New added topics in SYBCOM Sem 4 syllabus under Autonomy

1.4 ESOPs and Kinds of shares, kinds of debentures, buying back. Sweat Equity
case laws
2.1 Dividends, (s.123, 124,125,127)
2.2 Winding up of a company.- procedure.
National Company law Tribunal – functions and powers. Key features of
IBC 2016.
2.3 Role of ICC in protection of women in case of Sexual Harassment at Work
Place under the Act.

3.1 Family Business and its issues – partition and family settlement.
4.2 Combinations
4.4 Bombay Shops and Establishments Act 1948 :- Introduction and Definition,
Applicability, Registration Procedure, Working Hours, Opening and Closing

Time, Employment of Children, Young Person and Women, Other benefits

of employment

1.4 Definition of 'ESOP’

Definition: An employee stock ownership plan (ESOP) is a type of employee
benefit plan which is intended to encourage employees to acquire stocks or
ownership in the company.

Introduction Traditionally, ESOPs were given to remunerate senior employees

and to acknowledge their proven contribution to the company. However, in
modern times, ESOPs are used as compensation and motivational tool as
startups can’t afford to spend high salaries in the beginning stage. Employee
Stock Options in India has gained immense popularity in the recent times with
the emergence of a vibrant startup ecosystem in the country.
Stories of how Infosys, one of the earliest companies to offer ESOPs, created
millionaires of employees such as drivers, are very well known. Google recently
employed an Indian with a Package of 1.2 crore Per Annum, with a catch that
half of it was in form of ESOPs.
 Meaning of ESOP Employee Stock Option Plans are the plans in which
employees get the right to purchase a number of shares (decided by the
employer) in lieu of Salary in the company at a discounted price (less than the
market price). The option provided under this scheme confers a right but not an
obligation on the employee.
Employees have to wait for a certain time period – known as vesting period –
before they can exercise the right to purchase those specified number of shares.
Upon vesting of options, employees can exercise the options to get shares by
paying the pre-determined exercise price.
ESOPs are generally awarded for performance or tenure of the employee with
the company. Thus, it serves a two-fold purpose for both the company and the
employees. 1. It acts as a tool of motivation for the employees that once they
own a stock they feel responsible for performance of the company, as it
determines the value of the stocks of the company. 2. It helps the employer to
retain the company and assure a good level of performance in the work.
Step by Step Process for issue of ESOP
1. Preparation of list of eligible employees for ESOP This is the first step and
basic step required for ESOP scheme. Employees should be carefully selected
for participation in ESOP scheme after considering his/her experience, roles and
responsibility etc.
2. Preparation of ESOP policy It is the most important step for Companies.
Following are essential things that must be kept in mind while drafting ESOP
policy: Quantum of ESOP pool; Employees Selection and evaluation criteria for
participating in the scheme; Rights of option holders; Rights of shareholders
like Tag along, Drag along and pre-emption rights; Exit mechanism; Tax
liabilities.
3. Board Approval After preparation of list of eligible employee, quantum of
options, drafting of ESOP scheme, next step is to convene a Board Meeting for
final board approval. Board have to approve list of employees participating in
the scheme, draft ESOP scheme, notice of general meeting for approval of
shareholders.
4. General Meeting General Meeting of members of the company will have to
convene for their approval of ESOP scheme by Special Resolution. However,
Only Ordinary Resolution in required for issue ESOP by Private Limited
Company.
5. Filing of Form MGT-14 E-form MGT-14 must be filled by all the companies
(Except Private Limited Company) attaching Special Resolution for approval of
Scheme, Explanatory Statement, Notice of GM, and approved ESOP policy.
6. Preparation & Dispatch of Grant Letter After approval of shareholders,
Company need to send Grant Letter to all the eligible shareholders to participate
in the scheme mentioning their entitlement, vesting schedule, date of vesting,
last date upto which exercise can be made, exercise price, manner of exercise of
options and other terms and conditions.
7. Vesting of ESOPs There must be minimum 1 year time gap in between
granting of option and vesting of option. For e.g: If you grant the option on 01st
April, 2019, it can’t be exercised before 01st April, 2020.
8. Exercise of ESOPs After completion of vesting period, employees can apply
for shares or further wait upto the last date on which exercise can be made or
not apply for the shares. ESOP grants only right and not obligation to
employees for purchase of shares.
9. Allotment of Shares If shareholders apply for shares, companies need to allot
the shares and file e-form PAS-3 for allotment of shares by attaching Special or
Ordinary Resolution for approval of ESOP, Resolution for allotment of shares,
list of allottees etc.
10. Issue Share Certificate & Payment of Stamp Duty Company need to issue
share certificate to the shareholders within 30 days after allotment. Companies
need to pay stamp duty on issue of shares according to the stamp rates
prevailing in the state.
ADVANTAGES OF ESOP
 ESOPs can be treated as a retainership instrument for small businesses as
there is a lock in period for exercising the right to purchase the shares.
Thus, a business can retain its employees. If an employee opts for this
option then he has to serve the lock in period to become eligible to
exercise it.
 Getting shares of the company in which they are working gives
employees an ownership feeling. They start feeling that they are not
employees of the organisation but owners. Also, they get to share the
profits of the company in the form of dividends and are motivated to
work for the best of the company. Businesses that needs funds and are
not in a position to spend hefty amounts can offer this option to their
 employees in lieu of salary and motivate them to work for the betterment
of the company.
 It is a non-cash compensation tool to compete for the best human
resources.
 It gives an opportunity to corporate to pay without a reduction in book
profits.
 Boosted Morale of Employees.

DISADVANTAGES OF ESOP
 When the ESOPs are exercised the founders share holding gets diluted.
 Since, Company is unlisted Company, there are no marketability or
liquidity of shares of private company. Hence, there are chances of
disputes between employers and employees when employee leaves the
organization.
 There are also chances of disputes while transfer of shares and the value
at which shares should be transferred.

Things to take care by employees when having ESOPS in lieu of salary

 Proper Documentation Employees should ensure that all the
documentation is in place. They should also consider the present value
and future value of shares.
 Proper Exit Mechanism Ensure there is a proper exit mechanism, like
promoter buyback, in case listing of the start-up is delayed.
 Taxation ESOPs are considered as part of an employee’s perks and taxed
accordingly. But it is important to understand that if you were to dispose
the shares, the difference between the sale price and the fair market value
as on date of allotment, will be subjected to personal capital gains in the
hands of employees.

Types of Shares
Section 43 of the Companies Act, 2013 prescribes that Share Capital of
a company broadly can be of two types
1. Preference Shares
2. Equity Shares
3. Preference Shares [ Section 43(b) of the Companies Act, 2013]
Those shares which carry preferential rights are Preference Shares.
Following are the preferential rights of preference shares
 Preferential right to receive the dividend, this means that companies will
firstly make payment to the person holding preference shares at a fixed
rate or their amount is fixed. They receive dividend before Equity
Shareholders.
 Return on capital on the winding up of the company before that of equity
shares.

Classes of Preference Shares with reference to:

 Dividend
 Participation in Surplus Profits
 Convertibility
 Redemption
Let us know these classes in detail
Classes of Preference Shares with reference to Dividend
With reference to Dividend preference shares are of two types:
1. Cumulative Preference Shares
Cumulative Preference Shares are those Preference Shares which carry right
to receive arrears of dividend before the company makes payment to Equity
Shareholders.
2. Non- Cumulative Preference Shares
Non-Cumulative Preference Shares do not carry any rights for receiving
arrears of the dividend.

Classes of Preference Shares With reference to Participation in Surplus

Profits
With reference to Participation in Surplus Profits Preference Shares are of
two types:
1. Participating Preference Shares
The Articles of Association of a company may provide that after the
company pays the dividend to the Equity Shareholders, the holders of
Preference Shares will also have a right to participate in the
remaining profits.

The Preference Shares who carries this right are called Participating
Preference Shares.
2. Non-Participating Preference Shares
Preference Shares which do not carry the right to participate in the profits
remaining after Equity Shareholders are paid are called Non-Participating
Preference Shares.
Classes of Preference Shares With reference to Convertibility
With reference to Convertibility Preference Shares are of two types:
1. Convertible Preference Shares
Those Preference Shares which have the right to be converted into Equity
Shares are called Convertible Preference Shares.
2. Non-Convertible Preference Shares
Non-Convertible Preference Shares do not have the right to be converted
into Equity Shares.
Classes of Preference Shares With reference to Redemption
With reference to Redemption Preference Shares are of two types:
1. Redeemable Preference Shares
Redeemable Preference Shares are those Preference Shares which are
redeemed by the company at a specific time (not exceeding 20 years from
the date of issue) for the repayment or earlier. We call this repayment of the
amount as Redemption.
2. Irredeemable Preference Shares
The amount returned by the company at the time of wind up to the holders
of such shares is called Irredeemable Preference Shares.
Equity Shares
Equity Shares are those shares which are other than Preference Shares.
These are the most common class of shares that issues and carries maximum
‘risks and rewards’ of the business.
If a company incur a loss than risk is of losing part or all the shares and
rewards being payment of higher dividends and appreciation in the market
value.
Solved Example for you
Q. Differentiate between Preference Shares and Equity Shares.
Ans.

Basis Preference Shares Equity Shares

The company pays

Right to preference shares’ They receive dividend
Dividend dividend before equity after preference shares.
shares.

Board of Directors
Rate of Maybe fix the rate of
proposes a rate of
Dividend dividend
dividend every year.

The company declares

If Preference Shares are
dividend every year. In
Cumulative Preference
Arrears of case, it does not declare
Shares, the company pays
Dividend them during the year, it
its arrear of dividend
pays it in the coming
before Equity Shares.
years.

If terms of issue provide,

then only the company
Equity Shares are not
Convertibility can convert Preference
convertible.
Shares into Equity
Shares.
 Preference Shares The company may buy-
Redemption
redeems on the due date. back its Equity Shares.

Only in special Equity Shareholders

Voting Rights circumstances Preference have voting rights in all
Shares have voting rights. the circumstances.

Refund of capital on the The company pays

Refund of winding up of the Equity Share
Capital company before that of capital only on winding
Equity Shares. up.

Preference Shareholders Equity Shareholders

Right to do not have the right to have the right to
Participate in participate in the participate in the
Management management of the management of the
company. company.

Debentures
As discussed above, a debenture is one of the capital market instrument
which helps business houses to raise funds from the market for the
development of the business. The word debenture has been derived from the
Latin word “debere” which means borrowing or taking a loan. In layman’s
language, debenture can be defined as an acknowledgement of debt issued
by the company to the third parties under the common seal of the company.
In accordance with Section 2(30) of the Companies Act, 2013, debentures
include debenture stock issued by the company as an evidence of debt taken
by such company, either by creation or non-creation of the charge over the
assets of the company.
Salient Features of Debentures
Some of the salient features of debentures are as follow:
1. It is an acknowledgement of the debt;
2. It is issued by the company under its common seal;
3. Debentures can be both secured or unsecured;
4. The rate of interest and the date of payment is pre-determined;
5. Debentures issued are freely transferrable by debenture holders;
6. Debenture holders do not get any voting right in the company;
7. Interest payable to the debenture holders are charged against the profits of
the company.
Provisions Governing Debentures
Following provisions of the Companies Act, 2013 governs the floatation,
issue and allotment with regards to the debentures:
1. Section 2(30) – Definition;
2. Section 44 – Nature of debentures;
3. Section 71 – Provisions relating to issue and allotment of debentures;
4. Rule 18 of the Companies (Share Capital and Debenture) Rules, 2014 –
Rules pertaining to issue and allotment of debentures.
Types of Debentures
There are various forms of debentures which a company can issue
depending upon its requirement. Debentures can be issued based on various
factors i.e. performance, security, priority, convertibility and record.
1. Based on Performance
Based on the performance, there are two types of debentures which are
issued i.e.
o Redeemable Debentures
Redeemable debentures are the debentures where the date of redemption of
the debentures are specifically mentioned in the debenture certificate issued,
where on such date, the company is legally bound to return the principal
amount to the debenture holder.
o Irredeemable Debentures
Irredeemable debentures continue for perpetuity and unlike redeemable
debentures, there is no fixed date on which the company needs to pay the
debenture holders. It becomes redeemable only when the company goes into
liquidation.
2. Based on security
o Secured Debentures
When the debentures are issued by way of creation of charge over the assets
of the company, then such debentures are called as secured debentures. The
charge created over the debentures may be fixed or maybe floating. In
accordance with the provisions of the Companies Act, 2013, such charge
created has to be registered with the Registrar within 30 days of such
creation.
o Unsecured Debentures
Unlike secured debentures, unsecured debentures are issued by the company
without creation of charge over the assets of the company. In other words,
these debentures do not offer any protection to the debenture holder in case
the company is unable to pay the principal amount on the due date.
3. Based on Priority
o First Mortgaged Debentures
Basically, the distinction of debentures based on priority can be called as a
subcategory of the secured debentures. First Mortgaged Debentures are
those debentures which has first preference over all the other debentures
issued by the company. Such preference is claimed at the time of liquidation
of the company when the assets of the company are distributed among the
credit holders.
o Second Mortgaged Debentures
Second Mortgage Debenture, as the name suggests, has second preference
over the assets of the company at the time of liquidation after the first
mortgaged debentures. Only after the first mortgaged debenture holders are
satisfied, will the second mortgaged debenture holders can claim their
principal amount from the company at the time of liquidation.
4. Based on Convertibility
o Fully Convertible Debentures
Fully convertible debenture holders have the right to convert their
debentures into equity shares of the company at a future date, at the option
of the debenture holders. The conversion ratio, the rights of the debenture
holders post-conversion and the trigger date for conversion are defined at
the time of issue of these debentures.
o Partially Convertible Debentures
Partially convertible debentures can be divided into two parts. The first part
being the debentures which are convertible to equity shares of the company
and the second part being non-convertible debentures which shall redeem at
the expiry of its tenure. An option is given to the debenture holder to
partially convert its debt into shares of the company. Partially convertible
debentures are also deemed as optionally convertible debentures.
o Non-Convertible Debentures
Debentures which do not have an option to get converted into equity shares
of the company are called non-convertible debentures. These debentures get
redeemed at the end of the maturity period.
5. Based on Record
o Registered Debenture
In case of registered debenture, the name, address, number of debentures
and other details pertaining to holding are entered by the company in the
register of debentures. In such cases, the transfer of debentures from one
debenture holder to another debenture holder is recorded in the register of
debenture holders as well as register of transfer.
o Unregistered Debentures
Unregistered debentures are also called bearer debentures. Unlike registered
debentures, the company does not maintain the records of such debentures
and the principal amount and the interest is paid to the bearer of the
instrument as against the name written over such instrument. These
debentures are easily transferrable in the market.
Buy Back of Shares of a Company
Buy-back is one amongst the numerous provisions of the Companies Act,
2013 that permits a company to buy its own shares or other securities with
inherent advantages to the corporate and its shareholders. In this article, we
look at the reasons for buyback of shares, methods of buy-back and other
necessary provisions related to share buy-back schemes.
Role of Buy-Back
A share buy-back program can help a company achieve the following:
 Achieve a specified capital structure
 Return surplus money to shareholder’s/security holders
 Ensure the underlying price of shares/security is correctly reflected
 Control unwarranted fall in share or security value
Methods of Buy-Back
Funds for buy-back of shares are usually from free reserves or securities
premium account. Shares can be bought back from existing shareholders on
an impartial basis or open market transaction.
Pre-requisites
1. The buy-back must be permitted by Articles of Association of the
corporate.
2. A special resolution has been passed enabling the corporate authorizing
buy-back. However, if the buy-back is 100% or less of the paid Capital
and Free Reserves, the board resolution can fulfil the same.
3. The buy-back is 25% or less of the combination of paid-up capital and
free reserves of the corporate. As long as the buy-back of equity shares in
any fiscal year shall not exceed 25% of its total paid-up equity capital in
the fiscal year.
4. The magnitude in relation to the combination of secured and unsecured
debts owed by the corporate and is not over double the paid capital and its
free reserves once the buy-back.
5. All the shares or different given securities for buy-back are totally paid
up.
Other Necessary Provisions
1. Each buy-back ought to be completed about one year from the date of
passing of Special Resolution or Board Resolution as the case may be.
2. Once the completion of buy-back the corporate cannot create from now
on the issue of the same shares for a period of six months. However,
there’s no prohibition for the issue of bonus shares or issue of shares
within the discharge of subsisting obligations like conversion of warrants,
options, equity or conversion of preferred stock or debentures into equity
shares.
3. The corporate that has been licensed by a special resolution shall, before
the buyback of shares, file with the ROC a letter of offer in Form No. SH.
8.
4. File with the ROC a declaration of economic condition signed by a
minimum of one director of the corporate, one amongst whom shall be
the MD, if any, in Form No. SH. 9.
5. Provision for buy-back shall stay open for a period of not less than fifteen
days and not letter thirty days from the date of dispatch of the letter of
offer.
6. No provision of Buy-back shall be created about one year from the
closure of preceding Buy-back.
7. Extinguish and physically destroy the shares or securities, therefore,
bought back about seven days of the last date of completion of buy-back.
8. Maintain a register of the shares or securities therefore bought, where one
has obtained the shares or securities bought back, the date of cancellation
of shares or securities, the date of extinction and physically destroying the
shares or securities in Form No. SH. 10.
9. File with the ROC a return in Form No. SH. 11 within a period of about
thirty days of the completion of Buy-back.
Prohibitions Relating to Buy-back of Shares
A company shall not purchase its shares or different securities:
1. Through any company, together with its own subsidiary company;
2. Through any investment trust or cluster of investment companies;
3. If the default is created by the corporate, within the reimbursement of
deposits accepted, interest payment on it, the redemption of debentures or
preferred stock or payment of dividend to any stockholder, or
reimbursement of any term loan or interest collectable on it to any
financial organization or financial institution. However, buy-back isn’t
prohibited, if the default is remedied and after a period of 3 years has
completed once such default has ceased to subsist.
4. If it is not complied with the provisions of Section 92, 123, 127 and
Section 129 of the Companies Act, 2013.
Procedure for Buy-Back of Shares
Buy-Back of Shares
Step 1: A company can buy back its own share by providing the Articles of
Association (AOA) which authorise such buy-back.
Step 2: If the buy-back is 10% or less than the total paid-up equity capital of
the company, the Board of Directors will approve the same by passing
Board resolution without obtaining the member’s approval.
Step 3: If the buy-back is up to 25% of the paid-up capital of the company, a
special resolution at the members meeting is required to be passed.
Passing of Special Resolution
Step 4: In case of passing a special resolution, notice for the same has to be
issued to the shareholders within 21 days from the date of passing a special
resolution.
Step 5: The explanatory statement should be provided by explaining the
purpose of buy-back of shares along with the notice.
Step 6: Alternatively, form MGT-14 along with the applicable fee should be
filed to the Registrar of Companies (ROC) in 30 days from the day of
passing the special resolution.
Letter of Offer
Step 7: Upon special resolution, the company should file a letter of the offer
along with the applicable fee to the Register of Companies (ROC), and at
least two directors must sign that one should be the managing director.
Step 8: The letter of offer should be dispatched to the shareholders within
20 days from filing with the Registrar of Companies (ROC).
Declaration of Solvency
Step 9: In case of listed companies along with the letter of offer, the
declaration of solvency in form SH-9 should be filed with ROC and signed
by the at least two directors, and one should be the managing director
Step 10: The offer for buy-back will remain for a period of 30 days from the
date of dispatch of the letter of such offer.
Step 11: If buy-back by the company is oversubscribed, then the total
number of shares to be returned back, the acceptance per shareholder should
be on proportionate basis out of the total shares offered for being returned
back.
Acceptance of offer
Step 12: The company has to complete the verification of the offers
received within 15 days from the cessation of the offer and the shares lodged
will be accepted unless a Communication rejection made within 21 days
from the date of cessation of the offer.
Opening of Bank Account
Step 13: After the closure of the offer, the company should open a separate
bank account and deposit the total amount payable as consideration for the
shares offered for the buy-back.
Step 14: Further, the consideration should be paid within seven days of
verification. Therefore, shares that are to be returned back should be
destroyed within seven days of the completion of buy-back.
Step 15: After completion of the buy-back, every company should maintain
the register of shares which have been bought back. This registered should
be maintained at the registered office of the company or any other person
authorised by the board.
Return of Buy-Back
Step 16: Finally, the return of buy-back has to be filed in form SH-11 with
Register of Companies (ROC) in 30 days from the completion of buy-back.
What are Sweat Equity Shares & who can issue them?
According to the Companies Act, 2013, Sweat Equity Shares (SES) are
issued by a company to its directors or employees at a discount or for
consideration other than cash for providing know-how or making any
value additions which generate synergy to the company.
SES is one of the methods of making share-based payments to company
employees. Issue of sweat equity allows the company to retain the
employees by rewarding the employees for their services. Sweat equity
rewards the beneficiaries by giving them incentives for contributing to the
development of the company.
Under the above-mentioned explanation “Employee” means an employee
who has become permanent and has been working in India or outside of
India for a minimum of one year; a director of a company who is a whole-
time director or part-time; or an employee or a director mentioned before in
India or outside India.
SES can be issued by any company registered under the Companies Act,
2013. Amendment to the companies act in the year 2017, now allows any
company to issue them. Earlier it could be issued only by those companies
which had commenced business at least one year prior to the disbursement
of such shares.
Conditions for Issue of Sweat Equity Shares
Conditions for issuance of Sweat Equity Shares are as follows:
 A special resolution must be passed by the company for its issuance.
 The said resolution must specify the number of shares, the present market
price and the class of directors or employees to whom these shares are
issued.
 The equity shares that are authorised by the special resolution shall be
valid for making the allotment within 12 months from the date of passing
of the special resolution.
 The company must at least be incorporated for one year.
 If the sweat equity share of a company is listed in a stock exchange, the
sweat shares are issued as per the Securities and Exchange Board of
India, and if it is not listed, then the shares are issued as per the rules.
 The sweat equity issued to directors or employees shall be locked in for a
period of three years from the date of allotment of the shares, and the
share certificate shall also be locked in. The expiry period of lock-in shall
be stamped in bold or mentioned on the share certificate.
Quantum of Issue of Sweat Equity
Sweat equity shall be issued until 15 % of the existing paid-up equity capital
of the company in a year or shares of issue value of 5 crore Rs, whichever is
higher.
It is critical to note that the issuance of sweat equity in the company shall
not go beyond 25% of the paid-up equity capital of the company at any
time.
Wherein its a start-up company, the issued sweat equity must not increase
more than 50 % of its paid-up capital up to the period of 5 years from the
date when it was registered or incorporated.
Pricing and Valuation
The pricing of the sweat equity shall be valued at a price determined by the
registered valuer to provide justification for the valuation. The valuations
of Intellectual Property Rights or know-how or value additions shall be
carried out by the registered valuer. The registered valuer shall provide a
proper report to the Board of Directors with justification for such valuation.
The copy of both the valuation reports should be sent to the shareholders
with the notice of the general meeting.
The Procedure of Issuance of Sweat Equity Shares
(I) Firstly, call and hold a board meeting in order to consider the proposal of
issue of sweat equity shares and to fix the date, time, place and the agenda
for a general meeting and to pass a special resolution for the same.
(II) Then, issue notices in writing to Shareholders for a general meeting
along with explanatory statements. It should comprise of the following:
 Date of the Board meeting on which the proposal for issue of SES was
accepted.
 The reason behind the issue of shares.
 The class within which the shares are intended to be issued.
 The total number of shares that are to be issued as sweat equity.
 The class or classes of the directors or employees to whom the shares are
to be issued
 The terms and conditions on which the SES is to be issued, which
includes the basis of valuation.
 The time period of the alliance of such person with the company.
 The name of the employee or the director to whom the sweat equity
shares will be issued and their relationship with the promoter or/and Key
Managerial Personnel.
 The rate of sweat equity share.
 The consideration, if any, including consideration other than cash.
 The ceiling on managerial remuneration, if any, shall be breached by the
issuance of sweat equity and how is it proposed to be dealt with.
 A statement to the effect specifying that the company shall follow the
applicable accounting standards.
 Diluted earnings per share in accordance with the issue of SES, which is
calculated as per the applicable accounting standards.
(III) Thereafter, hold the general meeting and pass a special resolution.
(IV) Then, file a resolution with MCA in Form No. MGT-14 within the
period of 30 days of passing the special resolution.
(V) After that, call for the board meeting and allot SES in the meeting.
(VI) Form No. PAS-3 has to be filed within 30 days of the passing of the
Board resolution for allotting sweat equity.
(VII) Form No. SH-3 for the Register of Sweat Equity shall be maintained,
and the particulates of Sweat Equity Shares shall be entered. A Sweat Equity
register shall be maintained at the registered office of the company or any
other registered office as the board thinks fit.
(VIII) Eventually, the entries in the registrar shall be authenticated by the
Company Secretary (CS) of the company or any other authorised person by
the board for the purpose.
Disclosures in the Directors Report
The details of the sweat equity must be disclosed in the Director’s
report for the year in which such shares are issued. The details are as
follows:-
 Class of directors or employee to whom the Sweat Equity was issued;
 The class of shares issued as Sweat Shares;
 Number of such shares issued to the directors and the other employees
and the managerial personnel showing the number of such shares issued
to them for consideration apart from cash and the individual names of the
allottees holding 1 % or more of the issued share capital;
 The reason for the issue;
 Important terms and conditions for issue of sweat shares, including
pricing formula;
 Total number of shares forming as a result of the issue of the equity
shares and the percentage of the shares of post issued and paid-up share
capital;
 The amount received by the company by the issue of the sweat shares;
 The diluted Earnings per Share in accordance with the issue of sweat
equity shares.
Accounting Treatment
Where the Sweat Equity Shares are issued, on the basis of a valuation
report obtained from the registered valuer, for non-cash consideration,
such non-consideration shall be treated in the books of account of the
company in the following manner:-
Where the non-cash consideration becomes a depreciable or amortizable
asset, it shall be carried to the company’s balance sheet in accordance with
the accounting standards;
Where the above-mentioned clause is not applicable, it shall be expensed off
as specified in the accounting standards.
If Sweat Equity Shares (SES) are issued during an accounting period, then
the accounting value of SES shall be treated as a form of compensation to
the employee or to the director in the financial statements of the company.
2.1 Dividend
When company earns a profit or surplus, it is able to pay a proportion of the
profit as a dividend to shareholders. Any amount not distributed is taken to
be re-invested in the business.
Applicable provisions: Chapter VIII- Declaration and Payment of Dividend
(Section 123 to 127) read with Companies, (Declaration and Payment of
Dividend), Rules 2014.
As per section 2(35) of the Companies Act, 2013 defines the dividend as
including the interim dividend.
Types of Dividend: 1. Final Dividend 2. Interim Dividend Every kind of
companies is eligible for the payment of dividend except section 8 company.
Section 123(6): Company who made default in Section 73 or 74 relating to
the acceptance and repayment of deposits would be barred to declare
dividend.

Section 123(1): Source of Dividend:

1. Out of the profits of the company of the current year, after providing for
deprecation.
2. Out of the profits of the company for any previous financial year, after
providing for deprecation.
3. Any amount received from the Central Government or State Government
for the payment of dividend.
Proviso: Before declaring the dividend, consider the following points:
1. Unrealized Gain, Notional Gain or revaluation of assets and any change in
carrying amount of an asset or of a liability on measurement of the asset or
the liability at fair value shall not be considered for the dividend.
2. Before declaration of dividend, company requires to transfer such
percentage of profit as it may be consider appropriating to the reserve of the
company.
3. No dividend shall be declared or paid by the company from its reserve
other than General Reserve.
4. No company can declare dividend, unless previous year losses and
depreciation not provided in previous year or years are set off against profit
of the company for the current year.
Rule: 3 Inadequacy of Profit: In the event of inadequacy or absence of
profits in any year, a company may declare dividend out of free reserves
subject to the fulfilment of the following conditions, namely: -
1. The rate of declared dividend shall not exceed the average rate at which
dividend was declared in the last 3 years. This rule shall not apply if
company did not declared dividend in last 3 years.
2. The total amount withdrawn from the accumulated profits shall not
exceed 1/10 of the sum of the paid-up share capital and free reserves.
3. The amount so withdrawn shall be first utilized to set off the losses
incurred in financial year in which dividend is declared before any dividend
in respect of equity shares is declared.
4. The balance of reserves after such withdrawal shall not fall below 15% of
its paid up share capital as appearing in the latest audited financial
statement.
Proviso: In case, a company is incurring loss as per financials of latest
quarter, interim dividend shall not be higher than average dividend declared
by the company during last three financial years.
Mode of payment of dividend:
Proviso: Any dividend payable in cash may be paid up cheque or warrant or
any electronic mode to the shareholder.
 Section 123(2): depreciation shall be provided in accordance with the
provisions of Schedule II.
Section 123(3): The Board of Directors of a company may declare interim
dividend during any financial year or at any time during the period from
closure of financial year till holding of the annual general meeting out of the
surplus in the profit and loss account or out of profits of the financial year
for which such interim dividend is sought to be declared or out of profits
generated in the financial year till the quarter preceding the date of
declaration of the interim dividend.
Section 123(4): The amount of dividend shall be deposited in a separate
account in a scheduled Bank within five days from the date of declaration of
such dividend. When dividend has been declared by the company,
shareholder can claim such portion of profit within 30 days from the date of
depositing.
Section 123(5): No dividend shall be paid by a company in respect of any
share therein except to the registered shareholder of such share or to his
order or to his banker and shall not be payable except in cash:
Section 124(1): If the dividend has not been paid or claimed within 30 days
from the date of declaration to any shareholder, such amount shall be
transferred to Unpaid Dividend Account with 3 days from the expiry of such
30 days. This special account on the name of Unpaid Dividend is to be
opened by the Company. Thus number of days to transfer unpaid or
unclaimed amount of dividend to unpaid dividend account comes to 30 + 7
= 37 days.
Section 124(2): The company shall, within a period of 90 days of making
any transfer of an amount to the Unpaid Dividend Account, prepare a
statement containing the names, their last known addresses and the unpaid
dividend to be paid to each person and place it on the website of the
company, if any, and also on any other website approved by the Central
Government for this purpose.
Section 124(3): If any default is made in transferring the total amount or any
part thereof to the Unpaid Dividend Account of the company, company shall
pay, from the date of such default, interest on amount that has not been
transferred to the said account, at the rate of 12% per annum and the interest
accruing on such amount shall ensure to the benefit of the members of the
company in proportion to the amount remaining unpaid to them.
 Section 124(4): Any person claiming to be entitled to any money
transferred to the Unpaid Dividend Account of the company may apply to
the company for payment of the money claimed.
Section 124(5): Any money transferred to the Unpaid Dividend Account of
a company which remains unpaid or unclaimed for a period of seven years
from the date of such transfer shall be transferred by the company along
with interest accrued, if any, thereon to the IEPF Fund established and the
company shall send a statement in the prescribed form of the details of such
transfer to the authority which administers the said Fund and that authority
shall issue a receipt to the company as evidence of such transfer.
Section 124(6): All shares in respect of which dividend has not been paid or
claimed for seven consecutive years or more shall be transferred by the
company in the name of Investor Education and Protection Fund along with
a statement containing such details as may be prescribed:
Section 126: Right to dividend, rights shares and bonus shares to be
held in abeyance pending registration of transfer of shares
Where any instrument of transfer of shares has been delivered to any
company for registration and the transfer of such shares has not been
registered by the company, Transfer the dividend in relation to such shares
to the Unpaid Dividend Account unless the company is authorized by the
registered holder of such shares in writing to pay such dividend to the
transferee specified in such instrument of transfer; and keep in abeyance in
relation to such shares (a) any offer of rights shares and (b) any issue of
fully paid up bonus shares.
Section 127: Punishment for Failure to Distribute Dividend
Where dividend has been declared by the company but has not been paid
within 30 days from the date of declaration of dividend
‘Every Director: Imprisonment extends to 2 Years + Fine not less than Rs.
1000 for every day during which such default continues
Company- Simple Interest @18% p.a. during the period which defaults
continues.
No offence under this section shall be deemed to have been committed:
1. If dividend could not be paid by the reason of Operation of Law
2. Where a shareholder given direction regarding the payment of dividend
3. Where there is Dispute regarding the dividend
4. Where the dividend is lawfully adjusted by the company against sum due
from the shareholder
5. Where for any other reason, the failure to pay dividend within the
specified period.

2.2 Winding up of a Company- An Overview

The provisions related to winding up of a company are governed by the
Insolvency and Bankruptcy Code. Apart from this, winding up of a company
is governed by the provisions of the Companies Act, 2013.
When a company opts for the process of winding up, either the company can
go for the procedure of voluntary winding up or there is another procedure
related to compulsory winding up. The Ministry of Corporate Affairs have
brought out notifications in the year 2020 regarding the winding up of small
companies.
Non-Compliance with the above provisions would lead to several criminal
and civil liabilities.
Types of Winding Up of a Company
There are two types of winding up of a Company

 Winding up by Way of Tribunal- Winding up by a creditor is when

external members are involved in the process of winding up. Creditor’s
voluntary winding up can be transformed into winding up by way of a
tribunal u/s 270 and 271 of the CA 2013.
 Voluntary Winding Up- This is considered when the company wants to
carry out the process through resolution of the board and members.
 Voluntary winding is divided in to member’s voluntary winding up and
creditor’s voluntary winding up.
Grounds for Winding up a Company
There are specific grounds for winding up a company:
 If the tribunal thinks that the company is unable to pay debts. Inability to
pay debts is construed in s 271(2) of the CA 2013.
 If the company has taken a special resolution to wind up the affairs of the
company.
 If the company has acted against the sovereignty and integrity of India
and goes against the state, friendly relations with foreign countries.
 If the tribunal has considered to wind up the company because it is a sick
company under chapter 19.
 If the tribunal is of the opinion that the company has done something
fraudulently or unlawful purpose for which the company. This clause can
be activated by the registrar or any person who is going to complain
regarding the affairs of the company.
 If the company has regularly defrauded and faulted in filing the annual
returns.
 If the tribunal is of the opinion that it is just and equitable for the
company to wind up.
Procedure- Winding up of a Company
 Petition Filed for Winding up of a Company
First interested individuals should file a petition for winding up of the
company. The following can file the petition on behalf of the company:
• Trade Creditors of the Company
• The Company Itself
• Any form of contributories of the company
• Any of the three mentioned categories
• Government Authority such as the Central Government or the State
Government
• Registrar of Companies
The petition must be submitted in Form WIN 1 or WIN 2. Such petition
must be submitted in Triplicate. An affidavit must be accompanied along
with the petition in Form WIN 3.
 Statement of Affairs of the Company
As per rule 4 of the Companies (Winding Up) Rules, 2020, the statement of
affairs of the company must be provided along with the petition. As per
section 272(4) or section 274(1) the statement of affairs of the company
must be submitted in the format of Form WIN 4. Such information must be
up to date and not be more than 30 days old. The statement of affairs of the
company must be made in duplicate form and must be accompanied with an
affidavit. The affidavit of concurrence must be in Form WIN 5.
 Advertisement
The petition must be advertised for a period of 14 days before the date of
hearing. Such advertisement must be in English and in a vernacular
language. The paper must be circulated in the state or the Union territory
where the company has the registered office. The format of advertisement
should be Form WIN 6.
 Appointment of Provisional Liquidator
After the submission of the petition along with the official proof of the
affidavit, then the tribunal will appoint a provisional liquidator. As per
section 273(1)(c), the notice of appointment of the provisional liquidator
would be made to the company. This must be done in Form WIN 7. The
responsibilities which have to be carried out by the provisional liquidator
would be mentioned in accordance to the requirements of the company.
Such would be mentioned in Form WIN 8.
 Send notice to the Provisional Liquidator
As per section 277 (1), the registrar of companies would send a copy of the
notice to the official liquidator. This would be sent in the format of Form
WIN 9, through courier or registered speed post or any other electronic
method. This must be sent within 7 days of the order.
 Winding up Order
The winding up order which is made would be sent to the company
liquidator in the format of Form WIN 11. Such order must contain
respective variations in the signed and sealed form. This must be sent within
a period of 7 days to the company by the registrar. When it is sent by the
registrar to the company it must be in Form WIN 12 and 13.
 Custody of Property
All the assets and documents would be taken by the company liquidator.
The liquidator has the power to take custody of all the documents,
actionable claims and books of the company. A report must be provided by
the company liquidator to the tribunal within 60 days of the order.
 Affairs of the company
If the affairs of the company are wound up, then the company liquidator
would make an application to the tribunal for the dissolution of the
company. This would only be made if the company liquidator feels it just
and reasonable for winding up a company. Once the order is passed for
winding up a company, a copy of the order would be forwarded to the
registrar. This must be carried out within 30 days of the order of winding up
of a company.
 Dissolving the Company
If the tribunal finds out that the accounts are in order, then it would pass an
order for dissolution or dissolving the company. This has to occur within 60
days of receiving such application.
Winding up a Company through Voluntary Winding Up
The below procedure would provide winding up of a company thorough the
voluntary method:
 Passing of Resolution and Special Resolution
First and foremost, the company must have a general meeting to pass the
resolution. However, the company would have to check the memorandum of
association and articles of association if such provision related to dissolution
is present. After this is carried out then the company would have to arrange
for a general meeting. A special resolution has to be passed by the members
in the general meeting. A special resolution would require 75% or three
forth of the majority of the members. After such resolutions are passed, the
company would have to appoint a liquidator for carrying out the procedure
for voluntary winding up. Majority of the creditors must provide their
representation during voluntary winding up.
 Declaration of Solvency
In the next step, the company has to declare the solvency status. This would
show information on finances available with the company. Such solvency
status has to be shown to the trade creditors also.
 Preparation of Winding Up Report
The liquidator appointed would prepare a report related to winding of the
company. Such report would have information on the assets, liabilities and
other form of trade liabilities which are associated with the company. Such
report must be placed before the general meeting of the company. Once this
is approved the liquidator, will provide a copy of the accounts which are
final to the ROC.
 Application to Tribunal
The company liquidator would also apply to the tribunal for dissolution of
the company. If the tribunal finds out that the accounts are in order, then it
would pass an order for dissolution or dissolving the company. This has to
occur within 60 days of receiving such application. Such information has to
be filed with the ROC.
What Documents are required for Winding up a Company
The following documents are required for Winding up a Company:
 Certificate of Incorporation of the company
 Memorandum of association and Articles of Association of the company
 Certificate related to the closure of bank account of the company
 Copy of the Board Resolution
 Copy of the resolution of the creditors stating that three-fourth of
members have accepted
 Statement of Accounts of the Company
 Winding Up Petition Form WIN 1 or WIN 2
 Statement of Affairs of the Company in the Format of Form WIN 4
 Affidavit of Concurrence in Format of Form WIN 5
 Advertisement in the Vernacular Newspaper Form WIN 6
 Appointment of Provisional Liquidator in the Format WIN 7 and 8
  Form STK-2 (Procedure for winding up a defunct or Dormant Company
(This would only be used for the fast track procedure which is carried out
by the courts)
Powers and Function of National Company Law Tribunal under
Companies Act
Introduction
Before the establishment of the National Company Law Tribunal and National
Company Law Appellate Tribunal the powers and functions of the Companies
were discharged by the Company law board and Board for Industrial and
Financial Corporation. The Central government constituted NCLT
under Section 408 of Companies Act, 2013. It commenced on June 1, 2016, and
it was set up on the basis of the recommendations of the Justice Eradi
Committee.
What is NCLT?
National Company Law Tribunal (NCLT) is a quasi-judicial body which was
set up to resolve the disputes which are arising in Indian Companies. It is the
successor to the Company Law Board. It is governed by the rules framed by the
Central Government. NCLT is a special court where cases relating to civil court
have been barred from the jurisdiction.

Powers vested in NCLT

Some of the important powers that are presently vested with NCLT are as
follows:

1. Class Action:

Protection of the interest of various stakeholders, especially non-promoter

shareholders and depositors, has always been the concern of company law.
There were several frauds and improprieties that were noticed where the key
losers were the shareholders and depositors. The shareholders who invested in
listed companies saw their investments and savings drying up when the
companies that they invested in cheated the investors.

The Companies Act, 2013 has provided a very good combination of remedies
where the offender will be punished and the people who are involved (whether
it is the company or directors or auditor or experts or consultants) will be liable
even for a civil action (namely class action), wherein they have to compensate
the shareholders and depositors for the losses caused to them on account of the
fraudulent practices or improprieties.

A class action is a procedural device that permits one or more plaintiffs to file
and prosecute a lawsuit on behalf of a larger group, or “class”. It is in the nature
of a representative suit where the interest of a class is represented by a few of
them. A huge number of geographically dispersed shareholders/depositors are
affected by the wrongdoings. It is a useful tool where a few may sue for the
benefit of the whole or where the parties form a part of a voluntary association
for public or private purposes, and may be fairly supposed to represent the
rights and interests of the whole.

Section 245 has been introduced in the new company law to provide relief to the
investors against a large set of wrongful actions committed by the company
management or other consultants and advisors who are associated with the
company.

Class action can be filed against any type of companies, whether in the public
sector or in the private. It can be filed against any company which is
incorporated under the Companies Act, 2013 or any previous Companies Act.
The Act provides only one exemption i.e. banking companies.

2. Deregistration of Companies:

The procedural errors at the time of registration can now be questioned at any
time. The Tribunal is empowered to take several steps, including cancellation of
registration and dissolving the company. The Tribunal can even declare the
liability of members unlimited. Sec 7(7) provides this new way for de-
registration of companies in certain circumstances when there is registration of
companies is obtained in an illegal or wrongful manner. Deregistration is a
remedy that is distinct from winding up and striking off.

3. Oppression and Mismanagement:

The remedy of oppression and mismanagement is retained in 2013 Act. The

nature of this remedy has however changed to certain extent and it needs to be
seen in light of the changes made to the Companies Act, 2013. The 2013 Act
has reset the bar for oppression to a little lower level but has set the bar of
mismanagement a little higher by applying the test “winding up on just and
equitable grounds” even to mismanagement matters. The Act permits dilution of
the eligibility criteria with the permission of Tribunal, where a member below
the eligibility criteria can apply in deserving cases.

4. Refusal to Transfer shares:

The power to hear grievance of refusal of companies to transfer securities and
rectification of register of members under Section 58 and 59 of the new Act
were already notified and were being taken up by CLB. Now. The same are
transferred to NCLT. The remedy for refusal to transfer or transmission were
restricted only to shares and debentures under 1956 Act. The provisions for
refusal to transfer and transmit under Companies Act, 2013 Act extends to all
securities. These sections give express recognition to contracts or arrangements
for transfer of securities entered into between two or more persons with respect
to shares of a public company and thus clears any doubts about the
enforceability of these contracts.

5. Deposits:

Chapter V dealing with deposits was notified in phases in 2014 and powers to
deal with the cases under it were assigned in CLB. Now the said powers will be
vested in NCLT. The law on deposits is quite distinct under the Companies Act,
2013 as compared to the Companies Act, 1956. The provision for deposits under
2013 Act were already notified. Aggrieved depositors also have the remedy of
class actions for seeking redressal for the acts/omissions of the company which
hurt their rights as depositors.

6. Reopening of Accounts & Revision of Financial Statements:

Several instances of falsification of books of accounts were noticed under

the Companies Act, 1956. To counter this menace, several measures have been
provided in the Companies Act, 2013. One such measure is the insertion of
Section 130 and 131 read with sec 447, 448 in the new Act. Section 130 read
with sec 131 are newly inserted provisions that prohibit the company from suo
motu opening its accounts or revising its financial statements. This can be done
only in the manner provided in the Act. Section 130 and 131 provides the
instances where financial statements can be revised/reopened. Section 130 is
mandatory, where the Tribunal or Court may direct the company to reopen its
accounts when certain circumstances are shown. Section 131 allows company to
revise its financial statement but do not permit reopening of accounts. The
company can itself approach the Tribunal under sec 131, through its director for
revision of its financial statement.

7. Tribunal Ordered Investigations:

Chapter XIV provides several powers to the Tribunal in connection with

investigations. The most important powers that are conferred to the Tribunal
are:

a) power to order investigation: Under the Companies Act, 2013, only 100
members (as against 200 members required under the Companies Act, 1956) are
required to apply for an investigation into the affairs of a company. Further, the
power to apply for an investigation is given to any person who is able to
convince the Tribunal that circumstances exist for initiating investigation
proceedings. An investigation can be conducted even abroad. Provisions are
made to take as well as provide assistance to investigation agencies and courts
of other countries with respect to investigation proceedings.

b) power to investigate into the ownership of the company

c) power to impose restriction on securities: The restriction earlier could be

imposed only on shares. Now, the Tribunal can impose restrictions on any
security of the company.

d) power to freeze assets of the company: The Tribunal is given the power to
freeze assets of the company which can not only be used when the company is
under investigation, but can also be initiated at the insistence of a wide variety
of persons in certain situations.

8. Conversion of public company into private company

Sections 13, 14, 15 and 18 of the Companies Act, 2013 read with rules regulate
the conversion of public limited company into private limited company. It
requires approval from the NCLT. Approval of the Tribunal is required for such
conversion. The Tribunal may at its discretion impose certain conditions subject
to which approvals may be granted (sec 459).

9. Tribunal Convened AGM:

General meetings are required to assess the opinion of shareholders from time to
time. The Act mandatorily requires one meeting to be called, which is termed as
the “annual general meeting” or ‘AGM’. Any other general meeting is termed
as “extra ordinary general meeting” or ‘EOGM’. If the AGM or EOGM cannot
be held, called or convened in the manner provided under the Act or the Rules
by the Board or the Member due to certain extraordinary circumstances, then
the Tribunal is empowered under Section 97 and 98 of 2013 Act to convene
general meetings under the Companies Act, 2013. The provisions for convening
an annual general meeting and extra ordinary general meeting in the Companies
Act, 2013 are almost similar to the provision provided in the Companies Act,
1956. However, the draft rules have inserted an additional provision that require
intimation of such cases to be given to ROC.

10. Compounding of Offence:

Provisions of compounding under the 2013 Act were notified before the
constitution of NCLT and were assigned to CLB. This power will now be
vested with NCLT, and all compounding matters which are above the
prescribed monetary limit will be approved by NCLT.

11. Change in Financial Year:

Section 2 (41) also has been already notified on 1 April 2014. The Act requires
that every company or body corporate, new or existing, must have a uniform
financial year ending on 31 March. It provides an exception where certain
companies can apply to the Tribunal to have a different financial year. A
company or a body corporate can make an application to the Tribunal. As the
Tribunal was not notified at the time when this section was notified, the power
to alter the financial year on application was granted to the CLB. The regulation
provides the manner for making the application to CLB. The same has notified
on the site of CLB vide order dated 28 January 2015. All the application that are
not disposed of at the time when NCLT provisions are notified, will also be
transferred to the Tr WHAT IS IBC (Insolvency & Bankruptcy Code?

Insolvency and Bankruptcy Code, 2016 (referred as IBC) which is considered

as the biggest insolvency reform, is a central Act enacted for reorganization and
insolvency resolution of corporate persons, partnership firms, and individuals in
a time-bound manner for maximization of the value of assets of such persons.

IBC was enacted and came into force w.e.f. 28th May 2016, however, some of
the sections were made effective on various dates to implement in a systematic
manner. Some of the parts have not even been notified till date i.e. 01/01/2019
e.g. bankruptcy process for partnership firms and individuals.

Insolvency & Bankruptcy (IBC) HISTORY

The era before IBC were having various scattered laws relating to insolvency
and bankruptcy which caused inadequate and ineffective results with undue
delays. For example

 SARFAESI – (Securitization and reconstruction of financial assets and

enforcement of security interest) Act for security enforcement,
 RDDBFI (Recovery of debt due to banks and financial institutions) for
debt recovery by banks and financial institutions,
 Companies Act for liquidation and winding up of the company,
 Presidency Towns Insolvency Act and Provincial Insolvency Act for
sick-ness and insolvency of partnership firm, HUF & individual

Ineffective implementation, conflict in one of these laws and the time-

consuming procedure in the aforementioned laws, made the Bankruptcy Law
Reform Committee to draft and introduce Insolvency and Bankruptcy Law bill.
How petition under IBC is filed and process ?

In simple terms, if any company (Corporate debtor) makes the default in

financial or operational debt which is due, in such situation, any such creditor
who has debt and default in such debt may, file a petition before NCLT
(National Company Law Tribunal) to initiate the insolvency process (corporate
insolvency Resolution process CIRP) against such company Corporate debtor.
Hence it requires the following conditions to file the petition before Hon’ble
NCLT:

 There should be debt which is due to the company

 The Company would have defaulted in the repayment or fulfil such
debt
 The amount of such default should be more than Rs. 1 Crs (w.e.f.
from 25/03/2020)
 In Homebuyers case, there should be more than 10% of allottees or
100 in nos. whichever is less

The CIRP under IBC (Insolvency and Bankruptcy Code) has the following
unique features than any other legal process

 Appointment of IRP – An IRP (interim resolution professional) is

appointed by NCLT on initiation of CIRP order.
 Every creditor is required to file its claim for the amount against the
company under CIRP
 All the major decision is taken by the committee of Creditors (CoC)
which comprise only the financial creditors.
 Power of directors/board get suspended and all power comes with
IRP/RP
 The process needs to be completed within 180 days (maximum 330
days)


IBC OBJECTIVES

 To simplify and expedite the Insolvency and Bankruptcy Proceedings in

India.
 Consolidate and amend all existing insolvency laws in India.
 To protect the interest of creditors including stakeholders in a company.
 To revive the company in a time-bound manner.
 To promote entrepreneurship
 To get the necessary relief to the creditors who have been waiting for the
payments since a long time
  To curb down the fraudulent corporate persons who have been defaulting
in making due payments.
 To work out a new and timely recovery procedure to be adopted by the
banks, financial institutions or individuals.
 To set up an Insolvency and Bankruptcy Board of India.
 Maximization of value of assets of corporate persons.

KEY FEATURES OF IBC

 One set of laws for insolvency and bankruptcy

 Timely bound process for payment to creditors and insolvency process.
 It is the most prevalent law dealing with Insolvency and Resolution
proceedings in India.
 It has an overriding effect on other laws.
 Gives equal representation to all the creditors for effective resolution
of the stressed assets.
 Appointment of Insolvency Resolution Professional to take care of the
business of financially distressed companies.
 Provide relief to all the creditors (Financial or Operational) who are
owed some amount from the corporate persons.
 Empower the creditors to make key decisions during the insolvency
proceedings.
 Includes homebuyers under the definition of financial creditors.
 Financial as well as operational creditors cab, initiate Corporate
Insolvency Resolution Proceedings against corporate persons.
 Invitation to submit resolution plans to take over the distressed
companies.

In the light of above features, we can clearly make out how this new legislation
will act as superior law in effective industrial development. IBC will help in
removing the defaulting and fraudulent businessmen from the market.

Why Centrik for IBC Consultancy?

We have a team of experts who specialize in Insolvency and Bankruptcy

laws with versatile experience in the Insolvency sector. With a team of
Insolvency Professionals associated, we provide complete and comprehensive
result-oriented services with full dedication. For more details, please reach us
at ibc@centrik.in
Sexual Harassment: Composition and Duties of the Internal Complaints
Committee

Introduction

More than 50% of working women faced sexual harassment, crude jokes, and
unwelcome gestures at least once in their career. Reporting sexual harassment is
not easy, sometimes, due to the fear of unlawful termination, unnecessary work
pressure, spoiling the team environment.

The Sexual Harassment of Women under the Workplace (Prevention,

Prohibition and Redressal) Act (hereinafter referred to as “Act”) was enacted in
the year 2013 with threefold purposes:

1. Providing protection to women against sexual harassment at the

workplace,

2. To prevent sexual harassment

3. To provide a redressal mechanism for complaints relating to sexual

harassment at the workplace

The Act was enacted after the decision of the Supreme Court in the case of
Vishaka and Others v. State of Rajasthan and Others (1997 (7) SCC 323), where
the honorable court laid down guidelines relating to sexual harassment of
women at the workplace, known as “Vishakha Guidelines”. The guidelines were
in force until the enactment of the legislation.

The Act recognizes that sexual harassment of women results in the violation of
fundamental rights granted to women under the Indian Constitution. Right to
Equality guaranteed under Article 14 and 15 and Right to live with dignity
under Article 21(3) are the rights that are affected due to sexual harassment
faced by women at the workplace.

What is an Internal Complaint Committee?

The Internal Complaints Committee (ICC) is an obligation under the Act which
must be adhered to by an employer of a workplace with more than ten
employees as per Section 4 of the Act. The Internal Complaints Committee is
the initial in-house body which must be approached for filing of a complaint
relating to sexual harassment by the aggrieved women. The Internal Complaints
Committee plays an important role in the functioning of the provisions of the
Act and to ensure the fulfilment of its objectives. The major functions of the
Internal Complaints Committee involve implementing the Policy relating to the
prevention of sexual harassment, resolving complaints by the aggrieved and
recommending actions to be taken by the employer.

Procedure to Constitute an Internal Complaints Committee

The Internal Complaints Committee must be constituted by an employer at a

workplace having more than ten employees. It has to be constituted by an order
in writing. In case there are different offices of the workplace, the Committee
shall be constituted at every office or unit. The Committee must consist of the
following members: -

1. A Presiding Officer
2. Two employee members
3. One member from NGO or Association working for the cause of
women

At least one-half of the total members must be women.

What are the Qualifications to be a Member of the Committee?

As per Section 4 of the Act, the following are the qualifications for being a
member of the Internal Complaints Committee in the workplace: -

1. Presiding Officer

The Presiding Officer is the Chairperson of the Internal Complaints Committee.

The post must be held by a senior-level female employee at the workplace. The
Act provides that in case a senior female employee is unavailable, there can be a
nomination of senior female employees from other offices or administrative
units of a workplace. Even if not available at another office, the act further
provides that such presiding officer be nominated from any other workplace.
The provisions have been enacted with a purpose to address the concerns of
small workplaces, where female employees at senior levels may not be
available. In such cases, the employer may nominate a presiding officer from
outside the workplace.

2. Employee

The ICC must also comprise of two or more members from its employees. It is
desirable that they possess the legal knowledge, are experienced in social work
or committed to the women’s cause. These characteristics are not mandatory
and merely preferable because it may not be viable to find such employees.

3. Outside Member
The ICC must also include a member who is a person familiar with issues
relating to sexual harassment, or is a member of a non-governmental
organization or association which is committed to women’s cause. Having an
outside member gives room for an outside perspective to the ICC. The
requirement was also prescribed by the Supreme Court in the Vishakha
Guidelines.

Top Read: Non-Compliance of Sexual Harassment of Women at

Workplace

What is the Tenure of the Members of the Committee?

As per Section 4(3) of the Act, the tenure of the members of the Internal
Complaints Committee in the workplace, i.e. Presiding Officer as well as other
members, must not be more than three years from the date of nomination.

When can a Member of the Committee Be Disqualified?

A member of ICC may be disqualified on the following grounds:

1. Disclosing of confidential information. For example, details of

proceedings in case of an inquiry.
2. If there is a conviction, or inquiry into an offense under law against
the member.
3. If the person is found guilty or disciplinary proceedings are pending
against him.
4. If the person has abused the position which is prejudicial to the
public interest.

Are the Members of the Committee Eligible for any Remuneration?

As per Section 4(4) of the Act, the members who have been appointed from
non-governmental organizations or associations are eligible for remuneration to
be paid by the employer. They shall be paid remuneration for holding
proceedings of the Internal Complaints Committee.

Further, as per Section 3 of the Rules, the NGO members are entitled to an
allowance of Rs. 200 per day for the conduct of proceedings at the ICC. They
shall also be reimbursed for the travel costs incurred.

What is the Procedure to File a Complaint with the Committee?

The Act does not prescribe a particular format for filing of a complaint.
However, following are the perquisites relating to filing of a complaint relating
to sexual harassment: -
Who can file a complaint?

The complaint can be filed by the following persons: -

1. Aggrieved women
2. In case of her physical incapacity, the following persons can file a
complaint –
1. Relative of Complainant
2. Friends of Complainant
3. Co-worker
4. Officer of National Commission for Women or State
Commission for Women
5. Any person who has knowledge of the incident with the written
consent of the complainant
3. In case of her mental incapacity, the following persons can file a
complaint –
1. Complainant’s relative
2. Complainant’s friend
3. Special educator
4. Qualified psychiatrist/psychologist

Time Period

The complaint can be filed within 3 months from the date of the incident of
sexual harassment. In case of a series of incidents, the complaint must be filed
within 3 months from the date of the last incident. The Act provides that the
time period of 3 months may be extended by the Committee after recording
reasons.

Other requirements

1. Six copies of the complaint are to be filed

2. Supporting documents and evidence, details of witnesses
3. Details of the incident
4. Details of respondent

Timeline of the complaint

1. After receiving the complaint, within seven days one copy of the
complaint is sent to the respondent.
2. Upon receiving the complaint, the respondent has ten days to file a
reply to the complaint along with supporting documents.
3. Ninety days’ period is provided for completion of the inquiry.
4. The issuing of an inquiry report must be within ten days after the
completion of inquiry.
 5. After inquiry, the employer must act upon the recommendations
within ten days.
6. Ninety days’ period is available for appeal against the decision of the
ICC.

Powers of the Internal Complaints Committee

The Internal Complaint Committee is vested with the powers of a Civil Court
under the Civil Procedure Code, 1908(1) in the following: -

1. When summoning and enforcing the attendance of a person related

to the incident.
2. When it requires discovery or production of documents
3. For other matters relating to the incident of sexual harassment

Upon completion of the inquiry, if the Internal Complaint Committee finds the
person guilty, it may prescribe the following actions: -

1. Initiate action against a person in accordance with the service rules

2. In case there are no service rules, take actions like a warning,
withholding promotion, termination, community service, etc.
3. Deduct compensation to be paid to aggrieved women from the salary
of respondent.

The amount of compensation payable is calculated on the basis of the following

factors: -

1. Mental trauma, pain, suffering and emotional distress caused to the

aggrieved women
2. Loss in career opportunity due to the incident of sexual harassment
3. Medical expenses incurred by the victim for physical/psychiatric
treatment
4. Income and status of the alleged perpetrator
5. Feasibility of such payment in a lump sum or in instalments

If the respondent fails to pay the amount of compensation, the ICC may forward
the amount to be recovered as an arrear of land revenue with the District
Officer.

What is the power of the committee if the complaint is malicious?

1. order to protect innocent people from false and malicious complaints, a

provision has been made under the Act. The committee may recommend
an action if the Committee finds after the inquiry that the complaint had
 been filed with malicious intent or that a false complaint was made or a
forged document was submitted during the proceedings.

The Act clarifies that to determine the complaint being the malicious, mere
inability to provide adequate evidence is not sufficient. And the malicious intent
must be determined after the conduct of an inquiry.

When can the committee forward the complaint to the police?

The Internal Complaint Committee has been empowered to forward the

complaints to the police in two circumstances which are as follows: -

1. For registration of a case under section 509 of the Indian Penal Code
(2) or other provisions of the criminal law, within the period of seven
days.
2. When a settlement is agreed upon between the parties and the
respondent does not comply with the condition(s) of the settlement,
the Committee may forward the complaint to the police.

What actions can be taken by the Committee during the pendency of the
inquiry?

Upon receiving a written request, the Internal Complaints Committee can

recommend the following actions to the employer during the inquiry pending: -

1. Transferring the respondent or the aggrieved to any other workplace

2. Granting leave to the aggrieved women up to three months
3. Any other relief as may be prescribed

It is the duty of the employer to implement the recommendations of the

Committee and thereafter submit a report of the same.

What are the general duties of the Committee?

The Committee has a major role to play at the workplace where it has been
constituted. A general list of duties of the Committee is enumerated as follows:
-

1. Implementation of the Anti–Sexual Harassment Policy at the

workplace
2. Submit an Annual Report

The employer must include details in the report like number of case files at their
disposal.
 3. Create awareness at the workplace by way of documents, notices,
workshops, seminars, etc.
4. Publicize the policy framework
5. Provide a safe and accessible mechanism of complaint to the victims
6. Initiation of inquiry at the earliest
7. Redress the complaints in the best possible manner
8. Provide for interim relief
9. Provide an opportunity for conciliation
10.Follow the principles of natural justice at all stages of the
proceedings
11.Forward the complaint to the police, where required
12.Submit recommendations along with the inquiry report
13.Maintain confidentiality in regard to the proceedings taking place
before the Committee

Further Read: Employee Bonds in India

When can an appeal be filed against the recommendations of the

Committee?

An appeal can be filed before the court or tribunal against the recommendations
of the Committee within a period of ninety days in the following circumstances:
-

1. Recommendations made by the Committee under S. 13(2) i.e. no

action is to be taken when the allegations have not been proved
2. Recommendations made under S. 13(3) i.e. action is to be taken when
the allegation has been proved
3. Recommendations made under S. 14 i.e. action is to be taken against
the malicious complaint or false evidence
4. Recommendations made under S. 17 i.e. penalty for publishing
confidential information

What are the consequences of non-compliance with the provisions under

the Act?

The Act imposes certain mandatory obligations upon the employer which
includes constituting the Internal Complaints Committee. In case of failure to do
so, the act imposes a penalty of fifty thousand rupees.

Further, the Act provides that repetition of the same offense would lead to
double penalty or deregistration or revocation of license of the concerned
business enterprise. Also, the offenses under the Act are non-cognizable.
3.1 Family settlement deed
Introduction
From low-income families to ultra-wealthy families, many people put their
hard-earned money into immovable property to enjoy for the rest of their lives.
After the owner’s demise, his legal heirs inherit the property he left behind,
according to his wishes either as expressed in his will, or, if he dies without
leaving a will then according to the provisions of the Succession Act.
In India, property disputes are very common. Property disputes account for 66%
of all cases seeking judicial review, while family disputes account for 10% of
all cases. Problems can arise because of the absence of a registered will or
someone attempting to contest the will. Some people also try to resolve their
differences amicably through a family settlement arrangement, which
summarizes how the family members have agreed upon the property’s
distribution among the heirs or beneficiaries. For most squabbling relatives, the
obvious remedy is to take the matter to the courts. However, this time-
consuming, tedious, and costly mechanism does not ensure a satisfactory
outcome. Some families may choose to resolve property disputes outside the
courts. In this regard, family members may go in for a family settlement deed.
A family settlement deed is a much more amicable and cost-effective
alternative.

What is a family settlement deed?

A family settlement deed is also known as a family compromise agreement. It is
an arrangement or a legal document between the family members that records
that all family members agree to common terms and conditions in the event of
any disagreements. This agreement involves participation and needs to be
signed by all the members acknowledging that this agreement was not made
through fraudulent means, force, and coercion from any family member. It is
normally in the context of resolving a disagreement.
The agreement is confirmed with the approval of all family members who
firmly support the resolution given in the agreement at a later date when the
event mentioned in the agreement occurs. It is presented in the form of a deed
and is properly attested and registered by government officials.
The aim is to protect the family’s assets and reputation by recognizing that it is
not in the family’s best interests for members to participate in fights or disputes.
The aim is to maintain and protect the peace, stability, and overall well-being of
the family and its members. A family settlement arrangement is useful in a
variety of situations, including land and immovable properties, bonds, lawsuits,
and family feuds.
According to Halsbury’s Laws of England, “A Family Arrangement is an
agreement between members of the same family, intended to be generally and
reasonably for the benefit of the family, either by compromising doubtful or
disputed rights or by preserving the family property or the peace and security of
the family by avoiding litigation or by saving its honor. The agreement may be
implied from a long course of dealing. But it is more useful to embody or to
effectuate the agreement in a deed to which the term family agreement is
applied.”
In Ram Charan Das vs Girija Nandini Devi, it was held that courts give effect
to a family settlement on the large and general basis that its purpose is to
resolve current or potential property disputes among family members. In this
context, the term “family” should not be interpreted in the narrow sense of a
group of people who are legally recognized as having a right of succession or a
claim to a share in the property in question.
What are the benefits of forming a family settlement deed?
A family settlement deed is a contract that is used to resolve all family disputes
outside of the courtroom. It does not involve any significant third-party
approvals or acceptance. The following are some of the advantages of forming a
family settlement deed:
1. It settles inter-rights in a property matter among family members without
causing conflicts.
2. Preserving family rights and settling peace by preventing lawsuits or
saving honor is general and fair for the sake of the family.
3. Since consideration for a promise is essential in a contract, it is legally
binding on all family members, much like any other contract or
arrangement, and must be followed in order to keep the peace in the
home.
What are the most important aspects of a family settlement deed?
The family settlement deed should be made on the basis of good faith. It must
not have the consequence of restricting the rights of a family member who is not
a consenting party to the agreement. It should be in the essence of resolving
conflicts and maintaining peace, rather than provoking conflicts or disturbing
the harmony. There should be no fraud or unfair control by any family member
or member. It has to be a purely voluntary arrangement.
A family settlement deed in the form of transfer, allocation, and recognition of
pre-existing rights. As long as it satisfies the other requirement of a valid family
settlement deed, any of the pre-existing rights of one or more family members
can be revoked by their approval. The issue to be considered is the recognition
of their right and not its transfer, even if there is revocation of rights by one or
more members.
Format of a family settlement deed
Drafting a family settlement deed is a structured way of preventing any future
disputes between family members in the event of certain issues or the demise of
any person’s family members. Forming a settlement deed between the family
members is an ideal solution before taking matters to the courts. As informed
above, when a matter is taken to the courts, it becomes costly and time-
consuming as it involves costs for hiring lawyers, documentation, and fees. In
addition, the matter will take time for the court to pass the settlement decision
that will benefit all the parties.
The family settlement deed is a legally binding document and is prepared after
structured negotiations between the family members. In general, while drafting
the Family Settlement Deed, the following clauses should never be ignored:
 Names of family members:
Since family settlement deeds are structured to avoid future disputes, it is
important to have names of all participating family members whose decision
matters in the family arrangement.
Example:
“This Deed of family settlement is made at ____ on this ____day of______,
Between
 Mr. ___________, aged______, son of Shri _________ resident of
___________, holding PAN__________(hereinafter called the First
Party);
AND
  Smt. __________, aged______, wife of Shri __________ resident of
___________, holding PAN__________ (hereinafter called the Second
Party),
AND
 Smt. __________, aged____, wife of Shri ________ resident of
__________, holding PAN _________(hereinafter called the Third
Party),
AND
 Shri___________, aged ________, son of _________ resident of
__________, holding PAN___________(hereinafter called the Fourth
Party).”
 Details of the property:
This is a very essential clause of the agreement. As we know, this is a contract
that is used to resolve all family disputes outside of the courtroom related to
properties so this clause shall have details of all the properties like house
number, area and even a site map. Example:
“WHEREAS the First Party is absolute owner and in actual possession of ____
consisting of ____, admeasuring ____, total measuring ____ sq. ft., situated in
______ which is bounded as described in the schedule of property attached to
this Deed.”
 Reason for forming a family settlement deed
The aim of family arrangement is to settle conflicts amongst family members
without disturbing family peace so the family settlement deed binds on family
members to accept terms and conditions of the deed. It states the main function
of the agreement. Example:
“Now this deed certifies that the Parties hereby agree with each other that they
will observe, perform, and convene the terms and conditions indicated
hereinabove in accordance with the Deed for family settlement and in respect of
the settlement reached between the Parties hereunder.”
 Dispute:
As informed above, the aim to form a family settlement arrangement is to
resolve a dispute related to properties between family members. So it is
necessary to add details regarding the settlement of the dispute in the
agreement. Example:
“That it is hereby declared and agreed between the parties that this agreement
for family settlement ends all disputes between the parties relating to the
respective rights and claims of the parties to the joint family properties and the
parties admit and acknowledge the claims of each other towards their
respective properties as per this agreement for family settlement.”
 Details of additional assets:
This clause would contain information related to any additional assets like any
other immovable properties, shares, golds, etc. Example:
First Party is the absolute owner of the assets listed in Annexure A attached to
this Agreement. First Party has an estimated sum of Rs. ____ in a separate
Saving bank account mentioned in Annexure B hereunder”.
 Division of the property:
It is essential to add details about the division of the properties amongst family
members to settle disputes between them. Example:
“a. The party of the first part herein is allotted the schedule ‘A’ mentioned
property.
b. The party of the second part herein is allotted the schedule ‘B’ mentioned
property.
c. The third part herein is allotted the schedule ‘C’ mentioned property.”
 Settlement of dispute:
This is also a very important clause in the agreement. This contains a
declaration from the parties that they will not claim any further rights. Example:
“It is expressly agreed by and between the parties hereto that the heirs will not
claim any rights under the said codicil and that the Party of the Third Part will
not claim any rights.”
 Resolution
This clause will contain the details regarding resolution and parties will confirm
that all disputes between them are settled. Example:
“The parties confirm and declare that all disputes and differences between
them have been resolved and that none of them has any further or other claim
or demand of any kind against the other or others.”
 Declaration:
It is important under the family arrangement that the family members agree with
the solution and convene to the terms and conditions. Example:
“The parties also agree and declare that the conditions of the Memorandum of
Family Settlement reached between them and recorded herein are fair and bona
fide and that they are in the best interests of all parties.”
 Signature and thumb impressions
 Legal attestation
Can a family settlement deed be made orally?
Yes, a family settlement deed can be communicated orally and it does not need
to be registered if it is made verbally. It is legally recognized and legitimate. To
determine if such an arrangement is legitimate and equitable, all of the essential
factors of a valid family arrangement will be added. However, recording
documentation in writing is recommended to prevent any misunderstanding.
Legal enforceability of the family settlement deed
As informed above, it is important for the family members who sign the deed to
recognize that the settlement deed has legal force, and all parties agreeing to the
terms and conditions shall abide by it. It shall also be forwarded to the relevant
authorities to facilitate the transfer of property and division in accordance with
the terms and conditions of the family settlement deed. The parties to the family
settlement deed must also sign the declaration, no objection certificate, and
other related documents with respect to the transfer of the property.
Provisions
1. As informed above, post demise of the owner of the property, his legal
heirs inherit the property he left behind, either according to his
preferences as stated in his Will or, if he dies without leaving a Will,
according to the rules of the Succession Act applicable to such
individuals.
2. The agreement must follow the fundamental rules of Contract Law. It is
impossible to force a family arrangement.
3. This agreement is an instrument of partition and therefore is required to
be stamped under Schedule 1 of Article 45 r/w Section 2(15) of the
Stamp Act. However, an oral family agreement dividing the property
does not require stamping.
 4. The courts have ruled that any property transferred as part of a family
arrangement or division is not subject to capital gains taxation. A family
arrangement in which property is given away cannot be interpreted as a
‘transfer’ for capital gain purposes. As a result, no capital gain tax is due
under Section 45 of the Income-tax Act of 1961.
Does the family settlement deed need registration?
The family settlement deed may be communicated verbally or in writing, but
documentation is recommended to prevent any misunderstandings. If a
settlement is oral, it does not need to be registered. However, registration is a
good choice for making the written word legal since it is recognized in a court
of law. The family settlement deed is definitive and conclusive and it cannot be
revised or amended at any point during the settlement process. All parties to the
family settlement deed are bound by the terms of the deed and must adhere to
their respective shares as defined and specified in the family settlement deed
and shall also agree to the registration of the deed before the concerned
authorities.
In Tek Bahadur Bhujel vs Debi Singh Bhujil, the Court had considered that a
family arrangement can be reached verbally. Its terms may be written down as a
memorandum on what was agreed upon by the parties. The memorandum does
not have to be prepared with the intention of being used as a foundation for the
parties’ future title. It’s normally made as a record of what was decided upon so
that there are no ambiguities in the future. Only when the parties reduce the
family agreement in writing with the intention of using that writing as evidence
of what they have negotiated and when the arrangement is brought on by the
document as such, does the document require registration since it becomes a
document of title declaring for the future what rights in what properties the
parties hold?
Further in Ramgopal vs Tulshi Ram And Anr, the following principles were
established:
1. It is possible to make a family settlement deed verbally.
2. If the decision is taken verbally and there is no written record then there
is no need for registration.
3. If it could have been made verbally but was reduced to the form of a
“document”, registration is required (when the value exceeds Rs. 100).
4. Whether the words have been “reduced to the form of a document” in
each case is a matter of reality that must be decided based on the meaning
 and phraseology of the writing, as well as the circumstances and intent
for which it was written.
In Mt. Jileba v. Parmesra, it was stated that “if a family agreement is made
orally and information about its terms is submitted to a Court in writing, that
writing would not be considered to be a deed of family arrangement and would
not be required to be registered.”
How does a family settlement deed guarantee legal remedy?
If a family settlement deed is duly notarized and registered with the relevant
authorities, the right holders are assured of all legal remedies. The family
settlement deed is recorded in front of the registrar with all terms and conditions
accepted by the family members. The deed binds all parties to the agreement by
referring to legal obligations made in the Indian Contract Act. If all the legal
conditions are met, the family settlement deed becomes legally enforceable
under the Indian Succession Act, 1925.
Does it attract stamp duty?
This depends on how the document is made. Generally, if it is a document
recording a past transaction or merely reducing an earlier oral family
arrangement, then it may not be necessary to pay stamp duty and registration
fees as this is not a document of title. Otherwise, it must be duly stamped and
licensed if it is supposed to be a document of the title containing statements of
parties’ rights.
In the subsequent reference bench judgment of the Bombay High Court in the
matter of the Chief Controlling Revenue Authority vs Shri Abdul Karim
Ebrahim Balwa, the revenue authorities referred the matter to the Maharashtra
Law Department to consider whether the family settlement is a partition and
attract stamp duty.
In a negative decision, the reference bench said, “Once we remember this, it is
apparent that this agreement is a family arrangement for the resolution of a
dispute. It is nothing more than a record of events that occurred between the
parties through the efforts of mediators and the resolution of conflicts on their
own and the ratio defined in Kale’s Case Supra”.
Difference between a family settlement deed and partition
Family Arrangement Partition

Based on disputed, probable, or even There are very clear pre-existing

hypothetical arguments between family
 members. rights.

It is made between people who are

There is a degree of relationship involved. not related by blood but are co-
owners of land.

A family arrangement can be in the nature

Recording past transactions of
of re-aligning, re-distributing or even
division/ partition of property.
consolidating certain claims and rights.

It requires compulsory registration as

It can be even oral in which case it does it creates, assigns, limits, or
not require registration and stamping. extinguishes rights or title in a
property

4.4 Shops and Establishments Act in Maharashtra

Introduction
With the introduction of Maharashtra Shops and Establishments (Regulation of
Employment and Conditions of Service) Act 2017 (hereinafter referred as
MSEA 2017), on December 19, 2017, the previous act, i.e, Maharashtra Shops
and Establishments Act 1948 (hereinafter referred as MSEA 1948), has been
revoked. If we look into the background and the reason behind enactment of this
statute, we will see that in July 2016, Central Government published Model
Shops and Establishment (Regulation of Employment and Conditions of
Service) Act 2016 and the states were free to adopt the same with necessary
state-specific modifications. The introduction of this Model SEA 2016, was
having three major reasons behind this – i) to make these legal provisions more
contemporary ii) to enhance the ease of doing business and iii) to implement a
more or less uniform statute throughout the country.
Maharashtra is the first state to adopt the Model SEA 2016, with few state-
specific amendments to remain at the forefront of industrial development and
reforms. It is the first state to change the 70 year old statute. Considering the
fact that Maharashtra is having two leading commercial and industrial cities of
the state – Mumbai and Pune, this is surely a long step forward.

While making the adaptation of Model SEA 2016 and while repealing the
earlier applicable statute of 1948, few changes have been introduced.
Applicability of the Act
Maharashtra Shops and Establishment
Act 1948
Legal Provision Section
It was applicable to all
such establishments
irrespective of the number
of employees employed.
It was applicable to all
employees employed either
directly or through an
agency, whether for wages
or other considerations. 2(6)
This included the
apprentices also but did not
include the family
member(s) of the employer
The MSEA 1948 had 2(8) and
Maharashtra Shops and
Establishments (Regulation of
Employment and Conditions of
Service) Act 2017
Legal Provision Section
All provisions, except section
7, shall be applicable to all
such establishments
throughout the state of
Maharashtra who is employing
10 or more workers. However, 1(3)
the provisions of section 7
shall only be applicable to
such establishments who are
employing less than 10
workers
The definition of employee
has been replaced by that of
the worker doing CUSTOM
(Clerical, Unskilled, Skilled,
Technical, Operational, and
Manual) work for hire or
reward. The terms of
employment can be expressed
or implied. Unlike the earlier
definition of employee, it does 2(26)
not include the apprentices.
Moreover, as per section
3(11), the provisions of the act
shall not apply to a worker
who is holding the position of
confidential, managerial or
supervisory nature in an
establishment.
MSEA 2017 has one detailed 2(4)

separate definitions for
2(4)
Establishment and
respectively
Commercial Establishment
Both MSEA 1948 and MSEA 2017 are not applicable to the factories covered under
the Factories Act 1948.
Employer
Maharashtra Shops and
Establishment Act 1948
Legal Provision
MSEA 1948 simple defined
the term Employer as a
person owning an
establishment or having
ultimate control over its
affairs
Registration of Establishment
Maharashtra Shops and Establishment
Act 1948
Legal Provision
Registration was mandatory
for all establishments
irrespective of the number of
employees employed.
The time limit for making the
application was 30 days as per
section 7(4)
definition of establishment
which includes trades,
professions and various
businesses specifically.
Maharashtra Shops and Establishments
(Regulation of Employment and
Conditions of Service) Act 2017
Section Legal Provision Section
MSEA 2017 broadened the scope
of the definition and has included
the partners of firms, directors of
2(7) 2(3)
companies and persons appointed
by the Government to manage
affairs.
Maharashtra Shops and Establishments
(Regulation of Employment and
Conditions of Service) Act 2017
Section Legal Provision Section
7(1) It is applicable to establishments 6(1)
where 10 or more workers are
employed.
Establishments employing less than
10 workers are not needed to apply
for registration. The application is
to be made within 60 days.
However, establishments already
covered under MSEA 1948 are not
required to get registered under
MSEA 2017 till the earlier

The validity of the registration
or its renewal was between 1
to 3 years and within 15 days
the application for renewal
had to be made.
Opening Hours & Closing Hours
Maharashtra Shops and Establishment
Act 1948
Legal Provision
Commercial Establishments
were allowed to get opened on
or after 8.30 am and closed not
later than 9.30 pm unless there
was a specific exemption from
the State Government. MSEA
1948 had separate provisions
w.r.t the opening and closing
hours of restaurants, residential
hotels, theatres or other places
of amusement and
entertainment
registration is valid
The term of the registration
certificate is not fixed. It will be
entirely based on the application
made by the applicant. However,
7(2-A) the maximum tenure can be of 10
and 7(2- years. 6(3)
B) The application for renewal of the
registration certificate or the
renewed registration certificate has
to be made at least 30 days prior to
the date of expiry with required fees
Maharashtra Shops and
Establishments (Regulation of
Employment and Conditions of
Service) Act 2017
Section Legal Provision Section
13 Under MSEA 2017 nothing is 11
prescribed about the opening
and the closing hours. State
Government holds the authority
to notify in the official gazette
opening and closing hours for
different establishments,
premises, shopping complex or
mall. This may vary for
different area for a different
period.
However, For Permit Rooms,
Beer Bars, Dance Bars, Hookka
Parlors, Discotheques and all
such other establishments where
liquor in any kind is served or
for wine and all kinds of liquor

Close Day and Weekly Holiday
Maharashtra Shops and
Establishment Act 1948
Legal Provision Section Legal Provision
Establishments were
required to remain
18
closed for at least one
day of the week
No provision of
Compensatory off in
such cases where
weekly off is not given
Hours of work, Rest Interval, Spread Over Time and Overtime
Maharashtra Shops and Establishment
Act 1948
Legal Provision
As per MSEA 1948 daily
hours of work was limited to
9 hours maximum and
weekly it was 48 hours
shops, specific opening and
closing hours have been
specified vide notification dated
19 December 2017.
Maharashtra Shops and Establishments
(Regulation of Employment and Conditions of
Service) Act 2017
Section
Establishments can remain open
throughout the week without closing the
same for one full day. The only clause 16(1)(b)
is that every worker is to be allowed a
weekly holiday of at least 24 hours.
In case such a weekly holiday was
denied, compensatory off is to be given
in lieu of such weekly holiday within 2
16(1)(c)
months from the date of the weekly
holiday along with twice the rate of
ordinary wages.
Maharashtra Shops and
Establishments (Regulation of
Employment and Conditions of
Service) Act 2017
Section Legal Provision Section
14(1) The daily and weekly limit 12
remains same as that of
MSEA 1948. However, in
case of urgent work,
working hours of weekly
holidays may be relaxed
based on prior permission of

Rest interval was provisioned
for at least 1 hour for every 5
hours of work performed.
Though in case of employees 15 and 15(a)
engaged in the commercial
activity of any factory the
rest interval was of at least
half an hour.
The spread overtime on any
normal day was up to 11
hours for any commercial
establishment unless it is
exempted specifically.
In MSEA 1948 the
accumulated overtime hours
was maximum up to 6 hours
in a week. The hours shall be
calculated beyond 9 hours a
day or 48 hours a week
Click Above
Holidays, Leaves and Leave Encashment
Maharashtra Shops and
Establishment Act 1948
Legal Provision Section
4 paid holidays in a
calendar year – 35(4)
26th January, 1st May,
15th August and
the Facilitator
Rest interval has been
reduced to half an hour for
the adult workers employed
12
respectively in any establishment, for
every 5 hours of work
performed.
The spread over time has
been reduced to 10½ hours
on a normal day. However,
16 14
it can be extended up to 12
hours when the work is of
intermittent or urgent nature.
In MSEA 2017 the
accumulated overtime hours
is allowed maximum up to
14(2) 125 hours in a period of 3 15
months. The hours shall be
calculated beyond 9 hours a
day or 48 hours a week
Maharashtra Shops and Establishments
(Regulation of Employment and Conditions of
Service) Act 2017
Legal Provision Section
8 paid holidays in a calendar year –
26th January, 1st May, 15th August 18(7)
and 2nd October and 4 others as will
be mutually agreed upon between the
 workers and the employer. These are
2nd October to be communicated before the
commencement of the year.

As per MSEA 2017, 8 days casual

leave is allotted in a calendar year
No Provision for Casual which is to be credited to the worker’s
18(2)
Leaves leave data on a quarterly basis. If
unavailed, those leaves will lapse at
the end of the year

As per MSEA 2017, 1 day of annual

As per MSEA 1948, 21
days of annual leaves
with wages were
35(b)
allowed to employees
who have worked for at
least 240 days in a year.
leave with wage has been allotted for
every 20 days of work performed
provided that the worker has worked
18(3)
for at least 240 days in the preceding
calendar year. This is parallel to the
provision of annual leave with wages
under the Factories Act 1948.

Annual leave
Proviso Annual leave accumulation is allowed
accumulation was 18(5)
of 35(b) up to 45 days
allowed up to 42 days

In case of refusal of annual leave by

the employer (subject to application 15
No provision for annual days in advance), the worker shall get
18(6)
leave encashment the right to encash the number of
annual leaves, as per section 18(3), in
excess of 45 days.
Compensatory off for Festival Holidays
Maharashtra Shops and
Maharashtra Shops and Establishment Act Establishments (Regulation of
1948 Employment and Conditions of
Service) Act 2017

Legal Provision Section Legal Provision Section

As per MSEA 1948, employees, for 35(4) The provision (i.e., as per 18(7)
working on designated festival section 35(4) of MSEA
 Act 1948) is applicable for
holidays was provided with a the workers as per MSEA
compensatory off plus twice the Act 2017.
amount of wages for that day

Working of Women Workers

Maharastra Shops and Establishments
Maharashtra Shops and
(Regulation of Employment and Conditions of
Establishment Act 1948
Service) Act 2017

Legal Provision Section Legal Provision Section

Women workers are allowed to work after

9.30 pm subject to fulfilment of the
following conditions
1. Consent of the woman worker has
been obtained
2. The employer provides adequate
safety and protection of honor &
dignity.
Women employees 3. The employer provides enough
were prohibited protection from instances of sexual
33(3) 13
from working harassment at the workplace.
beyond 9.30 pm
4. Women workers are provided with
proper transportation facility from
their workplace to their doorstep by
the employer.
However, the state government can prohibit
the employment of women workers after
9.30 pm and before 7 am of the following
day for any business or trade or occupation
in such areas as deem fit.
Double Employment
Maharashtra Shops and Establishments
Maharashtra Shops and
(Regulation of Employment and Conditions of
Establishment Act 1948
Service) Act 2017
 Legal Provision Section Legal Provision Section

Double employment on a
holiday or during leave had
been prohibited
Termination of Employment
Maharashtra Shops and Establishment Act 1948
No such provision for the prohibition
65
of double employment
Maharashtra Shops and
Establishments (Regulation
of Employment and
Conditions of Service) Act
2017

Legal Provision Section Legal Provision Section

Employer was needed to provide

1. 30 days notice period or
payment in lieu of the same
to employees who had been
in continuous employment
66(a) and
for at least one year.
66(b) No provision
2. 14 days notice period or respectively
payment in lieu of the same
to employees who had been
in continuous employment
for less than a year but more
than 3 months
Inspection and Enforcement
Maharashtra Shops and Establishments
Maharashtra Shops and
(Regulation of Employment and Conditions of
Establishment Act 1948
Service) Act 2017

Legal Provision Section Legal Provision Section

Instead of Inspectors MSEA 2017 has

Inspectors were introduced Facilitators.
appointed for 48 28
implementation of the 1. The State Government shall
provisions of MSEA appoint the Chief Facilitator for
the state and other Facilitator(s)
 having a specific demographic
area within the State.
2. The main objective of the
Facilitator is to advise the
employers and the workers
towards better compliance of the
1948 act.
3. Instead of inspection at any
reasonable time based on the
discretion of the labour
authorities, inspections will be
done on a random web-
generated way.
Offences & Penalties
Maharashtra Shops and Establishments
Maharashtra Shops and
(Regulation of Employment and Conditions of
Establishment Act 1948
Service) Act 2017

Legal Provision Section Legal Provision Section

For statutory violations of the

For statutory provisions of the act, the penalties are
violations of the ranged from Rs.1,00,000/- to
provisions of the act, 52 to Rs.5,00,000/-. In case the contravention 29 to
the penalties were 57 is continued, additional fine of 31
ranged from Rs.1000/- Rs.2000/- per day shall be imposed.
to Rs.15000/-. However, the total fine shall not exceed
Rs.2000/- per worker employed

MSEA 2017 states that if the employer

is found guilty in case of contravention
of any provision(s) of the act that has
No imprisonment resulted in the bodily injury or death of
provision was their the worker, the employer will be 30
under MSEA 1948 awarded punishment of imprisonment
up to 6 months or fine not less than
Rs.2,00,000/- and up to Rs.5,00,000/-
or with both.
Identity Card
Maharashtra Shops and Establishments
Maharashtra Shops and
(Regulation of Employment and Conditions
Establishment Act 1948
of Service) Act 2017

Legal Provision Section Legal Provision Section

Identity Card to be
Identity Card to be provided to the
provided to the
workers by the employer for any
employees by the
establishment. Apart from employer’s
employer for any 25 17
and worker’s basic details, it must
residential hotel,
contain worker’s blood group and
restaurant or eating
Aadhaar card number
house.
New Provisions in MSEA 2017
 Displaying a list of workers in the managerial, supervisory or confidential
role either in the website of the employer or at a conspicuous place of the
establishment. These workers will be covered within the scope of the act.
[Section 3(11)]
 Casual Leaves of 8 days in a calendar year. [section 18(2)]
 In line with the Equal Remuneration Act 1976, MSEA Act 2017 brings
the provision of no discrimination for women workers in matters like
recruitment, promotion, wage, training or transfer. [Section 13(1)]
 Earn Leaves shall not be calculated for the availed maternity benefit of
the women workers. However, these days shall be taken into
consideration for computation of 240 days in a year. [Section 18(8)(b)]
 Crèche Facility for establishments employing 50 or more workers. A
group of establishments may operate a common crèche within a radius of
one kilometre, subject to prior conditional permission by the Chief
Facilitator. [Section 23]
 Canteen Facility is to be provided by the employer where at least 100
workers are employed. A group of establishments may operate a common
canteen, subject to prior permission by the Chief Facilitator [Section 24]
 Employer has the discretionary power to run any department or any
section of the same in more than one shift. The worker will get the work
in any shift, as will be decided by the employer. [Section 16(1)]
 Employers are now permitted to keep records in electronic format. They
will be required to submit duly signed hard copies of the same to the
Facilitators upon demand at the time of inspection. [Section 25(2)]
 MSEA 2017 states that if the employer is found guilty in case of
contravention of any provision(s) of the act that has resulted in the bodily
injury or death of the worker, the employer will be awarded punishment
of imprisonment up to 6 months or fine not less than Rs.2,00,000/- and up
to Rs.5,00,000/- or with both. [Section 30]