend and
vote is also entitled to appoint Proxy.
2) Disabilities of proxy –
a) A Proxy shall not have right to speak at General Meeting.
b) A proxy cannot vote by show of hands.
c) A proxy is not counted for the purpose of quorum
3) Rights of proxy –
a) A proxy has the right to attend the meeting.
b) A proxy has the right to vote only on a poll.
c) A proxy has the right to demand a poll.
4) Time limit for deposit of proxy forms –
a) The instrument appointing Proxy must be deposited with company 48 hours (2
days) before the meeting.
b) If the AOA of the company provides for any time period other than 48 hours
[less than or more than 48 hours] than 48 hours shall prevail.
5) Inspection of proxy –
a) Member entitled to attend and vote at General meeting is also entitled to
inspect the Proxy lodged with the company.
b) Such request for inspection of registration of Proxy need to be made to the
company at least 3 days before the commencement of the meeting.
c) Such inspection shall be provided during the period beginning 24 hours before

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the time fixed for the commencement of meeting and ending up to the conclusion of
the meeting during business hours of the company i.e. from 9.00AM to 6.00PM
d) If the General Meeting stands to be adjourned than fresh request need to be
made for inspection of Proxy.
6) Revocation of proxy –
a) After the appointment of Proxy if the members attend the meeting themselves
then Proxy automatically stands to be revoked.
b) When proxy casts his vote then such vote cannot be revoked.
c) If the Proxy is undated and not duly stamped such Proxy is liable to be rejected.
d) If multiple proxies being appointed at same date than time stamping needs to
be done and if it is not dated or specific time is not mentioned than all such
multiple proxies will be treated as invalid
7) Other important points –
a) The instrument appointing Proxy shall be in form MGT-11 and need to be
duly signed by the appointer member or by his attorney and duly dated and
stamped.
b) The company is required to maintain the register of Proxy and all the Proxy
received by the company shall be recorded therein chronological order.
c) If the Proxy being appointed than the instrument of Proxy shall be valid only for
such General meeting to which it relates including any adjournment thereafter.
d) The authorized representative of body corporate / President of India/ Governor
may appoint Proxy.
e) If the multiple Proxies being appointed than the proxy which is dated last shall
consider to be valid provided it shall be received 48 hours before the meeting.
 Restriction on voting rights – Section 106

The voting right of the member shall be restricted only in the following 2 conditions: -
a) Call amount on such shares being pending
b) Company has exercised right to lien upon such shares
 Voting by show of hands – Section 107

At any general meeting, a resolution put to the vote of the meeting shall, unless a poll
is demanded
under section 109 or the voting is carried out electronically, be decided on a show of
hands.

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Chairman should confirm the resolution passed by show of hands and should record the
same in the minutes of the meeting.
 Voting through electronic means – Section 108
Voting through electronic means
Mandatory Optional
a) Company whose equity shares a) Company whose debentures/

are listed on recognized stock Preference shares are listed and
exchange. not equity shares
b) Unlisted company having b) Company listed on SME trading
minimum 1,000 shareholders. platform [ SME exchange]
c) Company listed on IGP
[Innovators Growth Platform]
d) Company having less than 1000
members
Legal requirements –
a) Voting by electronic means shall be governed as per Rule 20 of Companies
(Management and Administration) Rules 2014.
b) A resolution proposed to be considered through voting by electronic means shall
not be withdrawn.
• Important points on Rule 20

1) Voting by electronic means –
Voting by electronic means is equal to remote e- voting plus voting at General
Meeting through electronic voting system
Note – “Remote e- voting” means a facility of casting vote by members using electronic
voting system from a place other than a venue of General Meeting
2) Appointment of agency –
The company shall appoint agency who shall be responsible for the implementation
of such e- voting

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“Agency means NSDL, CDSL or any other entity approved by MCA which has obtain
certificate from ministry of communication and information technology.
3) Meaning of cut-off date –
Cut-off date means a date not earlier than 7 days before the date of General Meeting
for determining the eligibility to vote by electronic means or in General Meeting.
Member who have cast their vote by remote e-voting may also attend the meeting
but shall not be entitled to cast their voting
4) Notice –
a) The notice of the meeting shall be sent to all the members, directors and
auditors of the company either. The notice shall clearly state –
 The company is providing facility of e-voting.
 The facility for voting, either through voting by electronic means or ballot/
polling paper shall also be made available at the meeting and members
attending the meeting who have not already cast their vote by remote
e-voting shall be able to exercise their right at the meeting.
 That the members who have cast their vote by remote e-voting prior to
the meeting may also attend the meeting but shall not be entitled to cast
their vote again.
5) Period for voting and related matters –
a) The facility of remote E- voting shall remain open for not less than 3 days and shall
close at 5PM on the date preceding the date of General Meeting
b) During the facility of remote E-voting is provided, the member of the company
holding shares either in Physical form or Electronic form as on cut-off date
may opt for remote –E- voting
c) Once member casted his vote on Resolution than he is not allowed to change
the vote
d) At the end of remote – E- voting period, the facility shall be blocked
6) Appointment of scrutinizers –
a) The Board of Director shall appoint one or more scrutinizer who shall be
practicing professionals (PCA, PCS, PCMA, Advocate) for implementation of E-
voting
b) Scrutinizer shall not be in the employment of the company.
c) The Scrutinizers shall immediately after the conclusion of voting at General
Meeting shall first count the vote casted in the meeting and thereafter unblock
the vote casted through remote- E- voting in the presence of at least two

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witness who are not the employee of the company

d) The Scrutinizer shall make his report within 3 days of conclusion of the notice
and submit the same to the chairperson and based on that chairperson shall
declare the result of the voting
e) Such result shall be placed on the website of the company as well as on the
website of the agency after the result of agency being declared
 Poll – Section 109

1) When poll shall be taken?
a) a poll may be ordered to be taken by the Chairperson Suo-moto; or
b) a poll may be ordered to be taken by the Chairperson on the demand of members
Company having Share Capital Company not having Share Capital
Demand for poll need to be made by Demand for poll need to be made by
member present in person or by proxy member present in person or by Proxy
holding minimum 10% of voting right or holding minimum 10% of total voting
holding minimum 5 lakhs paid up share right.
capital.
2) Time within which poll need to be taken –
If the poll being demanded for election If the poll being demanded for any
of chairperson of the meeting or for other matter –
adjournment of meeting – Poll need to be taken within
then Poll need to be taken 48hours (2 days) from the time for
immediately demand for poll being made
3) The Chairman of a meeting shall ensure that –

a) The Scrutinizers are provided with the Register of Members, specimen signatures
of the members, Attendance Register and Register of Proxies.
b) The Scrutinizers are provided with all the documents received by the Company
pursuant to sections 105, 112 and section 113.

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c) The Scrutinizers shall arrange for Polling papers and distribute them to the
members and proxies present at the meeting; in case of joint shareholders, the
polling paper shall be given to the first named holder or in his absence to the
joint holder attending the meeting as appearing in the chronological order in
the folio and the Polling paper shall be in Form No. MGT.12.
d) The Scrutinizers shall keep a record of the polling papers received in response
to poll, by initialing it.
e) The Scrutinizers shall lock and seal an empty polling box in the presence of the
members and proxies.
f) The Scrutinizers shall open the Polling box in the presence of two persons as
witnesses after the voting process is over.
g) In case of ambiguity (confusion) about the validity of a proxy, the Scrutinizers
shall decide the validity in consultation with the Chairman.
h) The Scrutinizers shall ensure that if a member who has appointed a proxy has
voted in person, the proxy’s vote shall be disregarded.
i) The Scrutinizers shall count the votes cast on poll and prepare a report thereon
addressed to the Chairman.
j) The Scrutinizers shall submit the Report to the Chairman who shall counter-
sign the same.
k) The Chairman shall declare the result of Voting on poll. The result may either
be announced by him or a person authorized by him in writing.
4) Submission of report by scrutinizer –
The scrutinizers appointed for the poll, shall submit a report to the Chairman of the
meeting in Form No. MGT.13 and the report shall be signed by the scrutinizer and, in
case there is more than one scrutinizer by all the scrutinizer, and the same shall be
submitted by them to the Chairman of the meeting within seven days from the date
the poll is taken
Note –
Poll can be done electronically and if poll done electronically then Sec. 108 apply to the
extent applicable.
 Postal Ballot – Section 110

1. Meaning of postal ballot –
As per section 2(65) “postal ballot” means voting by post or through any electronic
mode. It includes voting by shareholders by postal or electronic mode instead of
voting personally for transacting businesses in a general meeting of the company.

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2. Notice –
a) Where a company is required or decides to pass any resolution by way of
postal ballot, it shall send a notice to all the shareholders, along with a draft
resolution explaining the reasons therefor and requesting them to send their
assent or dissent in writing on a postal ballot because postal ballot means
voting by post or through electronic means within a period of 30 days from the
date of dispatch of the notice.
b) The notice shall be sent either –
 by Registered Post or speed post, or
 through electronic means like registered e-mail id or
 through courier service.
Note –
The notice of the postal ballot shall also be placed on the website of the company forthwith
(immediately) after the notice is sent to the members and such notice shall remain on such
website till the last date for receipt of the postal ballots from the members.
3. Appointment of scrutinizer –
a) The Board of directors shall appoint one scrutinizer, who is not in employment
of the company and who, in the opinion of the Board can conduct the postal
ballot voting process in a fair and transparent manner.
b) The scrutinizer shall submit his report as soon as possible after the last date
of receipt of postal ballots but not later than 7 days thereof;
c) The assent or dissent received after 30 days from the date of issue of notice
shall be treated as if reply from the member has not been received.
d) The results shall be declared by placing it, along with the scrutinizer’s report,
on the website of the company.
e) The resolution shall be deemed to be passed on the date of at a meeting
convened in that behalf.
f) Business matter which need to be passed only by Postal Ballot –
 Alteration of object clause
 Alteration of AOA having effect of Private Co. into Public Co. and vice-
versa
 Shift of registered office outside the local limits of any city, town or village;
 Change of object after raising of fund from Public under Public issue and
before its utilization.
 Issue of equity shares with differential voting rights
 Variations in in the rights attached to a class of shares or debentures or

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other securities
 Buy- back of Securities
 Election of small shareholder director
 Sale of undertaking of the Company
 Inter- corporate loan, investment, guarantee security
 Circulation of Member’s resolution – Section 111

Notice to members –
A company shall, on requisition in writing of such number of members, as required in
section 100--,
a. give notice to members of any resolution which may properly be moved and is
intended to be moved at a meeting; and
b. circulate to members any statement with respect to the matters referred to in
proposed resolution or business to be dealt with at that meeting.
Conditions for giving notice –

a) a copy of the requisition signed by the requisitionists (or two or more copies which,
between them, contain the signatures of all the requisitionists) is deposited at the
registered office of the company,
b) in the case of a requisition requiring notice of a resolution, not less than six weeks
before the meeting;
c) in the case of any other requisition, not less than two weeks before the meeting;
and
d) there is deposited or tendered with the requisition, a sum reasonably sufficient to
meet the company’s expenses in giving effect thereto:
Provided that if, after a copy of a requisition requiring notice of a resolution has been
deposited at the registered office of the company, an annual general meeting is called on a
date within six weeks after the copy has been deposited, the copy, although not deposited
within the time required by this sub-section, shall be deemed to have been properly
deposited for the purposes thereof.
Exception from circulation of statement –

Company is not required to circulate any statement if CG is satisfied and orders that the
rights given under this section is used to secure needless publicity for defamatory matter.

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 Representation of presidents and governors and body corporate in meetings - Section

112 and 113
When the member of the

company
Is the President of India /

Is Body corporate (Sec.113)
Governor of State (Sec 112)
Then such member shall be entitled to appoint authorize representative on

their behalf for attending the meeting and such authorized representative
shall be vested with same power as vested with member of the company
and therefore such authorize representative:
a) Shall be included in Quorum
b) Shall be eligible to vote by show of hand
c) Shall be entitled to appoint Proxy
 Ordinary and Special Resolutions – Section 114
Resolution
Resolution passed by BOD Resolution passed by

member [Section114]
Board Ordinary Special

Resolution (BR) Resolution Resolution
Votes in favor > Votes in favor is

Votes in against greater than or
equal to 3 x votes in
against
Note: Only valid vote needs to be considered and therefore invalid vote or abstain from voting
shall not be counted.

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Test your knowledge –

Question: At a General meeting of a company, a matter was to be passed by a special
resolution. Out of 40 members present, 20 voted in favour of the resolution, 5 voted
against it and 5 votes were found invalid. The remaining 10 members abstained from
voting. The Chairman of the meeting declared the resolution as passed. With reference
to the provisions of the Companies Act, 2013, examine the validity of the Chairman’s
declaration. Solution: In the given problem, the votes cast in favour (20) being more than 3
times of the votes cast against (5), if other conditions of Section 114 are satisfied, the decision
of the Chairman is in order.
 Resolution requiring Special Notice – Section 115

Where, by any provision contained in this Act or in the articles of a company, special
notice is required
of any resolution, notice of the intention to move such resolution shall be given to the
company by such number of members holding not less than one per cent. of total voting
power or holding shares on which such aggregate sum not exceeding five lakh rupees, has been
paid-up and the company shall give its members notice of the resolution in such manner
as may be prescribed.
Matter of which special notice need to be given:
- Resolution for removing director before the expiry of his tenure.
- To stand for directorship by a person other than a retiring director
- A resolution for Appointment of auditor in place of retiring auditor
- A resolution for expressly providing that retiring auditor shall not be re-appointed
at the AGM
 Resolutions passed at adjourned meeting – Section 116

Where a resolution is passed at an adjourned meeting of—
a) a company; or
b) the holders of any class of shares in a company; or
c) the Board of Directors of a company, the resolution shall, for all purposes, be treated
as having been passed on the date on which it was in fact passed and shall not be
deemed to have been passed on any earlier date.
 Resolution and agreement to be filed with Registrar – Section 117

Matters for which company need to file Form – MGT-14 with ROC within 30 days:
1. Special Resolution

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2. Resolution passed by 100% members

3. Resolution passed by BOD with respect to appointment, Re-appointment, Renewal
of appointment, Variation in terms of appointment of managing director
4. Resolution passed for voluntary liquidation of company passed under section 59 of
Insolvency and Bankruptcy code- 2016
5. Resolution passed by BOD only at Board meeting by passing Board Resolution under
section 179(3)
6. Any other resolution required to be paid in Public domain
7. Any other Resolution Agreement which is passed at class meeting
 Minutes of Meeting – Section 118

1. ‘Minutes’ means the ‘Recording of the Proceedings of the meeting’. Minutes are
required to be maintained / prepared within 30 days of the meeting.
2. Separate minute books are required to be prepared for
a) Meeting of BOD (Board meeting)
b) Meeting of Committee of Director (Committee meetings)
c) Class meeting
d) Postal Ballot
3. Each page of minutes is required to be initiated by the 3 and last page should be
fully signed by the Chairperson
4. As per 118(10) every company is required to comply with the requirement of SS-1
for BM and SS- 2 for GM (SS – Secretarial Standards)
5. Minutes need to be preserved permanently at the registered office of the company
under the custody of CS or person appointed by the board
6. Minutes need to signed by:
a) Minutes of Board Meeting/ Committee of Board meeting – by the chairperson of
same meeting or by the chairperson of next meeting as per AOA
b) Minutes of General Meeting- By the chairperson of same meeting within 30 days
of General meeting
Note: In case of death or inability of chairperson, to sign the minutes within 30 days than
such minutes need to be signed by any other director duly authorized by the Board.
c) Minutes of Resolution passed by Postal Ballot – By the chairperson or BOD within
30 days of passing Resolution by Postal Ballot.
7. In case of sec.8 of the company, only minutes need to be prepared within 30days of
the meeting rest all other requirement of sec.8 provision shall not apply.

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 Inspection of minute-books of general meeting – Section119

1. The books containing the minutes of the proceedings of any general meeting of a
company or of a resolution passed by postal ballot, shall—
a) be kept at the registered office of the company; and
b) be open, during business hours, to the inspection by any member without
charge, subject to such reasonable restrictions as the company may, by its articles
or in general meeting, impose, so, however, that not less than two hours in each
business day are allowed for inspection.
2. Any member shall be entitled to be furnished, within seven working days after he
has made a request in that behalf to the company, and on payment of such fees as
may be prescribed, with a copy of any minutes referred to in sub-section (1).
3. In the case of any such refusal or default, the Tribunal may, without prejudice to any
action being taken under sub-section (3), by order, direct an immediate inspection
of the minute-books or direct that the copy required shall forthwith be sent to the
person requiring it.
General note –
1) Sections 101,102,104,105,106,107,109 shall not apply on private companies if AOA of
such companies provides otherwise.
2) The provisions of section 98 and sections 100 to 111 (both inclusive) shall not apply to a
One Person Company.
 Register of members [Section 88]:
Rule 3 Particular in register of members:

Every company limited by shares or guarantee, shall, from the date
of its registration, maintain a register of its members
Rule 4 Particular in register of debenture holder/any other security holder:
Every company which issues or allots debentures or any other
security shall maintain a separate register for debenture holder or
security holder in Form– MGT–2.
Rule 6 Index of names:
The maintenance of index is not necessary where the number of
members is less than 50. It also states that the company shall
make the necessary entries in the index simultaneously with the
entry for allotment or transfer of any security in such Register.

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Rule 7 Foreign Register:

1) A company may, if so authorised by its articles, keep in any
country outside India, in such manner as may be prescribed,
a part of the register, called foreign register containing the
names and particulars of the members, debenture-holders,
other security holders or beneficial owners residing outside
India
2) The company shall –
a) Transmit to its registered office in India, a copy of every
entry in any foreign register within 15 days after the entry
is made; and
b) Keep at such office a duplicate register for all the purposes
of this Act, be deemed to part of the principal register.
3) The company shall, within 30 days from the date of the opening
of any foreign register, file with the Registrar of Companies
notice of the situation of the office in Form No. MGT – 3
 Other Sections
Power to close 1. Company may close the register of members or the register of
register of debenture-holders or the register of other security holders for
members or any period or periods not exceeding in the aggregate 45 days
debenture- in each year, but not exceeding 30 days at any one time.
holders or other 2. For closing register, 7 days advance notice should be given as
security holders follows –
[Section 91] e) For listed company or company proposing to get listed –
Advertisement shall be published in 2 newspaper, one in English
newspaper and one in vernacular newspaper
Annual return Every company shall prepare a return in form MGT-7 and for One
[Section 92] Person Company (OPC) and Small Company in from MGT-7A.
Annual return shall contain the following details—
a) its registered office, principal business activities, particulars of
its holding, subsidiary and associate companies;
b) its shares, debentures and other securities and shareholding
pattern;
c) its indebtedness;

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d) its members and debenture-holders along with changes

therein since the close of the previous financial year;
e) its promoters, directors, key managerial personnel along with
changes therein since the close of the previous financial year;
f) meetings of members or a class thereof, Board and its various
committees along with attendance details;
g) remuneration of directors and key managerial personnel;
h) penalty or punishment imposed on the company, its directors
or officers and details of compounding of offences and appeals
made against such penalty or punishment;
i) matters relating to certification of compliances, disclosures as
may be prescribed;
j) such other matters as may be prescribed,
Signing Annual return –
1) Annual Return has to be signed by a director of the company

and the company secretary; and in case, there is no company
secretary, by a company secretary in practice.
2) However, in relation to One Person Company and small
company and private company (if such private company is a
start-up), the annual return shall be signed by the company
secretary, or where there is no company secretary, by the
director of the company.
Note –
1) Every company shall file with the Registrar a copy of the annual
return, within 60 days from the date on which the annual
general meeting is held or where no annual general meeting
is held in any year within 60 days from the date on which
the annual general meeting should have been held together
with the statement specifying the reasons for not holding the
annual general meeting, with such fees
2) Every company shall place a copy of the annual return on
the website of the company, if any, and the web-link of such
annual return shall be disclosed in the Board's report.

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Place of keeping 1. The registers required be keeping and maintaining by a

and inspection of company under section 88 and copies of the annual return
registers, returns, filed under section 92 shall be kept at the registered office of
etc [Section 94] the company.
2. Place where register shall be maintained: Rule 5 also states that
the registers shall be maintained at:
Registered Any other place within Any other place in

office of the the city, town or village India in which more
than 1/10thof the total
company in which the registered
members entered
office is situated, in the register of
by passing special members reside, after
resolution in the by passing special
resolution in the general
general meeting.
meeting.
2. The copies of all the returns shall be open for inspection by any
member, debenture-holder, other security holder or beneficial
owner, during business hours without payment of any fees.
3. Any such member, debenture-holder, other security holder or
beneficial owner or any other person may—
a) Take extracts from any register, or index or return without
payment of any fee; or
b) Require a copy of any such register or entries therein or
return on payment of such fees as may be prescribed.
Preservation 1) Preservation of register of members: Rule 15 states that the
of register of register of members along with the index shall be preserved
members etc. and permanently.
annual return– 2) Preservation of register of debenture holders/ other security
(Rule 15) holders: The register of debenture-holder or any other security
holder along with the index shall be preserved for a period of
8 years.
3) Copies of documents filled with ROC to be preserved: for a
period of 8 years from the date of filing with the RoC.
Preservation of foreign register: Shall be preserved permanently

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Unit Declaration and

8 Payment of Dividend
 Definition of dividend:
Sec.2(35) – Dividend includes interim dividend
 Regulatory framework for dividends –

Under Companies Act,2013 Companies (Declaration Secretarial standards-3
 and Payment of 
Sec.123 Dividend) Rules,2014 It is optional & therefore
Sec.124 the adherence of SS is
Sec.125 recommendary
Sec.126
Sec.127
 TYPES OF DIVIDEND –
(1) Equity Dividend:
I. It is a dividend being paid to the equity shares.
II. It is not fix not mandatory & depends upon the recommendation of BOD.
III. It shall be declared after making payment of pref. dividend, if any.
(2) Preference Dividend:

I. It is a dividend being declared & paid to the Pref. shares.
II. It is can be fixed & mandatory depend upon the terms of issue of Pref. shares.
III. It shall be paid before any dividend being declared & paid to the equity
shareholder as Pref. shareholders have preferential right over equity
shareholders, in terms of payments of dividend.
(3) Final Dividend:

I. It is a dividend being declared once in a year at AGM only.
II. Declaration of final dividend is the part of ordinary business & therefore
transacted only at AGM.
III. No explanatory statement is required to be given for declaration of final
dividend.

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(4) Interim Dividend:

I. It is a dividend being declared between two AGM.
II. Interim dividend can be declared by the BOD at the BM.
III. It can be declared any no. of time in the F.Y.
Cumulative dividend accumulates
Preference Preference Share unless it is paid in full
Share Non-Cumulative Non arrears of

Preference Share dividend in future
Shares
Equity dividend dependent on dividend policy and

Shares the availability of profits after satisfying the
rights of preference shareholders
 Section 123 – SOURCES FOR DECLARATION OF DIVIDEND
(1) Out of the profits of the company (CY profits)
(1) Out of the past profits of the company forming part of free
reserve (accumulated profits)
Out of both
(1) Out of the fund provided by CG or SG (apply when govt. has

given guarantee for declaration of dividend in case of PSU)

Important Points –
- Dividend cannot be declared & paid out of the capital of the co. IF any clause
of MOA & AOA authorizes declaration & payment of dividend out of the
capital of the co. then such clause of M0A & AOA shall be void.
- For the purpose of declaration of dividend in computing profit any amount
representing:
a) Unrealized gain
b) Revaluation of asset

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 FREE RESERVE – Section 2 (43)
MEANING – IT INCLUDES – IT EXCLUDES –

It is such reserve which I. General reserves I. REVALUATION RESERVE
as per the latest II. Profit & loss A/c II. Capital REDEMPTION RESERVE
audited B/s of the III. Dividend III. Debenture redemption reserve
company, is available Equalization IV. Securities premium
for distribution of reserve V. Capital reserve
dividend dividend VI. Purpose specific reserve
NOTE :
(1) Dividend Equalization reserve is a reserve which is being created out of the profit
of the co. utilized only for the purpose of payment of dividend in future & therefore
forming part of reserve.
(2) Securities premium is not forming part of free reserve & therefore not available for
declaration of dividend.
If securities premium being used for any purpose other than purpose specified u/s
52(2) then it amounts to reduction of share capital & prior NCLT approval required
u/s.66 [sec.52(1)].
MANNER OF DECLARATION OF DIVIDEND –
MANNER OF DECLARATION OF DIVIDEND
Out of the current year profit of the co. Out of the past years profit of
 the co. forming part of free
For arriving at divisible profit following amount reserves
shall be adjusted out of the profit of the co. before 
declaration of dividend out of C. Y’s profits Need to comply with Rule 3
I. Depreciation  As per schedule 2 of Companies (declaration &
II. Transfer profit to reserve  Amt of profit to be payment of dividend) Rules,2014
transferred to reserve shall be decided by BOD
III. Past losses
IV. Unabsorbed depreciation not provided in
previous financial year

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 RULE 3 of Companies (Declaration and payment if dividend) Rules, 2014 – Condition for
declaration of dividend from past profits forming part of the free reserves –
1) Max rate of dividend = Average rate of dividend declared by the company during the
last 3 years.
Note - If the company has not declared any dividend in each of the preceding 3 FY then this
sub rule shall not apply
2) Max amount which can be withdrawn from the accumulated profit forming part of the
free reserves for declaration if dividend = 10% (Paid up share capital + Free reserve)
3) The amount drawn from accumulated profit shall be first used to set off the losses for
the current year for which dividend is to be declared before any dividend in respect
of equity shares being declared.
4) Min amount to be left in free reserve after withdrawal from reserves = 15% of the paid-
up share capital of the company as appearing in the latest audited FS.
Summary of Rule 3 –
1) Max rate of dividend = RDY1 + RDY2 + RDY3 / 3
Therefore, max amount of dividend = Max rate of dividend × Paid up share
capital.... (a)
2) Max amount of dividend = 10% (PUSC+FR) – CY losses......(b)
3) Max amount of dividend = Total FR – 15% of Paid up share capital - CY

losses.....(c)
a, b, or c whichever is lower.
 Important points on Sec 123 –
1) Dividend can only be given out of free reserves and cannot be given out of revaluation
reserves.
2) When co. declares dividend, the company needs to open a separate bank account in
schedule bank within 5 days of declaration if dividend and need to transfer the entire
amount in such Escrow account.

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3) Mode of payment of Dividend –
Payment of dividend
Payable in Payable to Nidhi Co.
Cash the registered any dividend payable

shareholder of in cash may be paid by
Cheque the share, or crediting the same to the
account of the member, if
to his order, or the dividend is not claimed

warrant
within 30 days from the
date of declaration of the
any electronic mode to his banker dividend
NOTE – If the shareholders intends that the dividend amount shall be directly
credited to his bank account then such shareholder can make application to the co.
by submitting the application and such application is called dividend mandate.
4) Dividend shall be paid only to the shareholder whose name appears in the register of
the member as on the record date.
5) Prohibition on declaration of dividend –

A company which fails to comply with the provisions of section 73 (Prohibition on
acceptance of deposits from public) and section 74 (Repayment of deposits, etc.,
accepted before the commencement of this Act) shall not, so long as such failure
continues, declare any dividend on its equity shares.
6) Time within which dividend shall be paid –

If the company declares any dividend then same shall be paid within 30 days from
the date if declaration and if co. fails to do so then it shall be liable to penalty
under sec 127.
7) Dividend once declared cannot be revoked.
8) Dividend shall be paid by the co. in respect if any shares to the registered shareholder

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or to his order or to his banker.
9) Declaration of dividend and issuing bonus shares are two different corporate actions and
statutory provision applicable on dividend cannot be made applicable on issuance of bonus
shares.
 INTERIM DIVIDEND –
1) Authority to declare interim dividend shall be with the BOD during any FY.
2) Interim dividend can be declared anytime during the FY or at anytime during a
period from the closure of the FY till holding of AGM.
3) Sources for declaration of interim dividend –
- Out of the surplus of P & L account.
- Out of the profits of the FY for which such interim dividend is sought to be
declared (CY profits)
- Out of the profit generated in the FY till the quarter preceding the date of
declaration of dividend.
- Max rate of interim dividend if declared out of the past profits: if the co. has incurred
losses in the CFY up to the end of the quarter immediately preceding the date
of declaration of interim dividend, then such interim dividend shall not be
declared at a rate higher than the average dividend declared by the co. during
the immediately preceding 3FY.
Note - If the company has not declared any dividend in each of the preceding 3 FY
then then this sub rule shall not apply
Note (for final dividend as well as interim dividend) – if the company being
incorporated for a period less then 3years then for the purpose of calculating max
rate of dividend, avg shall be taken for the no. if years for which co. being incorporated
and not of 3 years. Otherwise avg shall be taken of last 3 FY irrespective of the fact
that co. has not declared dividend in any of the last 3 FY.
 Section 126 – Payment of dividend when the transfer of shares is pending.

When the shares are in physical form and after the instrument of transfer has been
delivered to the co. for registration of transfer and till the time transfer of such shares
has not been registered by the co. in the register of member and during such period if the
co. have declared
• Cash corporate benefit; or

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• non-cash corporate benefit
Then such corporate benefit shall be kept in abeyance and shall neither be given to
transferor nor to transferee and shall be given to transferee after the transfer gets
registered.
 Section 127 – Payment of declared dividend (PENALTY)
1) Dividend shall be paid within 30 days from the date of declaration of dividend.
2) Penalty for non-payment of dividend declared:
If the dividend has been declared but not paid within 30 days from the declaration,
then it shall be considered as default and penalty shall be levied –
• Upon the company = Fine = 18% pa simple interest for the defaulting period.
• Upon every director in default = Imprisonment – Max 2 years
and
Fine = Rs 1000 minimum for each day of default.
3) Exemption – In the following conditions no penalty shall be levied u/s 127 –
Where the dividend could not be paid due to the operation of law i.e.
non-receipt of statutory approval.
-Where the shareholders have given direction to the co. regarding

the payment of dividend and those direction could not be complied
with and the same has been communicated to such shareholders.
Where there is dispute regarding right to receive dividend.
Where the dividend has been lawfully adjusted by the co. against
any sum due from the shareholder.
By any other reason which is beyond the control of the company and is
not due to the default of the co.

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 Section 124 – UNPAID DIVIDEND ACCOUNT:
Declared Dividend
30 Days
Dividend Not Paid/ Claimed
7 Days
Deposit the unpaid/ Unclaimed Pay Interest @ 12%

If not done
dividend amount in Bank (Called p.a. (from the date
Unpaid Dividend Account) of default)
90 Days
Prepare Statement (Name, Last known

address, unpaid dividend amount)
Put on
Website Website approved by
of Co. Govt for this purpose
7 Years
Transfer to IEPF (Unpaid/Unclaimed

dividend + interest )
Note –
1) During such 7 years period if the member wants to claim the unpaid dividend then
such member can make application to the co. and the co. shall transfer his entitled
amount of dividend to him from such Unpaid Dividend account.
2) All shares in respect of which the dividend has not been paid or claimed for 7
consecutive years or more then such shares shall be transferred by the co. in the
name of IEPF.
3) However, the shareholder whose shares have been transferred to IEPF is entitled to
claim such shares.
4) In case any dividend being paid or claimed for any year during the said period of 7
consecutive year then such shares shall not be transferred to IEPF.

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 Section 125 – Investor Education and Protection Fund.
1) About IEPF –
a) It is fund created by CG for the protection and education of investors.
b) An Authority is being constituted for the administration and maintenance of
accounts as well as other relevant records of the Fund called as IEPF Authority
2) Composition of the Authority –
a) The Secretary, Ministry of Corporate Affairs shall be the ex-officio Chairperson
of the Authority.
b) There shall be 6 members (maximum limit 7)
c) Chief Executive Officer who shall be the convenor of the Authority
3) Debits and Credits from IEPF –

Permissible credit in IEPF – Permissible debit from IEPF –
- Grant/donation from CG/SG. - Refund of unclaimed dividend,
- Amount lying in General Reserve account matured deposit, matured
of CG which has been transferred to such debenture, application money
account under sec 205A of Companies Act, due for refund, etc.
1956. - Promotion of education and
- Amount lying in IEPF under sec 205 of awareness of investors.
Companies Act, 1956. - Reimbursement of legal
- the interest or other income received out of expenses incurred in pursuing
investments made from the Fund. class action suit.
- sale proceeds of fractional shares arising - Distribution of sale proceed
out of issuance of bonus shares, merger and derived from the sale of shares
amalgamation for seven or more years. acquired pursuant to fraud to
- If the shares being acquired by fraud, then the aggrieved party who has
such shares shall be disposed off and the been identified by the order of
sale proceed arising out of such shares shall court/ NCLT
be transferred to IEPF. - Such other purpose as
- Following shall be transferred to IEPF after the prescribed by CG/NCLT.
expiry of 7 years
a) Unpaid dividend lying in Unpaid Dividend
account.
b) Application amount received by the co.
for allotment of securities and due for
refund.
c) Matured debenture / deposits
d) Redemption amount of redeemable
pref. shares
- such other amount as may be prescribed.

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Unit
9 Accounts of Companies
Preparation and presentation of reports –
A) Books of accounts required to be kept – Section 2(13)

Company should maintain at its registered office proper books of accounts, other
relevant books and papers and financial statements for every financial year with
respect to:
• All sum of money received and expended and matters of receipt and expenditure.
• All sales and purchases of goods and services.
• The assets and liabilities.
• Cost records, by specified companies covered under Sec 148
B) Place of maintaining books of accounts – section 128

1. Books of accounts shall be kept at registered office.
2. All or any books of accounts may be kept at other place in India if board of
directors passes resolution and gives notice to ROC in form AOC -5 within 7
days.
3. Notice to ROC shall specify name of books kept at other place and complete
address.
4. If separate books are maintained at branch in India or outside India, it would be
deemed to be compliance of section 128, if summarized returns are regulatory
sent to the registered office.
5. If books of accounts are maintained outside India, summarized returns shall be
sent to registered office at quarterly intervals
C) Proper books of accounts – Section 128

Company shall maintain proper books of accounts. Proper books of accounts mean
which:
• Exhibits true and fair view of states of affairs of company.
• Should explain the transactions entered in to company.
• It is maintained on accrual basis company cannot maintain books on cash
basis.

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• It is kept on double entry system.

• If books are kept in physical form, indelible ink must be used.
D) Books in electronic form – Rule 3 of company (Accounts) Rules, 2014.

Following conditions shall be satisfied to maintain books in electronic forms:
• It should remain accessible in India.
• It should be retained completely in the original format in which it is generated,
sent or received.
• Information in electronic form should be displayed in legible form.
• Proper system of storage, retrieval, display or printout should be maintained
by company as per audit committee or board resolutions.
• Information received from branch should not be altered and should be kept in
original form.
• The company shall intimate ROC on annual basis – name of service provider,
IP address, location of service provider and address and location where books
maintained on clouds.
E) Person responsible for keeping books of accounts – section 128

The following persons are responsible for maintaining proper books of accounts:
• Managing director or;
• Whole time director in charge of finance or;
• Chief financial officer or;
• Any other person entrusted with compliance of section 128 by board of directors
by passing resolution.
F) Period for which books of accounts to be preserved – section 128

• Books of accounts shall be preserved for not less than 8 financial years in good
condition along with relevant vouchers.
• This period of 8 years can be longer, if company is under investigation and
central government direct the company to maintain books of accounts for
more than 8 years.
G) Inspection of books of accounts – section 128.

1) Inspection of books and papers maintained in India.
a) Section 128 provides that books of accounts and other papers maintained
by the company within India shall be open for inspection by the directors

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of the company at registered office or other place during business hours.

b) Summarized returns of the books of accounts kept outside India shall also
be sent to registered office at quarterly intervals. It is open to directors for
inspection.
c) Directors are entitled to do inspection but they can request for information
either personally or through agent.
2) Inspection of financial information outside India.

a) If any other financial information maintained outside India, director can
furnish request to the company for details of the financial information
for the period for which such information is sought in writing, company
should provide financial information within 15 days.
b) Financial information maintained outside India should be demanded by
director himself and not by his power of authority or agent or representative.
3) Inspection of books of subsidiary

a) Inspection of any subsidiary should be done only by person authorized by
BOD by passing board resolution.
b) Where inspection is made, the officer and employees should give all
assistance in connection with inspection
Financial Statements – Section 129
1. Definition of Financial statement – section 2 (40)

It includes:
• Balance sheet at the end of every financial year.
• Profit and loss account or income and expenditure account for the financial
year.
• Cash flow statement for financial year.
• Statement of equity, if applicable.
• Explanatory notes, forming part of the financial statement.
Note –
OPC, Small company, Dormant company and start up private company is not required
to include cash flow statement.

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2. Provisions of sec 129 –

• The balance sheet is prepared in the form stated in part I of schedule III and
profit and loss a/c shall as per part 2 of schedule III.
• Financial statement should comply with accounting standards. If it does not
comply with accounting standards, following shall be disclosed:
a) The deviation from accounting standards.
b) The reason for deviation
c) The financial effect of such deviation
• An insurance company, banking company, electric company and other
companies covered by special Act are not require to disclose information as
per Companies Act.
3. Consolidation of financial statements – section 129

• Consolidation of accounts is mandatory for all companies where company
has subsidiary in India or foreign. This is mandatory for all listed or unlisted
companies or private or public companies.
• For the purpose of consolidation, the expression subsidiary includes associate
companies and joint venture companies.
• Company is not required to prepare CFS if:
a) It is wholly owned subsidiary or partially owned subsidiary and all its
members are intimated in writing and they do not object for not circulating
CFS.
b) Company is not listed in India or outside India.
c) The ultimate holding company or intermediate company prepares its CFS
and files with ROC as per provision of Law.

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4. Penal Provisions –
Company contravenes the provisions of section 129
Whether mentioned officers are present
MD WTD in charge of Finance CFO Any other person
Yes No (Absence
Mentioned Officers All directors
Imprisonment (upto 1yr)

Fine (50,000 to 5 lacs),
Or Both
Re-opening of Accounts on Court’s or Tribunal’s Orders– Section 130
Central government or income Application to revise/

tax or SEBI or any statutory recast FS
authority.
Reasons –
• FS was prepared in fraudulent manner; or
• Affairs was managed which cast doubt on FS
Important Points –
• NCLT shall send notice to CG or SEBI or Income Tax or any statutory
authority for making additional representation
• Order of NCLT shall be considered as Final
• no order for re-opening of books of accounts shall be made earlier than
8 F.Y to current F.Y unless CG had given notice to preserve accounts longer
than 8 F.Y’s .

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Voluntary Revision of Financial Statements or Board’s Report – Section 131
If it appears to the directors

that company
FS and Board report

not in compliance with
section 129 and
section 134
Prepare revised FS
Copy of order of
On approval and revised FS & Report
order of tribunal to be filed with
Revise report (any 3 Registrar
Previous F.Y.)
1) Preparation of revised financial statement or revised report on the approval of

Tribunal:
If it appears to the directors of a company that—
the financial statement of the report of the Board, do not comply with
the company; or the provisions of section 129 or section 134
They may prepare revised financial statement or a revised report in respect of any of
the 3 preceding financial years

For revising financial statement company should make an application to tribunal (NCLT)

Tribunal to serve the notice: Tribunal shall give notice to the Central Government and
the Income tax authorities and shall take into consideration the representations made
by them before passing any order.

Such revised financial statement or report shall not be prepared or filed more than
once in a financial year

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
Reason for revision to be disclosed: The detailed reasons for revision of such financial
statement or report shall also be disclosed in the Board’s report in the relevant financial
year in which such revision is being made.
National Financial Reporting Authority (NFRA) – Section 132
A) About NFRA –
• The National Financial Reporting Authority (NFRA) is a body constituted under
the provisions of Section 132 of the Companies Act, 2013.
• NFRA is constituted by CG.
• Section 132 came into force from 1st October 2018
B) Functions of NFRA –
Functions of NFRA
to recommend to recommend oversee the Inspect auditors of

Accounting Auditing quality of services big companies
Standards (AS) Standards (SA) provided by the
and to monitor and to monitor auditors
compliance of AS compliance of SA
C) Composition of NFRA –
NFRA shall consist of a Chairperson and maximum 15 other members
Chairperson and members, who are in full-time employment with National

Financial Reporting Authority shall not be associated with any audit firm (including
related consultancy firms) during the course of their appointment and two years
after ceasing to hold such appointment
D) Powers of NFRA –
NFRA will have same powers as vested with civil courts.
Powers of NFRA are as follows –

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a) Discovery and production of books of account and other documents, at such

place and time as may be specified by the NFRA
b) Summoning and enforcing the attendance of persons and examining them
under oath
c) Inspection of any books, registers, and other documents of any person at any
place
d) Issuing commissions for the examination of witnesses or documents
• NFRA also has the power to inspect the auditors of big companies.
• No other body shall initiate or continue any proceedings of misconduct where
the NFRA has initiated an investigation under this section.
E) Power to Impose punishment upon auditors –

Where professional or other misconduct is proved, it shall have the power to impose
the following punishment:
Penalty: Debarring the member / firm –

a) For individuals a fine between a) Being appointed as an internal
Rs. 1,00,000 to 5 times the fees auditor or auditor of any company /
received; body corporate
b) For firms a fine Between Rs. b) Perform any valuations under
5,00,000 to 10 times the fees section 247
received; between 6 months to 10 years as may be
decided
Any person who is not satisfied with the order of the NFRA can then make an appeal to the
Appellate Authority.

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F) Whose auditors can be investigated by NFRA?
Companies listed in India or outside India
Unlisted companies having -

PUSC = 500cr or more; or
Turnover = 1,000 cr or more
Borrowings = 500 cr or more
special companies such as Insurance company, Banking company,

Electricity company
Companies having bearing on public intereset as specified by CG
subsidiary or associate company of companies mentioned in point (a)

to (d) if networth or income exceeeds 20% of consolidated income or
consolidated networth of such company
Other Important Points on NFRA –

• The head office of the National Financial Reporting Authority shall be at New
Delhi
• The National Financial Reporting Authority shall maintain such books of account
and other books which CG will prescribe after consultation with CAG.
• The accounts of the National Financial Reporting Authority shall be audited by the
Comptroller and Auditor-General of India.
• The National Financial Reporting Authority shall prepare its annual report giving
a full account of its activities during the financial year and forward a copy to the
Central Government along with Audit report.
• The Central Government shall lay the annual report and the audit report given by
the Comptroller and Auditor-General of India before each House of Parliament.
Directors report or Board Report section 134 read with Rule 8 of companies (Accounts)
Rules, 2014
Authentication Directors’
of Financial Board’s Report Responsibility
statements Statement

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1. Authentication of Financial statements:

(a) The financial statements, including consolidated financial statement, if any,
shall be approved by the Board of Directors before they are signed on behalf of
the Board at least by the following:
(1) The chairperson of the company where he is authorised by the Board; or
(2) By 2 directors out of which one shall be managing director and other the Chief
Executive Officer, if he is a director in the company
(3) The Chief Executive Officer, wherever he is appointed;
(4) The Chief Financial Officer, wherever he is appointed; and
(5) The company secretary of the company, wherever he is appointed.
In the case of a One Person Company, the financial statement shall be signed by
only one director, for submission to the auditor for his report thereon.
(b) The auditors’ report shall be attached to every financial statement.
2. Board reports shall be attached to every balance sheet laid before a company in general
meeting. Board report shall contain following matters: -
• The extract of annual return as provided under Section 92
• Number of board meetings held.
• Directors’ responsibility statement (DRS) indicating (AAS GO In Law)
a) Annual accounts prepared as per applicable Accounting standards and
material departures are explained
b) The directors have selected accounting policies and applied them
consistently to provide true and fair view of state of affairs of company.
c) Sufficient care has been taken to maintain adequate accounting records
and safeguard assets of company.
d) Accounts are prepared on going concern basis
e) Internal financial controls are followed adequately and operated
effectively.
f) Law applicable has been devised and systems are developed to operate
effectively their in.
• Details of fraud reported by auditor (other than reported to CG)
• Statement of declaration given by independent director sec (149)
• Company’s policy on director’s appointment and remuneration including
disqualifications, positive attributes, independence and other matters (sec
178 for nomination and remuneration committee). But if the details are made
available on company’s website then it shall be sufficient compliance if the

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salient features of the policy are specified in brief in the Board’s report and the
web-address is indicated therein at which the complete policy is available.
• Explanations and comments on every qualification, reservations or adverse
remarks by auditor and secretarial auditor.
• Particulars of loan, guarantees or investments by company sec (186)
• Particulars of contracts or arrangements with related parties sec (188)
• State of company’s affairs
• Amount proposed to be transferred to reserves
• Dividend recommendation
• Material changes and commitments affecting financial position between end
of F.Y and date of report.
• Conservations of energy, technology absorptions, foreign earnings and outgo.
• Statement on risk management policy.
• Details on CSR. But if the details are made available on company’s website
then it shall be sufficient compliance if the salient features of the policy are
specified in brief in the Board’s report and the web-address is indicated therein
at which the complete policy is available.
• Statement on performance of the board, its committee and individual directors.
• Financial summary or highlights.
• Board report of every listed company and every other public company having
a paid up share capital of ≥ Rs 25 Crores at the end of the preceding financial
year shall include, a 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.
Exemption to Government company- This clause shall not apply to the
Government Company in case the directors are evaluated by the Ministry or
Department of the Central Government which is administratively in charge of
the company, or, as the case may be, the State Government, as per its own
evaluation methodology
• A statement that the company has complied with provisions relating to the
constitution of Internal Complaints Committee under the Sexual Harassment
of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013.
Note –
1) The Central Government may prescribe an abridged Board’s report, for the purpose
of compliance with this section by One Person Company or small company

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2) In case of a One Person Company, the report of the Board of Directors to be attached
to the financial statement under this section shall, mean a report containing
explanations or comments by the Board on every qualification, reservation or
adverse remark or disclaimer made by the auditor in his report.
3) Signing of Board’s Report –

The Board’s report and any annexures thereto shall be signed by its: Chairperson
of the company if he is authorised by the Board and Where he is not so authorised,
shall be signed by at least 2 directors, 1 of whom shall be a managing director, or
by the director where there is one director
• Change in nature of business

• Details of directors appointed or resigned including KMP
• Details of subsidiaries, joint ventures and associate companies.
• Details of deposits
• Details of pending legal cases.
• Statements showing name of top 10 employees in terms of remuneration who
is: -
a) Employee throughout the F.Y earnings not less than in aggregate Rs
1,02,00,000.
b) If employee for part of the year earning not less than, in aggregate Rs
8,50,000 per month.
Note – Signatures on Board Reports – section 134

Board Report shall be signed by Chairperson of the company or 2 Directors out of
which one shall be MD, if any.
Circulation of financial statements or right of members to get financial statements –

Section 136
1) Every member has right to get copy of FS. Members are entitled to following
documents: -
• Audited FS
• Notes annexed to FS

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• CFS (Consolidated Financial Statements)

• Auditors report
• Boards report
2) Members including preference shareholders, debenture trustees or deposit trustees,
auditors, directors and all other persons who are entitled to attend AGM shall be
entitled to copy of FS.
3) The above such documents shall be sent at least 21days before date of meeting in
which FS is placed. However sec 8 companies can send 14 days in advance instead 21days.
Note: - Less than 21 days is allowed if:

a) Company having share capital –
members who are majority in number entitled to vote and who represent
≥ 95% of such part of the paid-up share capital of the company as gives a
right to vote at the meeting; or
b) Company not having share capital 0
Members having, if the company has no share capital, ≥ 95% of the total
voting power exercisable at the meeting:.
4) Listed company has option to send abridged balance sheet to member. Listed company
is not required to send all above documents if it complies with following conditions:
-
a) Copies of the documents are made available for inspection to any members at
registered office.
b) It should be made available during working hours for 21 days before the meeting.
c) It has forwarded the salient features of FS in form AOC-3 (abridged FS)
5) Listed companies shall compulsorily place FS and CFS and all other documents
attached or annexed thereto on its website.
6) Every listed company having a subsidiary or subsidiaries whether in India or outside

India shall-
a) place separate audited accounts in respect of each of subsidiary on its website,
if any;
b) provide a copy of separate audited financial statements in respect of each of
its subsidiary, to any shareholder of the company who asks for it.

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7) Nidhi company which satisfies following conditions is not required to send individual
notice to members –
- Members who hold shares not more than Rs 1,000 of face value or not more than
1% of total paid up capital, whichever is less.
- Here, intimation shall be sent by notice published in regional language
newspaper about date, time and venue of AGM.
8) In case of listed companies and other public companies which have net worth of more
than Rs 1cr and turnover of more than Rs 10cr shall send FS.
- By electronic mode to shareholder having Demat A/C and whose emails are
registered with company.
- By electronic mode to shareholder holding physical shares and who have given
positive consent to receive FS by email.
- By dispatch of physical copy by registered post or speed post or courier services
9) Penalty in case of contravention:

a) If any default is made in complying with the provisions of this section, the
company shall be liable to a penalty of `25,000.
b) Every officer of the company who is in default shall be liable to a penalty of
`5,000.

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Filing of FS with ROC – Section 137
AGM
Not Held
Held [137(1)]
[137(2)]
[Copy of FS + CFS + other Prescribed documents

documents to be presented]: + Statement of Facts &
Prescribed documents Reasons for not holding AGM
Adopted Un-adopted in AGM

File with ROC
Adjourned AGM
Filed with Filed within 30 days of Within 30 days of the

registrar within AGM, Registrar takes last date before which
30 days of the them as Provisional in the AGM should have
date of AGM their records been held
Further adopted in Adjourned

AGM - filed with Registrar within
30 days of the said meeting
Financial statements in XBRL – Rule 12

Following must file XBRL: -
1. All listed entities in India.
2. Indian subsidiaries of listed entities
3. Company having paid up capital of rupees 5 crores or above.
4. Companies having turnover of rupees 100 crores or above.
5. All companies required to comply with Indian Accounting Standards (IAS).
Note: companies that have filed financial statements in XBRL, shall continue to file in
XBRL even though in succeeding years may not fall in above limit.
Following companies are not required to file in XBRL: -
1. NBFC’S
2. Housing finance companies
3. Banking companies
4. Insurance companies
5. Power Sector Companies

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Penalty:
Person Liable Punishment for contravention of
Section 137
Company Liable to `10,000 penalty of `100
for every day during which the
failure continues but maximum
`2 Lacs,
Officers— Shall be liable for penalty of
Managing director and the Chief Financial `10,000 and in case of continuing
Officer of the company, if any failure, with a further penalty
 of `100 for each day for which
In their absence, any other director who is the failure continues subject to
charged by the Board with the responsibility maximum ` 50,000.

In its absence, all the directors of the company.
Corporate Social Responsibility – Section 135
Which Every company including its holding or subsidiary, and a foreign company
Company is defined under section 2(42) of the Companies Act, 2013 having its
required to branch office or project office in India, having
constitute CSR (1) Net worth: ≥ `500 crores, or
committee: (2) Turnover: ≥ `1000 crores or
(3) Net profit: ≥ `5 crore during the immediately preceding financial
year shall constitute a Corporate Social Responsibility Committee
of the Board.
Any Company fulfilling the above criteria shall constitute a Corporate
Social Responsibility Committee.
Note
Here, “average net profit” shall be calculated in accordance with the provisions of
section 198.
“Net profit” shall not include the following:
a) Any profit arising from any overseas branch or branches of the company,
whether operated as a separate company or otherwise; and
b) Any dividend received from other companies in India, which are covered under
and complying with the provisions of section 135 of the Act.

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Composition 1. The CSR Committee shall be consisting of 3 or more directors, out

of CSR of which at least 1 director shall be an independent director.
Committee: 2. A company which is not required to appoint an independent
director shall have its CSR Committee without such director.
3. A private company having only 2 directors on its Board shall
constitute its CSR Committee with 2 such directors.
4. With respect to a foreign company covered as above, the CSR
Committee shall comprise of at least two persons of which one
person shall be as specified under section 380(1)(d) of the Act and
another person shall be nominated by the foreign company.
5. The Board’s report under section 134 shall disclose the composition
of the CSR Committee.
Which Every company including its holding or subsidiary, and a foreign company
Company is defined under section 2(42) of the Companies Act, 2013 having its
required to branch office or project office in India, having
constitute CSR (1) Net worth: ≥ `500 crores, or
committee: (2) Turnover: ≥ `1000 crores or
(3) Net profit: ≥ `5 crore during the immediately preceding financial
year shall constitute a Corporate Social Responsibility Committee
of the Board.
Any Company fulfilling the above criteria shall constitute a Corporate
Social Responsibility Committee.
Q) When a company is not required to constitute CSR committee?

Ans - Where the amount to be spent by a company does not exceed 50 lakh rupees, the
requirement for constitution of the Corporate Social Responsibility Committee shall not
be applicable.
In such case functions of CSR committee will be discharged by the Board of Directors
 Amount of contribution towards CSR –

1) The Board of every company shall spend at least two per cent. of the average net
profits of the company made during the three immediately preceding financial years
2) The company shall give preference to the local area and areas around it where
it operates.

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If company fails to spend
ac
such amount then

If there is any If there is no
ongoing project ongoing project
amount remaining unspent shall be BOD shall specify the reason for
transferred by the company within 30 not spending
days from the end of the financial year 
to a special account to be opened by the transfer such unspent amount
company in any scheduled bank to be called to a Fund specified in Schedule
the Unspent Corporate Social Responsibility VII, within a period of six
Account months of the expiry of the
 financial year
such amount shall be spent within a period
of 3 financial years from the date of such
transfer

If company fails to utilize the amount
within 3 financial years then company shall
transfer the same to a Fund under schedule
7 within a period of 30 days from the date of
completion of the third financial year
Penal Provisions for above –

If a company is in default in complying with the provisions,
a) the company shall be liable to –
Penalty: 2 X the amount required to be transferred by the company to the Fund
specified in Schedule VII or the Unspent Corporate Social Responsibility Account,
as the case may be, or 1 crore, whichever is less, and
b) every officer of the company who is in default:
Penalty: 1/10th. of the amount required to be transferred by the company to such
Fund specified in Schedule VII, or the Unspent Corporate Social Responsibility
Account, as the case may be, or 2 lakh, whichever is less.

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CSR Activities – Rule 1. The CSR activities shall be taken by the company as per its
4 of the Companies CSR Policy
(CSR Policy) Rules, 2. The Board of a company may decide to undertake its CSR
2014 activities through –
a) Section 8 company / Trust / Society established by the
company, either singly or along with any other company,
or
b) Section 8 company / Trust / Society established by the
CG / SG.
c) any entity established under an Act of Parliament or a
State legislature; or
d) Section 8 company / Trust / Society having an established
track record of at least three years in undertaking similar
activities.
Every entity, covered above and who intends to undertake
CSR activity shall register itself with the Central Government
by filing the form CSR-1 electronically with the Registrar,
with effect from the 1st day of April 2021.
3. A company may also collaborate with other companies
for undertaking projects or programs or CSR activities but
reporting should be done separately.
4. Companies may build CSR capacities of their own personnel as
well as those of implementing agencies through Institutions
with established track records of at least three financial years
but such expenditure including expenditure on administrative
overhead shall not exceed 5% of total CSR expenditure of the
company in one financial year
5. Any surplus arising out of the CSR activities shall not form
part of the business profit and shall be again invested in CSR
activities.
6. Where a company spends excess amount, it may set off
against the requirement to spend up to immediate succeeding
three financial years subject to the conditions that –
a) the excess amount available for set off shall not include
the surplus arising out of the CSR activities
b) Board resolution should be passed.

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What will not be 1. The CSR projects or programs or activities undertaken outside
considered as CSR India.
Activities? (Rule 4 2. The CSR projects or programs or activities that benefit only
of the Companies the employees of the company and their families.
(CSR Policy) Rules, 3. Contribution of any amount directly or indirectly to any political
2014) party under section 182 of the Act.
4. CSR activities should be undertaken by the companies in
project/ programme mode. One-off events such as marathons/
awards/ charitable contribution/ advertisement/ sponsorships
of TV programmes etc. would not be qualified as part of CSR
expenditure.
5. Expenses incurred by companies for the fulfilment of any Act/
Statute of regulations (such as Labour Laws, Land Acquisition Act
etc.) would not count as CSR expenditure under the Companies
Act.
Other Important 1) Impact Assessment –
Points a) Every company having average CSR obligation of 10
crore rupees or more, in the 3 immediately preceding
financial years, shall undertake impact assessment
b) Impact Assessment shall be undertaken through an
independent agency
c) Impact Assessment shall be undertaken of those
projects having outlays of 1 crore rupees or more and
which have been completed not less than 1 year before
undertaking the impact study
d) A Company undertaking impact assessment may book
the expenditure towards Corporate Social Responsibility
for that financial year, which shall not exceed 5% of the
total CSR expenditure for that financial year or 50 lakh
rupees, whichever is less
2) Display of CSR activities on its website
3) Company shall prepare annual report on CSR which shall be
included in board report.

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9.11 Internal Audit (Section 138)

1. Companies required to appoint Internal Auditor:
Paid up share capital (50 cr or more during P.F.Y)
Listed co.
Companies eligible for
Turn over 200 cr or more during P.F.Y.

internal audit
Unlisted
public co. Out standing loan/borrowing from banks or PFI
100 cr more during P.F.Y
Out standing deposits 25 cr more during P.F.Y
Turnover (200 Cr or more)

Private co.
Outstanding loans/borrowing from banks or PFI
exceeding 100 crores during P.F.Y
The Audit Committee of the company or the Board shall, in consultation with the
Internal Auditor, formulate the scope, functioning, periodicity and methodology for
conducting the internal audit.
2. Transitional period:
An existing company covered under any of the above criteria shall comply with the
requirements of section 138 and this rule within 6 months of commencement of such
section.
3. Who is Internal Auditor?

Internal auditor
Chartered Accountants Cost Accountants Other Professional
May/may not be an employee
Give consultation to
Audit committee and Board
To formulate scope functioning etc.

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INDEX

Short Title = Companies Act, 2013 Signed by President = 29th Aug

Applicability of Companies Act, 2013 =

Definition of Company – Section 2(20)

Under Companies Act 2013

Inter CA Company Law Revision Lectures 1

Private Company Public Company

On the basis of members

One-person Private Company Public Company Small Company

• PRIVATE COMPANY – section 2(68)

Private company means the company which is having a minimum paid

Restrict transfer Prohibits any invitation to the public Limits the

Inter CA Company Law Revision Lectures 2

• PUBLIC COMPANY – section 2(71)

• ONE PERSON COMPANY – section 2 (62)

3. Nomination clause in OPC –

4. Minimum number of directors –

5. Restrictions on membership and nomination –

Inter CA Company Law Revision Lectures 3

6. Restriction on business activities –

• SMALL COMPANY – section 2(85)

Inter CA Company Law Revision Lectures 4

Holding company – Subsidiary company – Associate Company -

“holding company”, Subsidiary company means a Associate Company

A) On the basis of liability

Company limited by shares – Company limited by Company having unlimited

Having Share capital – Not having share capital –

Inter CA Company Law Revision Lectures 5

On the basis of listing

Listed company – Section Unlisted company –

Company other than

Following classes of companies will not be considered as listed companies –

2) Private companies which have listed their non-convertible debt securities on

 OTHER TYPES OF COMPANIES -

• Government company - sec 2 (45)

Inter CA Company Law Revision Lectures 6

• Foreign company - sec 2(42)

• Associate company – sec 2(6)

• Dormant company - sec 455

Inter CA Company Law Revision Lectures 7

• Company not for profit/Non-Profit companies (Section 8 Company) –

1) Objective of Section 8 Company –

2) Restrictions on such company –

3) Power of Central government to issue the license –

Inter CA Company Law Revision Lectures 8

The company has to The company be wound The company be amalgamated

7) Penalty/ punishment in contravention –

• Nidhi company – Section 406

Inter CA Company Law Revision Lectures 9

Conversion of a Private Company into a Conversion of a Public Company into a

Inter CA Company Law Revision Lectures 10

Conversion of Private Company to OPC (Section 18)

Inter CA Company Law Revision Lectures 11

promoter is a firm or person who does the preliminary work incidental to

On the basis of members

Who is named as Having controlling person as per whose

Pre — Incorporation / Preliminary / Promoters’ Contract

Inter CA Company Law Revision Lectures 12

 Formation of companies – Section 3

Company limited by Company limited by unlimited company

 Members severally liable in certain cases – Section 3A

 Procedure for Registration – Section 7

Inter CA Company Law Revision Lectures 13