INTRODUCTION TO

COMPANY LAW
 COMPANY – ITS ESSENTIAL FEATURES

 Company – “ An association of many persons who

contribute money or money’s worth to a common stock and
employ it for common purpose and registered according to
the law relating to companies”

 Section 2 (20) -“company” means a company

incorporated under this Act or under any previous company
law
ESSENTIAL FEATURES OF A COMPANY
 Artificial person
 Perpetual Existence
 Common Seal
 Separate Personality
 Limited Liability
 Can sue and can be sued
 Transfer of Shares
 Limitation of Act – cannot exceed MoA
Separate management
Voluntary Association
Termination of Existence

CASE LAW: Salomon v. Salomon Ltd.

 TYPES OF COMPANIES
ON THE BASIS OF

LIABILITY NATURE OF SIZE AND INTER-COMPANY LISTING FUNCTION NATIONALITY A IM

INCORPORATION SHARE RELATIONS ON
HOLDING STOCK
EXCHANGE
Company
Statutory Public Holding
limited Manufacture National Profit
Company
by Shares Motive
Private Subsidiary Listed
Registered Mining Foreign
Company Non-
Company OPC Associate Unlisted
Trading profit
limited
Small Motive
By Service
Guarantee company
Investment
Unlimited Govt.
Producer
Liability
company
 Promoter
Section 2(69) of Companies Act, 2013 “promoter” means a person—
(a) Who has been named as such in a prospectus or is identified by the
company in the annual return referred to in section 92; or
(b) Who has control over the affairs of the company, directly or indirectly
whether as a shareholder, director or otherwise; or
(c) In accordance with whose advice, directions or instructions the Board
of Directors of the company is accustomed to act.
SEBI (Issue of Capital and Disclosure Requirements) Reuglations, 2009
PROMOTER INCLUDES:-
 The person who are in control of the issuer.
 The person named in the offer document as a promoter.
 Promoter
 Fiduciary Relation with company
 Duty of disclosure
 Rights –
a. Right to receive preliminary Expenses
b. Right to recover proportionate amount from the Co-promoters
 Liabilities –
a. Furnishing false information at the time of incorporation
b. Civil/Criminal Liability for misstatement in Prospectus
c. Fraudulently inducing persons to invest money
Raman wants to register a Pvt. Ltd. Company
under the name “Prudent Pvt. Ltd” to be
incorporated in Bengaluru. He seeks your advice
on the procedure of incorporation of the
company.
 FORMATION OF COMPANY AT A GLANCE

1. Planning :
- Formation of an Idea
- Design of Project Outline
- Viability Study
- Study of Legal Implication

2. Association of Persons/ Promotion:

- Assemblage of Promoters
- Applying for necessary license/ permit
- Making arrangements for Infrastructure
- Pre-incorporation Contracts
- Appointing Lawyers
Formation of
Company….contd.

3. Incorporation:
- Application for Availability of Name
- Preparation of MoA and AoA
- Filing of documents with Registrar of Companies
- Statutory Declaration
- Affidavit from Subscribers to Memorandum
- Furnishing verification of Registered Office – 15 th day of incorporation
- Particulars of Subscribers
- Particulars of First Directors along with their consent
- Power of Attorney to fulfill registration formalities
- Certification of Incorporation
- Allotment of Corporate Identification Number
- Documents of Incorporation to be preserved
4. Commencement of Business:
- Private Co. can commence business as soon as it receives Certificate of
Incorporation
- Public Co. : declaration of commencement of business for companies with
share capital (Section 10-A of Companies Act, 2013)
 CONSTITUTIONAL DOCUMENTS

1. Memorandum of Association:
a. Name Clause
b. Registered Office Clause
c. Object Clause – operates two fold:
- determines the power of the company
- restrict the power of the company to the objects
d. Liability Clause
e. Authorised Capital Clause
f. Association Clause
Constitutional Documents …..contd.

2. Articles of Association:
- Contains rules, regulations and bye-laws regarding internal management of
the
Company.
- Must not violate any provision of the Memorandum of Association or
provisions
of the Companies Act
- MoA and AoA are public documents
- Articles must be written properly, paragraphed and signed by all the
subscribers
to the Memorandum

- Contents of Articles:
1. Interpretation of various terminologies
2. Regulations regarding share capital, rights of shareholders etc.
3. Call on shares
4. Various types of meetings and procedures
5. Voting and Proxies
6. Winding up and its procedures etc.
Doctrines ….Contd.

2. PRINCIPLE OF ULTRA VIRES

- Ultra means beyond
- Vires means power
- Any activity of a company beyond the scope of its stated objectives is a nullity

EFFECTS OF ULTRA VIRES TRANSACTIONS:

a. Injunction.
b. Personal liability of directors.
c. Repudiation of contract.
 Lifting the Corporate Veil
Fraudulent and dishonest practices
Company cannot take shelter behind the corporate
personality
Companies Act, 2013
-Section 7(7) - punishment for incorporation of company by
furnishing false information;
Section 251(1) - liability for making fraudulent application for
removal of name of company from the register of companies
-Section 339 deals with liability for
fraudulent conduct of business during the course of winding
up
Under which of the following circumstances does
the Court permit the lifting of the corporate veil?
(a) Where the company has abused its corporate
personality for an unjust and inequitable purpose.
(b) Where the veil has been used for evasion of
taxes.
(c) Where the Corporate Veil conflicts with public
policy.
(d) Avoidance of welfare legislation by the
company
 CORPORATE SECURITIES – ITS KINDS
LAWS INVOLVED:
- Companies Act, 2013
- Securities Contract (Regulation) Act, 1956
- Securities Exchange Board of India
Section 2(h) of Securities Contract (Regulation) Act, 1956 defines
“Securities” as -
i. Shares, scrips, stocks, bonds, debentures or other marketable securities of
a like nature in or of any incorporated company or other body corporate.
ii. derivatives
iii. Government Securities.
iv. units or any other such instrument issued to the investors under any
mutual fund scheme
v. Such other instruments as may be described by the Central Government
to be securities.
vi. rights in interest in securities.
Corporate Securities….Contd.

KINDS OF SECURITIES
1. Through ownership rights in a corporate body commonly known as
shares/equity instruments
2. Through debt instruments like debentures

OWNERSHIP INSTRUMENTS:
Section 2(84) of Companies Act, 2013 defines “Shares” as –
“ Shares means share in share capital of a company and includes
stocks”
COMMONLY USED TERMS TO DENOTE SHARE CAPITAL:
a. Nominal, authorised or registered capital
b. Issued Capital
c. Subscribed Capital
d. Called-up Capital
e. Paid-up Capital
Corporate Securities….Contd.

KINDS OF SHARE CAPITAL

1. Equity Shares
- that part of the share capital which do not form preference shares.
-Most common form of capital issued by companies to raise funds
from public.

2. Preference Shares
- carries preferential rights in respect of dividends.
- carries preferential rights in regard to payment of capital in case of
winding up of company.
- Cannot be traded
- Voting rights only in respect of matters that ‘directly’ affect the
right of the preference shareholder
 Section 2(55) of the Companies Act, 2013, member, in
relation to a company, means,
(1) The subscribers to the memorandum of a company who
shall be deemed to have agreed to become members of the
company, and on its registration, shall be entered as members
in its register of members;
(2) Every other person who agrees in writing to become a
member of a company and whose name is entered in its
register of members shall, be a member of the company;
(3) Every person holding shares of a company and whose
name is entered as a beneficial owner in the records of a
depository shall be deemed to be a member of the concerned
company.
Four types of persons, viz., an insolvent individual,
a Section 8 company, a foreign national and a
partnership firm, apply for membership in your
public limited company. Will you accept them as
members of your company ? Why or Why not?
Corporate Securities….Contd.

DEBT INSTRUMENTS:
- Debentures is a species of debt securities, which is an acknowledgement
of debt, carrying a promise by the issuer to redeem the debt on maturity
and during its currency to pay interest at an agreed rate at agreed
intervals.
-Section 2(30) - “debenture” includes debenture stock, bonds or
any other instrument of a company evidencing a debt, whether
constituting a charge on the assets of the company or not.
Characteristics of Debentures:
1. Generally secured by a charge on the assets of the issuing
company.
2. Has an inbuilt facility of redemption.
3. Generally debenture-holders are not permitted to
surrender their debentures before maturity.
 MODES OF RAISING CAPITAL
1. Private placement basis
2. Public Issue
3. Rights Issue
Shares may also be issued –
a. at discount
b. at premium
c. Bonus shares
d. Sweat Equity and Employee Stock Options
Raising loan capital –
- Debenture holder is provided with a copy of annual report of the
company
- Debenture holder cannot have voting rights
- Can sue the company for recovery of amounts payable on the
debenture
 DIVIDEND
- Dividend defined under section 2(35) of the Companies Act, 2013, includes
any interim dividend.
- Dividend means distribution of any sums to Members out of profits and
wherever permitted out of free reserves available for the purpose.
-Dividend is the profit earned by a company and belongs to the company and
not the shareholders.
- Dividend is the payment made to the shareholder as return for his
investment in share capital.
- Dividend can only be paid out of profit and not capital of the company

-Payment of dividend is subject to the recommendations of the Board and

approval of the same by shareholders.
- Dividends once declared becomes the debt due.

- A Company not having adequate profit in a year may propose to declare

dividend out of the accumulated profits earned during the previous year and
transferred to its reserves.
With a view to issue shares to the general public a prospectus
containing some false information was issued by a company.
Mr. X received copy of the prospectus from the company, but
did not apply for allotment of any shares. The allotment of
shares to the general public was completed by the company
within the stipulated period. A few months later, Mr. X
bought 2000 shares through the stock exchange at a higher
price which later on fell sharply. X sold these shares at a heavy
loss. Mr. X claims damages from the company for the loss
suffered on the ground the prospectus issued by the company
contained a false statement. Examine whether X’s claim for
damages is justified.
 BOARD OF DIRECTORS – GENERAL PRINCIPLES

 A public company should have a minimum of 3 directors and a

private company should have a minimum of 2 directors.
 First directors are mentioned in the AoA. Or subscribers to MOA
are deemed to be first directors
 Only individuals and no body corporate, association or firm can be
appointed director of a Company.
 Public Company has 3 kinds of directors – Whole time directors,
directors who retire by rotation and independent directors.
 OPC to have atleast one director
 Certain class of companies to have one woman director
 Maximum Number of Director is 15, which can be increased by
passing a special Resolution
 Every company including one person company shall have at least
one director who stays in India for a period of not less than 182
days in the previous calendar year.
 Maximum limit on total number of directorship has been fixed at
20 companies including sub limit of 10 for public companies.
 The members of a company may, by special resolution, specify
any lesser number of companies in which a director of the
company may act as director.
 POSITION OF DIRECTOR

a. Directors as agents– “ The Board of Directors of a Company

shall be entitled to exercise all such powers, and to do all such acts and
things, as the Company is authorised to exercise and do”.
- Must act in good faith.
- Must not exercise powers conferred on them for
purposes different from those for which conferred.
- Must not fetter(delegate) their discretion.
- Must not hold office or place of profit.
- Duty of skill and care.
b. Director as Trustee:
- holds a fiduciary position to the Company and not
shareholders.
 POWERS OF DIRECTORS

POWERS

Articles of Association Companies Act

- If the BoD does something which is ultra vires the powers of Board but
within the powers of Company, members may ratify the contract.
- General powers -
a. Making call on shares.
b. issue debentures.
c. borrow money otherwise than on debentures.
d. invest funds of the Company.
e. to make loans.
Rights and Duties …..Contd.

DUTIES OF DIRECTOR:
 Not to delegate work.
 Good faith.
 Reasonable care and skill.
 Duty to attend meetings.
 Duty of disclosure in any contracts proposed to be entered into by the
Company.
 Must not participate in meetings in which he has personal interest.
 LIABILITIES OF DIRECTORS

1. CIVIL LIABILITY:
- Untrue statement in prospectus.
- Ultra vires act( if dividend is paid out of capital of Co.)
- Negligence of director for which company suffers loss.
- Not accounting for secret profits.
- Breach of trust relating to property of Company.
Liability of Directors…..Contd.

2. CRIMINAL LIABILITY:

- Offences against the Act are cognizable only upon a

complaint by Registrar, shareholder or person
authorised by the Central Govt.
- Court may condone liability if it is proved beyond
doubt that director acted honestly and reasonably.
- Examples:
Failure to change name when directed by Central
Govt.,
Pvt. Co. converted to Public Co. not notified with
Registrar within 3 months.
 Every listed Company having a paid up share capital of ` 10
crore or more is compulsorily required to have a key managerial
personnel.
• The whole time key managerial personnel is to be appointed by
the Board and shall not hold office in more than one company
however he is permitted to hold such other office with the
permission of Board of the company.
• Every director or the key managerial personnel who is in
default shall be punishable with a fine which may extend to
50,000 rupees and a further fine which may be extended to 1,000
rupees for every day during which the default continues.
In January 2019, Mr. Kashyap, the managing director of K&Co.Ltd., a company engaged in
room air conditioning and refrigeration segment, was on a business tour to the Gulf countries.
While he was on his way, he met one Mr. Jayadev, a medical practitioner in Abudabi. Jayadev
invited Kashyap to his home. There he met Rajesh, an architect of high repute. Rajesh offered
Kashyap the air conditioning work of a huge multistoried building. The contract was settled at
the dinner table. Instead of entering into the contract on behalf of K & Co. Ltd., Kashyap signed
the contract as director for Ashraya Pvt. Ltd., a company engaged in the small business as a
small scale unit. The only shareholders of Ashraya Pvt. Ltd. are (i) Sunitha, the wife of
Kashyap’s brother and (ii) Suresh, her brother. Ashraya Pvt. Ltd. earned a profit of 2 crores in
the project.
 
Mr. Nanda Gopan, a shareholder of Kashyap & Co. Ltd., has instituted an action against Mr.
Kashyap and Ashraya Pvt. Ltd., for recovery of the amount. Decide.
 
Anticipating that some of the minority shareholders may launch legal proceedings against him,
Kashyap convened a general meeting wherein a resolution was passed that the company is not
interested in the air conditioning work undertaken by the private company. Examine the validity
of the resolution passed.
 MEETINGS- GENERAL PRINCIPLES
- Meeting under Company law is “an assembly of two or
more persons, properly convened and constituted, coming
together for discussion on defined topics, the transaction of
business of a common interest or some other lawful purpose,
and presided over by a properly appointed Chairman”.
- CASE LAWS:
Sharp v. Daves – “ The word meeting prima facie means
coming together of two or more persons”.
East v. Bennet – All preference shares of a company were
held by a single person. A meeting of preference shareholders
was attended by him alone.
Held – The meeting was proper.
36
“ Axa Ltd. has scheduled a Board of Directors meeting on 25th
August to consider and approve the issue of equity shares of
the Company by way of a rights issue for Rs. 50 crores.”
“ Reliance Ltd. will hold its online annual general meeting on
30th September 2020. The shareholders will be allowed to e-
vote for electing four directors from a list of five candidates -
the company said.”
“ M K Foods Ltd. has called for an extraordinary general
meeting (EGM) on February 6th to oust Mr. Cyrus from the
company’s board of directors.”
 KINDS OF MEETINGS
1.BOARD MEETING:

- Section 173 – 174 of Companies Act; Companies (Meetings of Board and its
Powers) Rules, 2014
- First Board meeting - within thirty days of the date of incorporation.
- Minimum of four Board meetings every year..
- Quorum - one third of the total strength or two directors, whichever is
higher.
- Office of the director becomes vacant if he or she absents from all Board
meetings held during twelve months.

38
Kinds of Meetings…Contd.

2. ANNUAL GENERAL MEETINGS:

- Every company to hold an Annual General Meeting and shall specify the
meeting as such in its notice calling it.
- Not more than 12 months shall elapse between the date of one AGM and the
next.
- However, Registrar may extend the time by 3 months.
- If the first AGM is held within 18 months of incorporation, it is not
necessary to hold another AGM in the next year.
- Company and every officer responsible shall be liable for default of holding
AGM.
- AGM to be held during business hours, on working days and at the
registered office of the Company.

39
Kinds of Meetings…Contd.

- Need for AGM:

1. To review the working of the management and the
Company.
2. Retirement and election of new directors.
3. Retirement of Company Auditors and appointment of new
auditors/reappointment.
4. Declaration of dividend
5. Listing of achievements and drawbacks suffered during the
year.
6. Accounts are put forth for scrutiny by shareholders.
7. Form Board plans for the working of company during the
next year.
8. Review on Corporate Governance.

40
Kinds of Meetings…Contd.

3. EXTRA-ORDINARY GENERAL MEETINGS:

- General Meeting other than AGM.
- Includes –
a. Meetings convened on requisition.
b. Class Meetings. ( shareholders’ meeting, creditors meeting,
debenture- holders’ meeting)

41
 NOTICE
- Document providing information of a specified event.
- Meeting convened without proper and valid notice makes the
transaction void.
-Contents of Notice:
a. May be oral or written.
b. Contains nature of meeting, date, time, venue, agenda and
any other relevant details.
- Notice to be signed by proper authorities.
- Period of notice – 21 days in case of AGM and in other cases
reasonable time.
-To be sent to the registered addressee.
- To be clear and unambiguous.

42
 CHAIRMAN –POWERS AND DUTIES

- May be elected either before the meeting as specified

in Articles or at the time of the meeting where
members present and voting may elect one among
themselves.
- Chairman has absolute control over the proceedings
of the meeting and is responsible for orderly conduct
of the meeting.

43
 QUORUM
-Quorum is generally fixed by the Articles.
- Where the Articles of a Company provides for a larger
number, five members personally present in case of public
company and 2 in other cases, shall constitute the quorum for
the meeting.
- If within ½ hr. of the commencement of the meeting the
quorum is not present, the meeting stands adjourned to
reassemble in the next week on the same day and time.

44
 AGENDA, RESOLUTIONS AND MINUTES

a. AGENDA:
- Matters to be discussed.
- Essential for a smooth conduct of the meeting, in an
orderly manner and to be ensured that no important
matter is left out of discussion.

45
Agenda, Resolution….Contd.

b. RESOLUTION:
- A proposal put to vote at the meetings and passed.
- Kinds of resolutions:
i. Ordinary Resolution:
- Passed by a numerical majority of members present and
voting, either personally or by proxy.
- Ordinary Resolutions are passed for transactions such as:
- Adoption of Statutory Report, Balance Sheet and Profit and
Loss Account.
- Election of Directors.
- Appointment of Auditors and fixing their remunerations.
- Declaration of dividends and sanctioning of amount which is
to be carried over to Reserve.
- Issue of shares at discount.
- Authorising the Board of a Public Co. or Private Co. which is
a subsidiary of a Public Co. to sell off the undertaking of the
Company.
46
Agenda, Resolution….Contd.

ii. Special Resolution:

- Not less than three times the number of the votes, if any, cast
against the resolution by members so entitled and voting

- Notice of 21 days that a resolution is intended to be proposed as

special resolution to be given to members.
- Business transacted by means of Special Resolution:
i. Alteration of Memorandum of Association for the purpose of
changing its registered office from one State to another.
ii. Alteration of Articles of Association.
iii. Reduction of share capital requiring Court approval (if so
authorised under Articles).
iv. Remuneration payable to directors, managing agents.
v. Voluntary Winding up.

47
Agenda, Resolution….Contd.

iii. Resolution requiring Special Notice:

- For matters contained in the provisions of the Act or
Articles of Association.
- Notice of the intention to move such resolution is given
by members holding not less than 1% voting rights or
holding shares where aggregate of INR 5 lakh is paid up
- Matters in which special notice is required:
(i) Resolution of person as auditor at AGM other than the
retiring auditor
(ii) Resolution for removal of director before term of office
and appointment of new director in place

48
Agenda, Resolution….Contd.

c. MINUTES:
-Brief Summary of events or transactions.
- Every company to cause minutes of all proceedings of every
general meeting and of all proceedings of its Board of Directors, to
be kept by making within 30 days of the conclusion of every such
meeting concerned.
- Entries to be made in books kept for the purpose and
consecutively numbered.
- Acts as evidence of the proceedings recorded therein.
- Contains names of all members present, fair and accurate
summary of the meeting, names of members voting in favour and
against a resolution….

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REPORTS

50
Reports…..Contd.

ANNUAL REPORT:

- Lays before the Company balance sheet, profit and loss

account, board’s reports, auditor’s report, Chairman’s
speech, corporate governance and due diligence report…
etc.

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 ACCOUNTS AND AUDIT
For an intelligent and purposeful control over the affairs of
the company.
Maintenance of books of account - record the specified
financial transaction
Main features of proper books of account–
(i) The company must keep the books of account
(ii) The books of account must show all money received
and expended, sales and purchases of goods and the assets
and liabilities of the company.
(iii) The books of account must be kept on accrual basis
and according to the double entry system of accounting.
(iv) The books of account must give a true and fair view of
the state of the affairs of the company or its branches.
“Books of account” - Section 2(13) includes records
maintained in respect of—
(i) all sums of money received and expended by a
company and matters in relation to which the
receipts and expenditure take place;
(ii) all sales and purchases of goods and services by the
company;
(iii) the assets and liabilities of the company; and
(iv) the items of cost as may be prescribed under section
148 in the case of a company which belongs
to any class of companies specified under that section.

- Books of Account to be maintained for a period of not

less than eight years immediately preceding the relevant
financial year.
- Books of accounts to be maintained at the registered office of
the company or such other place as the BoD may decide.
- Books may be maintained in electronic form also – to remain
accessible in India
The company shall intimate to the Registrar on an annual basis
at the time of filing of financial statement -
(a) the name of the service provider;
(b) the internet protocol address of service provider;
(c) the location of the service provider (wherever applicable);
(d) where the books of account and other books and papers are
maintained on cloud, such address as provided by the service
provider.
Financial Statement - Section 2 (40) - include

• Balance Sheet
• Profit and Loss account or Income and Expenditure
account
• Cash flow Statement
• Statement of change in equity, if applicable
• any explanatory notes annexed to or forming part of
financial statements, giving information
required to be given and allowed to be given in the form of
notes.

To give true and fair view of the company

To comply with accounting standards

- Persons responsible for compliance:
Managing Director
• Whole-Time Director
• CFO
• Other person of a company charged by the Board with the
duty of complying

Financial Statement to be provided along with Board’s report

and auditor’s report

National Authority for Financial Reporting known as National

Financial Reporting Authority (NFRA) with wide powers to
recommend, enforce and monitor the compliance of
accounting and auditing standards.
 AUDIT AND AUDITING

Section 138 –
Companies that
require internal
auditing
Section 139 – Every company to appoint auditors
in the first AGM
Auditors to be appointed for 5 years
Companies Act deals with qualification,
disqualification, term, powers and duties, rotation,
removal of auditors, penalties etc.
Audit report to take into consideration accounting
and auditing standards.
AUDITOR NOT TO RENDER CERTAIN SERVICES
(a) accounting and book keeping services;
(b) internal audit;
(c) design and implementation of any financial information
system;
(d) actuarial services;
(e) investment advisory services;
(f) investment banking services;
(g) rendering of outsourced financial services;
(h) management services; and
(i) any other kind of services as may be prescribed.
REGISTERS, FORMS AND RETURNS

Company shall maintain certain

registers and records for statutory,
statistical, disclosure, information
management/MIS purposes.
To file returns with the regulatory
authorities
Objective – systematic working
 Books to be maintained
• Register of securities bought back.
• Register of deposits.
• Register of charges.
• Register of debenture holders
• Index of members.
• Register of debenture holders
• Index of debenture holders.
• Register and index of beneficial owners.
• “Foreign register” of members, debenture holders and other security holders
• Register of Renewed and Duplicate Share Certificates.
• Register of sweat equity shares
• Annual Return
• Register of Postal Ballot
• Books containing minutes of general meeting and of
Board and of committees of Directors.
•Books of accounts.
•Register of Directors/ Key Managerial Personnel.
•Register of investments in securities not held in
company’s name.
•Register of loans, guarantees given and security provided
or making acquisition of securities
•Register of contracts with companies/firms in which
directors are interested.
- Books of account to be maintained at the registered
office.

- Maintenance of books of accounts in electronic form is

optional.
- Any director can inspect the books of accounts and other
books and papers of the company during business hours.
CORPORATE SOCIAL RESPONSIBILITY – Section135

-Composition of Committee to be included in Board’s Report

CSR Policy is expected to normally cover following core
elements:
(a) Care for all stakeholders
(b) Ethical functioning
(c) Respect for workers' rights and welfare
(d) Respect for human rights
(e) Respect for environment
(f) Activities for social and inclusive development
Applicability –

-Net worth of INR 500 crores or more or

-Turnover of INR l,000 crores or more or
-Net profit of INR 5 crores or more during any financial year
-To constitute a CSR Committee of Board comprising of 3 or more
directors, one of whom shall be an independent director.
-3 or more directors out of which one is an independent director
Unlisted public company or a private company which is not
required to appoint an independent director shall have its CSR
Committee without independent director.
A private company having only two directors on its Board shall
constitute its CSR Committee with two such directors.
 INSPECTION AND INVESTIGATION
• Registrar or inspectors or Serious Fraud
Investigation Officer given extensive
powers to investigate
• Books of account to be open for inspection
during business hours
• Inspector to submit a copy of inspection to
the Central Government
Kinds of investigation:
1. Investigation of the affairs of the company if its necessary
to investigate into the affairs of the company in public
interest
2. Investigation of the affairs of related companies
3. Investigation about the ownership of a Company
4. Investigation of foreign companies
5. Investigation by Serious Fraud Investigation Office
directed by Central government
6. Investigation on the order of Tribunal.
• Companies Act, 2013 provides for investigation of
companies in cases of fraudulent or unlawful activities
or oppression of minorities and mismanagement
• Central Government is empowered to appoint
investigating officers
• Based on the report of the investigator, the Central
Government may undertake prosecution for criminal
offence, winding up of company or relief by the court,
recovery of damages or property.
• Employees of the company under investigation, who
make disclosure during the course of investigation, are
protected against dismissal, discharge, removal, etc.
In Re. Hindustan Co-operative Insurance Society Ltd.

Life insurance business of a company was acquired by the Life Insurance

Corporation of India on payment of compensation. The directors, who had
the majority voting power, refused to distribute this amount among
shareholders, rather they passed a special resolution changing the objects of
the company to utilise the compensation money for the new objects.
This was held to be an “Oppression”.
Observed: “The majority exercised their authority wrongfully, in a manner
burdensome, harsh and wrongful. They attempted to force the minority
shareholders to invest their money in different kind of business against their
will. The minority had invested their money in a life insurance business with
all its safeguards and statutory protections. But they were being forced to
invest where there would be no such protections or safeguards”.
 WINDING UP
 Halsburry's Laws of England, “Winding up is a proceeding by
means of which the dissolution of a company is brought about
& in the course of which its assets are collected and realised;
and applied in payment of its debts; and when these are
satisfied, the remaining amount is applied for returning to its
members the sums which they have contributed to the company
in accordance with Articles of the Company.”
 Winding up is a legal process.
Section 2(94A) of the Companies Act 2013
Winding up" means winding up under this Act or
liquidation under the Insolvency and Bankruptcy
Code, 2016, as applicable.
"Winding up" means winding up under this Act or
liquidation under the Insolvency and Bankruptcy
Code, 2016, as applicable.
Section 361 of the Companies Act and Part III of the Companies (Winding Up)
Rules, 2020

(a) Company which has taken deposit and total outstanding deposits does not
exceed twenty five lakh rupees; or
(b) total outstanding loan including secured loan does not exceed fifty lakh
rupees; or
(c) company’s turnover is upto fifty crore rupees; or
(d) company’s paid up capital does not exceed one crore rupees.
Circumstances in Which Company May be Wound Up by Tribunal
(a) by special resolution, resolved to wind up the company by the Tribunal;
(b) if the company has acted against the interests of the sovereignty and
integrity of India, the security of the State, friendly relations with foreign
States, public order, decency or morality;
(c) if on an application made by the Registrar or any other person
authorised by the Central Government by notification under this Act, the
Tribunal is of the opinion that the affairs of the company have been
conducted in a fraudulent manner
(d) if the company has made a default in filing with the Registrar its
financial statements or annual returns for immediately preceding five
consecutive financial years; or
(e) if the Tribunal is of the opinion that it is just and equitable that the
company should be wound up.".
Global Life Science Ltd. was incorporated in 2014 at Chennai. The company filed
its financial statements and annual returns in its first year of its incorporation.
However, in 2015, two of its directors, Ajith and Vijay relocated to the US and the
third director Mohan relocated to Delhi. The company has neither filed its
financial statements nor annual returns in the last six years. Can the Registrar of
Companies approach the Central Government to accord sanction to present a
petition to the Tribunal for winding up process.

YES
According to Section 271 of the Companies Act, 2013, one of the reasons for winding
up of company by Tribunal is if the company has failed to file its financial statements
or annual returns with Registrar for immediately preceding five consecutive years.
Petition for winding up shall be presented by—

(a) the company;

(b) any contributory or contributories;

(c) all or any of the persons specified in clauses (a) and (b);

(d) the Registrar;

(e) any person authorised by the Central Government in that behalf; or

(f) in a case falling under clause (b) of section 271, by the Central Government or a State

Government