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About the authors I-5Preface to the Twenty-First Edition I-7
Preface to the First Edition I-9Chapter-heads I-11Section-wise Index I-55Key Highlights of Companies (Amendment) Bill, 2016 I-63
1HISTORY OF COMPANY LEGISLATION
1.1 History of company legislation in India 1TEST YOUR KNOWLEDGE 4
2MEANING AND NATURE OF A COMPANY
2.1 What is a company ? 52.2 Definition of a company 62.3 Characteristic features of a company 6
2.3-1 Incorporated association 62.3-2 Legal entity distinct from its members 62.3-3 Artificial person 102.3-4 Limited liability 102.3-5 Separate property 112.3-6 Transferability of shares 122.3-7 Perpetual succession 122.3-8 Common seal 12
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I-13
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2.4 Lifting the corporate veil 132.5 Advantages of incorporation 232.6 Disadvantages of incorporation 242.7 Company vis-a-vis Body corporate 25
2.7-1 Is a society registered under the Societies Registra-tion Act, a body corporate? 26
2.7-2 Corporation sole 26
2.8 Is company a citizen 26
TEST YOUR KNOWLEDGE 28
PRACTICAL PROBLEMS 28
3KINDS OF COMPANIES
3.0 Introduction 293.1 Private company 29
3.1-1 Restrictions on transferability of shares 303.1-2 Limitation on number of members 313.1-3 Restriction on inviting public to subscribe for securi-
ties 31
3.1-4 Other requirements relating to a private company 31
3.1A Special privileges and exemptions available to private compa-nies 32
3.1B One Person Company 34
3.1C Small Company 37
3.2 Public company [Section 2(71)] 38
3.3 Distinction between private and public company 38
3.4 Conversion of a private company into a public company 39
3.5 Conversion of a public company into a private company 40
3.6 Statutory company 40
3.7 Registered companies 41
3.8 Limited liability companies 41
3.8-1 Companies limited by shares 41
3.8-2 Companies limited by guarantee 41
3.8-3 Companies limited by guarantee having share capital 42
3.9 Unlimited liability company 42
PAGE
CONTENTS I-14
3.10 Associations not for profit [Section 8] 433.10-1 Alteration of Memorandum and Articles of Associa-
tion 443.10-2 Partnership Firm may become Member 443.10-3 Conversion of a company formed under section 8 into
any other kind 453.10-4 Exemptions 45
3.11 Government companies 463.11-1 Exemptions 50
3.12 Foreign company 503.12-1 Special provisions relating to foreign companies 513.12-2 Other obligations of a foreign company (Section 382)
- A foreign company is further bound by the follow-ing obligations 52
3.13 Holding and subsidiary companies 593.14 Public financial institutions [Section 2(72)] 603.15 Producer Companies 63
3.15-1 Overview of the provisions 633.15-2 Incorporation of Producer Companies 643.15-3 Objects of a Producer Company 643.15-4 Formation of Producer Company and its registration
[Section 581C] 663.15-5 Memorandum of association of a producer company
shall state 673.15-6 Directors 673.15-7 Subscription to the memorandum by non-incorpo-
rated body of producer institution 683.15-8 Status of a Producer Company 683.15-9 Articles of Association [Section 581G] 683.15-10 Registration of Producer Company 703.15-11 Amendment of Memorandum and Articles of Asso-
ciation of a producer company 713.15-12 Benefits to Members [Section 581E] 723.15-13 Voting rights of members of a producer company 723.15-14 Membership and conflicting business interest 733.15-15 Inter-State Cooperative Societies can become Pro-
ducer Company [Sections 581J-581N] 733.15-16 Transformation of inter-State co-operative society into
producer company 753.15-17 Officers and other employees of the society [Section
581N] 77
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I-15 CONTENTS
3.15-18 Directors of the society 773.15-19 Transfer of existing benefits, etc. on transformation 783.15-20 Appointment of Directors and their tenure [Section
581P] 783.15-21 Vacation of office by directors of a producer com-
pany [Section 581Q] 783.15-22 Powers and functions of the Board [Section 581R] 803.15-23 Committee of Directors [Section 581U] 813.15-24 Meetings of the Board and Quorum [Section 581V] 813.15-25 Liability of directors [Section 581T] 823.15-26 Chief Executive Officer (CEO) and his functions [Sec-
tion 581W] 82
3.15-27 Secretary of Producer Company [Section 581X] 83
3.15-28 General Meetings [Sections 581ZA, 581S, 581Y and581Z] 83
3.15-29 Period of Notice 85
3.15-30 Contents of the Notice and Circulation of the notice 85
3.15-31 Quorum and Voting Rights 85
3.15-32 Filing of documents following AGM with ROC [sub-section (10) of section 581ZA] 86
3.15-33 Producer institution as member 86
3.15-34 Extraordinary General Meeting on Requisition [Sec-tion 581ZA(5)] 86
3.15-35 Share capital, special rights, bonus shares, transfer andtransmission [Sections 581ZB to 581ZD and 581ZJ] 87
3.15-36 The shares of a producer company has limited trans-ferability 81
3.15-37 Issue of bonus share 88
3.15-38 Finance, Accounts and Audit [Sections 581ZE to581ZI] 88
3.15-39 Internal Audit 88
3.15-40 Duties of Auditor (Section 581ZG specifies duties ofthe auditor of a producer company and the sameshould not be mixed up with duties of internal audi-tors) 88
3.15-41 Donation or subscription by producer company 89
3.15-42 General and Other Reserves 89
3.15-43 Loans to Members and Investments [Sections 581ZKand 581ZZ] - Loans and Advances 90
PAGE
CONTENTS I-16
3.15-44 Register of investments [Section 581ZL(7) & (8)] 92
3.15-45 Amalgamation, Merger or Division of Producer Com-pany [Section 581ZN] 92
3.15-46 Penalties [Section 581ZM] 95
3.15-47 Dispute Resolution [Section 581ZO] 96
3.15-48 Allied Provision 97
3.15-49 Striking off the name of producer company 97
3.15-50 Reconversion of a Producer Company to inter-StateCo-operative Society [Sections 581ZS and 581ZT] 98
3.15-51 Power of the Central Government to modify the pro-visions of the Companies Act, 1956 in their applica-tion to Producer Company [Section 581ZT] 99
3.16 Illegal Association [Sec. 464] 99
3.16-1 Exceptions 99
3.16-2 Effects of an illegal association 100
3.17 Unregistered Companies [Section 375] 101
TEST YOUR KNOWLEDGE 101
PRACTICAL PROBLEMS 102
4FORMATION AND INCORPORATION OF A COMPANY
4.1 Promotion 105
4.1-1 Who is a promoter 105
4.1-2 When promotion begins and ends 107
4.1-3 Legal position of a promoter 107
4.1-4 Duties of promoters 108
4.1-5 Remedies available to the company against the pro-moter for breach of his duties 110
4.1-6 Liability of promoters 112
4.1-7 Remuneration of promoters 113
4.1-8 Pre-incorporation contracts 113
4.2 Registration/Incorporation of a company 115
4.2-1 Procedure for registration/incorporation of a com-pany : Important Steps 116
4.3 Integrated Process for incorporation 119
4.4 Certificate of incorporation 120
PAGE
I-17 CONTENTS
4.4A Effect of certificate of incorporation 121
4.4B Conclusiveness of certificate of incorporation 121
4.5 Commencement of business 122
TEST YOUR KNOWLEDGE 122
PRACTICAL PROBLEMS 123
5MEMORANDUM OF ASSOCIATION
5.1 Meaning and importance 124
5.2 Memorandum of Association - Whether an unalterable charter 124
5.3 Form and contents 125
5.3-1 The name clause [Section 4(1)(a)] 127
5.3-2 The registered office clause [Section 4(1)(b)] 131
5.3-3 The objects clause [Section 4(1)(c)] 132
5.3-4 Doctrine of ultra vires 132
5.3-5 Liability clause [Section 4(1)(d)] 136
5.3-6 The capital clause [Section 4(1)(e)] 136
5.3-7 Name of a nominee in case of ‘One Person Company’[Section 4(1)(f)] 137
5.3-8 The association or subscription clause [Section 4(1)(e)] 137
5.4 Alteration of memorandum 138
5.4-1 Change of name 138
5.4-2 Change of registered office 141
5.4-3 Change in Objects Clause 143
5.4-4 Change in Liability Clause 144
5.4-5 Alteration of Capital Clause 145
TEST YOUR KNOWLEDGE 146
PRACTICAL PROBLEMS 147
6ARTICLES OF ASSOCIATION
6.1 Introduction 149
6.2 Memorandum and articles - Their relationship 149
6.3 Distinction between memorandum of association and articlesof association 151
PAGE
CONTENTS I-18
6.4 Contents 151
6.4-1 Provisions for Entrenchment 151
6.4-2 Regulations required in case of unlimited company,company limited by guarantee and private companylimited by shares 153
6.5 Model form of articles 153
6.6 Signing of articles 153
6.7 Alteration of articles 154
6.7-1 Limitation on power to alter articles 155
6.7-2 What amounts to alteration of articles 158
6.7-3 Effect of altered articles 159
6.7-4 Procedure for alteration of articles of association 159
6.8 Binding effect of memorandum and articles 160
6.8-1 Members bound to the company 160
6.8-2 Company bound to members 161
6.8-3 Members bound to members 162
6.8-4 Whether company or members bound to outsiders 163
6.8-5 Whether Directors are bound by whatever is con-tained in the articles 164
6.9 Doctrine of constructive notice 164
6.10 Doctrine of indoor management 165
TEST YOUR KNOWLEDGE 168
PRACTICAL PROBLEMS 169
7PROSPECTUS
7.1 Steps which are necessary before the issue of Prospectus 171
7.2 Meaning and definition of a prospectus 171
7.3 Contents of a prospectus 174
7.3-1 Information to be given in a Prospectus 174
7.3-2 Reports to be set out in the Prospectus 175
7.3-3 Declaration 176
7.3-4 Other Matters 176
7.3-5 Statement of an Expert included in a Prospectus 176
7.3-6 Penalty for non-compliance 177
7.3-7 Exemptions 177
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I-19 CONTENTS
7.3-8 Variation in terms of contract or objects in prospec-tus (Section 27) 177
7.3-9 Offer of sale of shares by certain members of com-pany (Section 28) 178
7.4 SEBI Regulations relating to prospectus 1787.5 Draft Prospectus to be made public 1797.6 Abridged Form of Prospectus 1807.7 Is issue of prospectus (including abridged prospectus) compul-
sory/when prospectus is not required to be issued 1817.7A Statutory requirements in relation to a prospectus 181
7.7A-1 Dating of prospectus 181
7.7A-2 Registration of prospectus 181
7.7A-3 When Registrar shall refuse registration of a prospec-tus 182
7.7A-4 Penalty 182
7.8 Prospectus by implication/Deemed prospectus [Section 25] 182
7.8-1 Additional requirements relating to deemed prospec-tus 183
7.9 Shelf Prospectus and Information Memorandum [Section 31] 183
7.10 Red-herring prospectus [Section 32] 184
7.11 Mis-statements in a prospectus and their consequences 185
7.11-1 What is an untrue statement/mis-statement ? 185
7.11-2 Remedies for mis-statement in a prospectus 187
7.11-3 Civil Liability 187
7.11-4 Criminal Liability 188
7.11-5 Liability under section 36, i.e., Punishment for fraudu-lently inducing persons to invest money 188
7.11-6 Class Action Suit/Action by Affected Persons (Sec-tion 37) 189
7.12 Golden Rule for framing of Prospectus 1897.13 Allotment of shares in fictitious names prohibited [Section 38] 1907.14 Announcement regarding proposed issue of capital 190TEST YOUR KNOWLEDGE 191PRACTICAL PROBLEMS 191
8ACCEPTANCE OF PUBLIC DEPOSITS
8.1 Meaning of deposits 194
PAGE
CONTENTS I-20
8.2 Acceptance of deposits 1968.2-1 Acceptance of Deposits from Members 1968.2-2 Acceptance of Deposits from Public 1988.2-3 Rescheduling repayment of Deposits - Whether
allowed 201
8.2-4 Deposits accepted before commencement of the Com-panies Act, 2013 201
TEST YOUR KNOWLEDGE 202
9SHARE AND SHARE CAPITAL
9.1 Meaning and nature of a share 2039.1-1 Meaning 2039.1-2 Nature of a share 203
9.2 Share v. Share certificate 2059.3 Share v. Stock 2069.4 Kinds of shares 206
9.4-1 Preference Shares or Preference Share Capital 2079.4-2 Types of Preference Shares 2089.4-3 Equity shares [Section 43] 2109.4-4 Preference shares compared with equity shares 2119.4-5 Non-voting shares 2119.4-6 Par Value of Shares 2119.4-7 Global Depository Receipts [Section 41] 211
9.5 Raising of capital/Issue of shares 2129.5-1 Private placement of shares 2129.5-2 By an offer for sale 2139.5-3 By inviting public through prospectus 2139.5-4 Issue of shares to existing shareholders 213
9.6 Public issue of shares 2149.6-1 Book Building 2149.6-2 SEBI (Issue of Capital and Disclosure Requirements)
Regulations, 2009 with respect to public issue ofequity shares or any other security convertible intoequity shares General Conditions 214
9.7 Employees’ Benefits Schemes 2409.7A Employees Stock Option Scheme [ESOS] 2409.7B Employee Stock Purchase Scheme [ESPS] 2429.7C Stock Appreciation Rights Scheme (SARS) 242
PAGE
I-21 CONTENTS
9.8 Book Building 2439.9 SEBI Regulations for Preferential Issue 2499.10 Allotment of shares 255
9.10-1 Meaning of allotment 255
9.10-2 General principles regarding allotment 255
9.10-3 Statutory provisions regarding allotment 258
9.11 Jurisdictions of the Court 260
9.11A Allotment of shares for consideration other than cash 260
9.11B Allotment of shares in contravention of Established Procedure 261
9.12 Allotment of shares to a charitable institution by way of dona-tion - Whether allowed 261
9.13 Return as to allotment 261
9.14 Underwriting 262
9.14-1 Meaning of underwriting 262
9.14-2 Sub-underwriting 263
9.15 Brokerage 263
9.16 Buy-back/Purchase of its own shares by a company 264
9.16-1 Sources to Buy-Back 264
9.16-2 Conditions for buy-back 264
9.16-3 Benefits/Objectives underlying buy-back of shares 266
9.16-4 SEBI Regulations : SEBI (Buy-back of Securities) 267
9.16-5 Penalty 270
9.16-6 Prohibition for buy-back in certain circumstances[Section 70] 270
9.16-7 Giving of Loan/Financial Assistance Prohibited 271
9.17 Issue of securities at a premium 272
9.18 Issue of shares at a discount 274
9.19 Issue of sweat equity shares [Section 54] 274
9.19-1 SEBI Regulations with respect to Sweat Equity 276
9.20 Share certificate [Section 56] 278
9.20-1 Time of issue of share certificate [Section 56] 278
9.20-2 Object and effect of share certificate [Section 46] 279
9.21 Issue of duplicate share certificate [Section 46] 280
9.22 Rights shares/Further issue of capital [Section 62] 281
9.22-1 Further allotment out of unsubscribed portion of capi-tal 282
PAGE
CONTENTS I-22
9.22-2 SEBI regulations regarding rights issues [w.e.f. 26-8-2009 as amended up to 1-9-2014] 283
9.22-3 Duty of transferor to transferee in respect of rightsshares 285
9.22-4 Allotment to renouncee 285
9.22-5 Procedure for issue of rights shares 285
9.23 Conversion of loans or debentures into shares 287
9.23-1 Share Capital to Stand Increased 288
9.24 Bonus shares 288
9.24-1 SEBI Regulations, 2009 for issue of bonus shares 289
9.25 Distinction between bonus shares and rights shares 290
9.26 Reduction of share capital 290
9.26-1 Procedure for reduction of capital 291
9.26-2 Reduction of share capital without the sanction of theTribunal 292
9.26-3 Reduction of Capital v. Diminution of Capital 293
9.27 Calls on shares 293
9.27-1 Requisites of a valid call 294
9.27-2 Payment of calls otherwise than in cash 295
9.27-3 Payment of calls in advance 296
9.27-4 Interest on calls due but not paid 296
9.27-5 Quantum and Interval between two calls 296
9.28 Forfeiture of shares 296
9.28-1 Forfeiture of fully paid shares 299
9.28-2 Effect of forfeiture 299
9.28-3 Re-issue of forfeited shares 300
9.28-4 Annulment of forfeiture 301
9.29 Surrender of shares 301
9.30 Transfer of shares 301
9.30-1 Time within which transfer must be registered 302
9.30-2 Power of the Board of directors to refuse registrationof transfer of shares 303
9.30-3 Procedure of transfer 304
9.31 Blank transfer 305
9.31-1 Ills associated with blank transfers 306
9.32 Transfer of partly-paid shares 306
PAGE
I-23 CONTENTS
9.33 Transfer of shares held in joint names 3069.34 Transfer when complete 3069.35 Right of transferees pending registration of transfer
[Section 126] 3079.36 Notice of refusal 307
9.36-1 Returning back the documents 3089.36-2 Retention of certificates 308
9.37 Appeal against refusal to register transfer 3099.38 Transfer of shares on the basis of pre-incorporation transfer
deeds 3119.39 Transfer of shares after winding-up - Whether valid 3129.40 Transfer of shares under Depository System 3129.41 Transfer of shares in favour of pledgee 3139.42 Transfer of shares by way of gift 3139.43 Forged transfer 313
9.43-1 Consequences of forged transfer 3139.44 Priority between transferees 3149.45 Transmission of shares and debentures 3149.46 Distinction between transfer and transmission 3169.47 Nomination of shares and debentures 3169.48 Secretarial practice/Steps with regard to registration of trans-
fer of shares 3169.49 Transfer by legal representative 3189.50 Lien on shares 3199.51 Lien and forfeiture compared 3209.52 Variation of shareholders’ rights 320
9.52-1 Can equity shares already issued be converted intoredeemable preference shares ? 321
9.52-2 Can redeemable preference shares be converted intoconvertible preference shares ? 321
TEST YOUR KNOWLEDGE 321PRACTICAL PROBLEMS 324
10MEMBERSHIP
10.1 Definition of a member 329
10.1-1 Can purported promise to convert loan into shares bea ground for rectification of Register of members? 330
PAGE
CONTENTS I-24
10.2 Member v. Shareholder 330
10.3 Modes of acquiring membership 331
10.3-1 By subscribing to the memorandum of association 331
10.3-2 By agreement and registration 331
10.3-3 By agreeing to purchase qualification shares 332
10.3-4 Can legal heirs of a deceased shareholder be regardedas members for the purpose of filing a petition forprevention of oppression and mismanagement undersections 397-398 [Now section 241] ? 332
10.4 Who may become a member 333
10.4-1 Minor 333
10.4-2 Company 334
10.4-3 A partnership firm 334
10.4-4 A foreigner 335
10.4-5 Receiver/Official Liquidator 335
10.4-6 Can a public office be registered as a member 335
10.4-7 Societies registered under the Societies RegistrationAct, 1860 336
10.4-8 Can shares be held in the name of a trade union ? 336
10.4-9 Joint membership 336
10.4-10 Hindu undivided family 337
10.5 Termination of membership 337
10.6 Impersonation as a shareholder 338
10.7 Rights of a member/shareholder 338
10.7-1 Contractual and other Rights 339
10.7-2 Statutory Rights 339
10.7-3 Other Rights 33910.8 Duties and Liability of members 34110.9 Member v. Contributory 34210.10 Expulsion of a member 342TEST YOUR KNOWLEDGE 344PRACTICAL PROBLEM 344
11REGISTERS AND RETURNS
11.1 Introduction 34511.2 Statutory books to be kept by a company 345
PAGE
I-25 CONTENTS
11.3 Optional books 34511.4 Register of Charges [Section 85] 34611.5 Register of members/debentureholders 347
11.5-1 Register of Members/Debenture-holders and Indexof Members/Debenture-holders, etc. [Section 88] 347
11.5-2 Foreign Register 348
11.5-3 Penalty 348
11.5-4 Shares held in Trust 348
11.5-5 Inspection of Register of Members, etc. [Section 94] 348
11.6 Register of Investments not held in company’s name [Section187] 349
11.7 Register of fixed deposits [Section 73] 349
11.8 Books of account 349
11.8-1 Place of maintenance of books of account 349
11.8-2 Inspection of books of account, etc. of companies 350
11.8-3 Period for which books of account to be preserved 350
11.9 Register of contracts or arrangements in which directors areinterested [Section 189] 350
11.9-1 Entries in the register 351
11.9-2 Place of keeping and inspection of the register 351
11.9-3 Period for which register to be preserved 351
11.9-4 Filing of particulars 351
11.9-5 To be produced at general meeting 351
11.9-6 Exemptions 351
11.9-7 Penalty 351
11.10 Register of Directors and Key Managerial Personnel and theirshareholding [Section 170] 352
11.10-1 Filing of Return with the Registrar 353
11.10-2 Can the register be kept in loose-leaf form ? 353
11.11 Register of Loans and Investments by company [Section 186] 353
11.12 Minutes book 354
11.12-1 Inspection of minute-books of general meeting [Sec-tion 119] 356
11.12-2 Signing of minutes of board meetings 356
11.12-3 Minutes kept in a loose-leaf form 357
PAGE
CONTENTS I-26
11.13 Annual return [Section 92] 357
11.13-1 Signing of the Annual Return 358
11.13-2 Place of keeping 358
11.14 Return of allotment [Section 39] 358
11.15 Place of keeping and inspection of registers, returns, etc. [Sec-tion 94] 359
11.15-1 Period for which the registers, returns and recordsare required to be kept 359
11.15-2 Inspection of registers and returns [Section 94] 360
11.15-3 Penalty 360
11.15-4 Power of the Central Government to order inspection 360
11.15-5 Registers, etc., to be evidence 360
TEST YOUR KNOWLEDGE 360
PRACTICAL PROBLEMS 361
12INVESTMENTS, LOANS, BORROWINGS
AND DEBENTURES
12.1 Investments 364
12.1-1 Meaning of ‘investments’ 364
12.1-2 Investments to be held in company’s own name 364
12.1-3 Investments in other companies and bodies corpo-rate/Inter-corporate loans and investments 366
12.2 Implied power to borrow ? 369
12.2-1 Exercise of borrowing powers 369
12.2-2 Temporary loans 369
12.2-3 Ultra vires borrowings 369
12.2-4 Charges under the Companies Act, 2013 371
12.2-5 Registration of charges [Section 77] 373
12.2-6 Register of charges to be kept by Registrar [Section 81] 375
12.2-7 The memorandum of satisfaction [Sections 82 and 83] 375
12.2-8 Rectification by Central Government in register ofcharges [Section 87] 376
12.2-9 Company’s register of charges [Section 85] 37612.2-10 Modification of charges 377
PAGE
I-27 CONTENTS
12.3 Debentures 37712.3-1 Meaning and definition 37712.3-2 Characteristic features of a debenture 37812.3-3 Debenture stock 37812.3-4 Distinction between ‘shareholder’ and ‘debenture-
holder’ 378
12.3-5 Issue of debentures 379
12.3-6 Kinds of debentures 383
12.3-7 Debenture trust deed 385
12.3-8 Rights/Remedies of debenture-holders 388
12.3-9 SEBI Regulations, 2009 pertaining to convertible debtinstruments 389
TEST YOUR KNOWLEDGE 391
PRACTICAL PROBLEMS 392
13DIVISIBLE PROFITS AND DIVIDEND
13.1 Meaning of Dividend 396
13.2 Concept of Profit 397
13.3 Profits v. Divisible Profits 397
13.3-1 Meaning of Divisible Profits 397
13.3-2 ‘Profits available for Distribution’ v. ‘Profits availablefor dividend’ 397
13.4 Sources out of which dividends may be paid 398
13.4-1 Out of current profits 398
13.4-2 Out of past reserves 398
13.4-3 Monies provided by Government 399
13.4-4 Depositing dividend declared in a scheduled bank ina separate account 399
13.5 Provision for depreciation 399
13.6 Declaration of dividend on preference and equity shares 399
13.6-1 Dividend on preference shares 400
13.6-2 Dividend on equity shares 401
13.6-3 Interim dividend 402
13.7 Payment of dividend 403
13.7-1 Dividend payable to whom 403
PAGE
CONTENTS I-28
13.7-2 Dividend is to be paid in cash 40313.7-3 Time within which dividends to be paid 404
13.8 Dividend warrants 40513.9 Dividend mandate 40513.10 Unpaid and unclaimed dividends 406
13.10-1 Unpaid dividends 40613.10-2 Transfer of unpaid dividend to Investor Education and
Protection Fund [Fund] 40713.11 Establishment of Investor Education and Protection Fund
[Section 125] 40713.12 Can dividends be paid out of capital ? 40913.13 Payment of dividend out of capital profits 410TEST YOUR KNOWLEDGE 414PRACTICAL PROBLEMS 416Annex 13.1 Specimen resolutions 417
14COMPANY MANAGEMENT
14.1 Meaning of a Director 41814.2 Who may be appointed as a Director ? 41914.3 Qualifications for Directors 41914.4 Disqualifications of a Director 41914.5 Legal position of directors 421
14.5-1 Directors as agents 42114.5-2 Directors as trustees 42214.5-3 Directors as managing partners 42214.5-4 Are directors employees of the company? 422
14.6 Full time v. Part time Director 42314.7 Appointment of Directors 424
14.7-1 Appointment of first directors [Section 152] 424
14.7-2 Appointment of directors at general meeting 425
14.7-3 Deemed re-appointment of a retiring director [Sec-tion 152] 426
14.7-4 Rotational and non-rotational directors vis-a-visprivate company 426
14.7-5 Appointment of a director other than a retiring direc-tor [Section 160] 427
14.7-6 Appointment by Board of directors [Section 161] 428
PAGE
I-29 CONTENTS
14.8 Resident Director 430
14.9 Independent Director 431
14.9-1 Who is an Independent Director 431
14.9-2 Selection of Independent Director 432
14.9-3 Manner of Appointment 433
14.9-4 Re-appointment 434
14.9-5 Remuneration 434
14.9-6 Resignation or Removal 434
14.9-7 Separate Meetings 434
14.9-8 Evaluation Mechanism 434
14.9-9 Term of office 435
14.9-10 Liability of Independent Directors 435
14.9-11 Compliance with the Company’s Code of Conduct 435
14.10 Appointment of directors by proportional representation[Section 163] 437
14.10-1 Single transferable vote 437
14.10-2 Cumulative voting 439
14.11 Appointment of Directors by third parties (Nominee Directors) 439
14.12 Assignment of office by Director [Section 166] 441
14.13 Minimum and maximum number of directors 442
14.14 Appointment of woman director on the Board 442
14.15 Appointment of director elected by small shareholders [Sec-tion 151] 443
14.16 Number of directorships 444
14.17 Vacation of office of a director [Section 167] 445
14.18 Removal of a director 446
14.18-1 Removal by shareholders 446
14.18-2 Removal by Tribunal [Section 242] 448
14.19 Resignation by a Director 449
14.20 Validity of the acts of a director where his appointment is invalid [Section 176] 451
14.21 Powers of the Board of Directors 451
14.21-1 Restrictions on powers of directors 455
14.22 Political contributions by Directors [Section 182] 456
14.22-1 Meaning of Political Contribution 456
14.23 Related party transactions [Section 188] 458
PAGE
CONTENTS I-30
14.24 Interested Directors 461
14.24-1 Disclosure of interest 462
14.25 Duties of Directors 462
14.25-1 Statutory duties 462
14.25-2 General duties 464
14.26 Liabilities of Directors 466
14.26-1 Liability to the company 466
14.26-2 Liability to third parties 467
14.26-3 Liability for breach of statutory duties 468
14.26-4 Liability for acts of co-directors 468
14.26-5 Criminal liability 469
14.27 Loans to Directors 469
14.28 Remuneration of Directors (Managerial Remuneration) 470
14.28-1 Meaning of managerial remuneration 471
14.28-2 Directors’ entitlement to remuneration 471
14.28-3 Manner of payment of managerial remuneration 471
14.28-4 Sitting Fees 472
14.28-5 Overall limits to managerial remuneration 472
14.28-6 Determination of managerial remuneration 472
14.28-7 Individual ceiling on managerial remuneration 473
14.28-8 Remuneration payable to an Independent director 473
14.28-9 Refund of excess remuneration 473
14.28-10 Additional remuneration from subsidiary 474
14.28-11 Private companies 474
14.28-12 Managerial remuneration vis-a-vis Schedule V 474
14.28-13 Perquisites not included in managerial remuneration 476
14.28-14 Remuneration payable to a managerial person in twocompanies 477
14.28-15 Meaning of effective capital 477
14.29 Managing Director and other Key Managerial Personnel 477
14.29-1 Meaning of Managing director 477
14.29-2 Managing director - Whether an employee 478
14.29-3 Meaning of Key Managerial Personnel 478
14.29-4 Appointment of managing director 478
14.29-5 Approval of the Central Government 479
PAGE
I-31 CONTENTS
14.29-6 Number of companies of which one person may beappointed Managing Director/Key Managerial Per-sonnel 480
14.29-7 Filling of vacancy in the office of whole-time keymanagerial personnel 481
14.29-8 Tenure of appointment 481
14.29-9 Remuneration 481
14.29-10 Disqualifications 481
14.30 Manager 482
14.30-1 Meaning 482
14.30-2 Disqualifications of a manager 483
14.30-3 Number of companies a person can be appointedmanager 483
14.30-4 Remuneration of manager [Section 197] 483
14.31 Prohibition of simultaneous appointment of different catego-ries of managerial personnel [Section 196] 483
14.32 Distinction between managing director and manager 483
14.33 Whole time director 484
14.34 Procedure for appointment of managing director/whole timedirector/manager 484
TEST YOUR KNOWLEDGE 485
PRACTICAL PROBLEMS 488
15COMPANY SECRETARY AND PRACTISING
COMPANY SECRETARY
15.1 Definition of company secretary/secretary 49415.2 Appointment of whole-time company secretary 494
15.2-1 Compulsory appointment of a whole-time companysecretary 494
15.2-2 Manner of appointment of whole-time company sec-retary 495
15.2-3 Whole-time company secretary not hold office in morethan one company 495
15.2-4 Vacation of office of the whole-time company secre-tary 495
15.2-5 Penalty 49515.3 Procedure for appointment 495
PAGE
CONTENTS I-32
15.4 Position of company secretary 49615.5 Duties of secretary 498
15.5-1 General duties 498
15.5-2 Statutory duties 498
15.6 Liabilities of company secretary 499
15.6-1 Statutory liabilities 499
15.6-2 Contractual liabilities 502
15.7 Functions of company secretary [Section 205] 502
15.8 Secretarial audit [Section 204] 50215.9 Rights of company secretary 50315.10 Role of company secretary 504
15.10-1 As statutory officer 50415.10-2 Secretary as a coordinator 50515.10-3 As an administrative officer 507
15.11 Dismissal of a company secretary 50715.12 Company secretary in practice 508
15.12-1 Who can use the designation of Secretary 50815.12-2 Who can practise 50815.12-3 Who cannot practise 50915.12-4 Can a firm practise 50915.12-5 Areas of practice 51015.12-6 Certificate of practice 51115.12-7 Cancellation of certificate of practice 511
15.12-8 Restoration of Certificate of Practice 512
15.12-9 Company secretary not to engage in any other busi-ness or occupation 512
15.12-10 Can a company secretary have more than one office 512
15.13 Professional misconduct 513
15.14 Quality Review Board 514
TEST YOUR KNOWLEDGE 514
Annex 15.1 The First Schedule to the Company Secretaries Act, 1980as amended in 2006 517
Annex 15.2 The Second Schedule to the Company Secretaries Act,1980 as amended in 2006 520
Annex 15.3 Resolution under Regulation 168 of the Company Secre-taries Regulations, 1982 522
PAGE
I-33 CONTENTS
16COMPANY MEETINGS-I - GENERAL
16.1 Meaning of ‘meeting’ 524
16.2 Kinds of meetings 524
16.3 Requisites of a valid meeting 525
16.4 Meeting to be properly convened 525
16.4-1 Proper authority 525
16.4-2 Proper and adequate notice 525
16.5 Meeting to be legally constituted 531
16.5-1 Chairman of a meeting 532
16.5-2 Quorum 534
16.5-3 Presence of Directors and Auditors 536
16.6 Meeting to be properly conducted 537
16.6-1 Ascertaining the sense of the general meeting 537
16.6-2 Rules in respect of voting 538
16.6-3 Passing of resolutions by postal ballot 540
16.6-4 Proxy [Section 105] 542
16.6-5 Motion, amendment, point of order 544
16.7 Resolutions 545
16.7-1 Ordinary resolution [Section 114(1)] 546
16.7-2 Special resolution 546
16.7-3 Resolutions requiring special notice 546
16.7A Validity of votes 547
16.8 Circulation of members’ resolutions [Section 111] 547
16.9 Registration of certain resolutions and agreements [Section 117] 549
16.10 Minutes [Section 118] 549
TEST YOUR KNOWLEDGE 550
PRACTICAL PROBLEMS 552
Annex 16.1 Specimen of notice, agenda, proxy, minutes, resolutions,etc. notice and agenda of annual general meeting 559
17COMPANY MEETINGS-II -
GENERAL BODY MEETINGS
17.1 Need for meetings 563
PAGE
CONTENTS I-34
17.2 Annual General Meeting (AGM) 563
17.2-1 Which companies to hold 563
17.2-2 Gap between two AGMs [Section 96] 563
17.2-3 Extension of Time 564
17.2-4 What about a situation where Annual Accounts arenot ready 564
17.2-5 Meeting beyond Statutory Time 565
17.2-6 Cancelling or postponing of convened meeting 565
17.2-7 Can a general meeting properly convened be cancelledor its holding deferred? 566
17.2-8 Day, hour and place of AGM 566
17.2-9 Can a company hold two AGMs on the same day? 566
17.2-10 Business to be transacted [Section 102] 566
17.2-11 Notice of the meeting 567
17.3 Extraordinary General Meeting (EGM) 569
17.4 Class meetings 572
TEST YOUR KNOWLEDGE 573
PRACTICAL PROBLEMS 575
18COMPANY MEETINGS-III - BOARD MEETINGS
18.1 Need for Board Meetings 578
18.2 When to hold 578
18.2-1 First Meeting 578
18.2-2 Subsequent Meetings 578
18.3 Participation of directors through video conferencing or otheraudio visual means [Section 173(2)] 579
18.4 Board meeting 581
18.4-1 Notice of Board Meeting [Section 173] 581
18.4-2 Proper authority to call meeting of Board of Direc-tors 582
18.4-3 Notice - Whom to be given 582
18.4-4 Notice to interested directors 583
18.4-5 Notice of adjourned meeting 583
18.5 Contents and Agenda of Board Meeting 583
18.6 Time and place of Board meeting 584
PAGE
I-35 CONTENTS
18.7 Quorum 58518.8 Adjournment for want of quorum 58618.9 Passing of Resolutions by Circulation [Section 175] 58718.10 Minutes of the Board meeting 58818.11 Duties of company secretary with respect to Board Meetings 593
18.11-1 Before the meeting 59318.11-2 During the meeting 59418.11-3 After the meeting 594
18.12 Chairman of Board Meetings 594TEST YOUR KNOWLEDGE 595PRACTICAL PROBLEMS 596Annex 18.1 Specimen of notice, agenda and minutes 600
19ACCOUNTS AND AUDIT
ACCOUNTS
19.1 Books of account required to be kept 60419.2 Inspection of Books of Account 606
19.2-1 Directors’ right of inspection 60719.2-2 Right of a shareholder to inspect books of account 60719.2-3 Investigation by the Serious Fraud Investigation
Office (SFIO) 60719.3 Persons responsible for keeping proper books of account [vide
sub-section (6) of section 128] 60819.4 Financial Statements 608
19.4-1 Preparation and presentation of financial statements 60919.5 Authentication of financial statements 61219.6 Can Approval of Annual Accounts be delegated? 61219.7 Filling and publication of financial results - Requirements
under SEBI (Listing Obligations and Disclosure) Regulations,2015 612
19.8 Board’s Report 61519.8-1 Directors’ Responsibility Statement 61619.8-2 Disclosures with respect to employees’ stock option
scheme 61719.8-3 Reserves and Dividends 61819.8-4 Conservation of energy, technology absorption, for-
eign exchange earnings and outgo 618
PAGE
CONTENTS I-36
19.8-5 Contracts and arrangements with related parties 619
19.8-6 Policy on directors’ appointment and remuneration 619
19.8-7 Disclosure about the number of meetings of theBoard/Committees 619
19.8-8 Notes forming part of the accounts 619
19.8-9 Additional information under the Companies(Accounts) Rules, 2014 620
19.8-10 Corporate Social Responsibility Report 620
19.8-11 Composition of Audit Committee 621
19.8-12 Other disclosures in the Board’s Report 621
19.8-13 Management Discussion and Analysis Report 621
19.8-14 Corporate Governance Report 622
19.8-15 Disclosure under the Sexual Harassment of Womenat Workplace (Prevention, Prohibition and Redressal)Act, 2013 622
19.8-16 Report to be signed by the Chairman of the Board 622
19.9 Circulation of Financial Statements 623
19.10 Adoption and filing of Financial Statements 625
19.10-1 Filing of financial statements with the Registrar 625
19.10-2 Filing of financial statements in XBRL format 626
19.11 Reporting on revised annual statements of accounts 627
19.11-1 Re-opening of accounts on Court’s or Tribunal’sorders 627
19.11-2 Voluntary revision of Financial Statements or Board’sReport 628
19.12 Accounting Standards 628
19.12-1 Convergence of Accounting Standards in India withInternational Financial Reporting System (IFRS) 630
19.12-2 National Financial Reporting Authority 633
19.13 Internal Audit 633
AUDIT
19.14 Need for audit/Objective of audit 634
19.15 Who can be appointed as an Auditor (Qualifications) 636
19.16 Who cannot be appointed as an Auditor (Disqualifications) 636
19.16-1 Disqualification due to fraudulent acts 638
19.16-2 Ceiling on Audit 639
PAGE
I-37 CONTENTS
19.17 Auditor not to render certain services 639
19.18 Appointment of First Auditors 639
19.19 Appointment of subsequent Auditors 640
19.19-1 Appointment of subsequent auditor for a Governmentcompany 641
19.20 Tenure of appointment 642
19.21 Compulsory rotation of auditors 642
19.21-1 Period for rotation 642
19.21-2 Cooling off period 643
19.21-3 Joint Audit 643
19.22 Reappointment of retiring auditor 643
19.23 Rights of retiring auditor [Section 140(4)] 644
19.24 Casual vacancy 645
19.25 Removal and resignation of an auditor 646
19.25-1 Removal before expiry of the term 646
19.25-2 Resignation of Auditor 647
19.25-3 Removal by the Tribunal 647
19.26 Remuneration of auditors 647
19.27 Status of the auditor 648
19.27-1 As an officer of the company 649
19.28 Rights of the company auditor 649
19.28-1 Right of access to books and account, etc. 649
19.28-2 Right to obtain Information or Explanation 650
19.28-3 Rights with respect to Branch Accounts 650
19.28-4 Right to sign the report 651
19.28-5 Right to receive notices, etc. 651
19.28-6 Right to attend general meeting 651
19.28-7 Right to remuneration 651
19.28-8 Auditors’ lien 652
19.29 Duties of Company Auditor 652
19.29-1 Duty to make a report under section 143 653
19.29-2 Companies (Auditors’ Reports) Order, 2016 658
19.29-3 Compliance with auditing standards 661
19.29-4 Duty to report fraud 661
19.29-5 Duty to attend general meeting 662
19.29-6 Duty to make statement in Prospectus 662
PAGE
CONTENTS I-38
19.30 Duty to produce documents and evidence 662
19.31 Duty to acquaint themselves with their duties 662
19.32 Limitation of Auditor’s duties 663
19.33 Special provisions relating to audit of Government Companies 664
19.33-1 Appointment of Auditors 664
19.33-2 Audit of Government Companies 665
19.34 Punishment for Contravention 666
19.34-1 Penalty on the company and officers in default 666
19.34-2 Penalty on the auditor 666
19.35 Audit Committee 666
19.35-1 Establishment of vigil mechanism 671
19.36 Joint audit 672
19.37 Cost audit [Section 148] 673
19.37-1 Maintenance of cost records 674
19.37-2 Appointment and remuneration of cost auditor 674
19.37-3 Report of Cost Auditor 675
19.37-4 Cost Audit to be in addition to financial audit 676
19.37-5 Appointment of a firm of cost accountants as costauditors 676
19.37-6 Cost Auditor cannot be internal auditor 676
19.37-7 Penalties 676
19.38 Secretarial audit 677
TEST YOUR KNOWLEDGE 678
PRACTICAL PROBLEMS 682
Annex 19.1 Extracts from Secretarial Standard-10 (SS-10) on Board’sReport 685
Annex 19.2 Summary of requirements for maintenance of costrecords and cost audit as prescribed under rule 3 andrule 4 of the Companies (Cost Record and Audit) Rules,2014 691
20INSPECTION, INQUIRY AND INVESTIGATION
INSPECTION
20.1 Power to call for information, inspect books and conductinquiries 694
20.2 What books and papers can be inspected? 696
PAGE
I-39 CONTENTS
20.3 Place and time of inspection 696
20.4 Duties of directors, officers, employees of the company toassist in inspection 696
20.5 Powers of the inspector 697
20.6 Supply of report 698
20.7 Inspection by Reserve Bank 698
INVESTIGATION
20.8 Investigation 699
20.9 Who can apply and the scope of investigation 699
20.9-1 On the report of Registrar or inspector 699
20.9-2 The company, by passing special resolution [Section210(1)(b)] 699
20.9-3 The Court or Tribunal, by order [Section 210(2)] 699
20.9-4 In public interest 700
20.10 Guidelines for ordering investigation into company’s affairs 700
20.10-1 Complaint for violation by SEBI - Whether a bar toinvestigation 701
20.10-2 Fraud on creditors and on the court 701
20.11 Investigation into affairs of a company by Serious Fraud Inves-tigation Office 701
20.12 Investigation into company’s affairs in other cases 702
20.13 Security for payment of costs and expenses of investigations 705
20.14 Firm, body corporate or association not to be appointed asinspector 706
20.15 Investigation of ownership of a company [Section 216] 706
20.16 Powers of inspectors 707
20.17 Report of the Inspector 710
20.18 Follow up action by the Central Government on the investiga-tion report of the inspector 710
20.19 Expenses of investigation 711
20.20 Protection of employees during investigation 711
20.21 Publication of Inspector’s Report 712
20.22 Freezing of Assets of company 712
20.23 Imposition of restrictions upon securities [Section 222] 713
20.24 Saving for legal advisors and bankers [Section 227] 713
20.25 Investigations etc. of foreign companies [Section 228] 714
20.26 Non-disclosure of information in certain cases [Section 457] 714
PAGE
CONTENTS I-40
20.27 Penalty for furnishing false statements, mutilation or destruc-tion of documents 714
20.28 Difference between Inspection and Investigation 714
20.29 Role of secretary with regard to investigation 715
TEST YOUR KNOWLEDGE 717
PRACTICAL PROBLEMS 718
21MAJORITY RULE AND MINORITY PROTECTION
21.1 Rule of majority 720
21.2 Personal rights of members 722
21.3 Representative and Derivative Action 723
21.4 Exceptions to ‘the rule in Foss v. Harbottle’ 725
21.4-1 Ultra vires and illegal acts 725
21.4-2 Breach of fiduciary duties 725
21.4-3 Fraud or oppression against minority 726
21.4-4 Inadequate Notice of a resolution passed at a meet-ing of members 727
21.4-5 Qualified majority 727
21.4-6 Where the personal rights of an individual memberhave been infringed 727
21.4-7 Statutory exceptions 727
TEST YOUR KNOWLEDGE 729
22PREVENTION OF OPPRESSION AND
MISMANAGEMENT
22.1 Application to Tribunal for relief in cases of oppression, etc. 730
22.1-1 Application to the Tribunal 730
22.1-2 Who can apply [Section 241] 731
22.1-3 Who cannot apply 739
22.2 Power of Tribunal 740
22.2-1 Conditions for relief under section 242 740
22.2-2 Relief under section 242 742
22.3 Meaning of oppression 744
22.3-1 Oppression may be past or continuing nature 747
22.3-2 Applicability of principle of dissolution of partnership 748
PAGE
I-41 CONTENTS
22.3-3 Acts held as oppressive 749
22.3-4 Acts held as not oppressive 757
22.3-5 Matrimonial differences 763
22.4 Meaning of public interest 764
22.5 Petition to contain all material facts 764
22.5-1 True scope of section 241 765
22.6 Oppression of majority 766
22.7 Limitation 767
22.8 Prevention of mismanagement 768
22.8-1 Application to Tribunal for relief in cases of misman-agement 768
22.8-2 Relief by the Tribunal 769
22.8-3 Instance of mismanagement 769
22.8-4 Conditions precedent for obtaining relief 770
22.8-5 Acts held as mismanagement 771
22.8-6 Acts held as not mismanagement 775
22.8-7 Private agreement for investment and section 241 776
22.8-8 Oppression and mismanagement and family centredCompanies 777
22.8-9 Affairs of a company include affairs of its subsidi-ary(ies) in appropriate cases 782
22.8-10 Waiver, estoppel or acquiescence by a shareholderholding 10% or more of shares in the company 783
22.8-11 Interim Order 783
22.8-12 Amalgamation of transferor company after filing ofpetition under section 241 784
22.9 Effect of ‘Arbitration clause’ in the Articles/Separate Agree-ment 784
22.10 Appeals against the orders of the Tribunal and variation of theorder of Tribunal 785
22.11 Difference between winding up proceedings and proceedingsunder sections 241 and 242 786
22.12 Composite/simultaneous petition under sections 241 and 271 -Whether maintainable 787
22.13 Powers of the Tribunal [Section 242] 788
22.13-1 Whether the provisions of the Evidence Act and Codeof Civil Procedure are applicable to proceedingsunder section 241 793
PAGE
CONTENTS I-42
22.13-2 Some more cases on oppression and mismanage-ment 795
22.14 Class Action 802
22.14-1 Who may file an application 803
22.14-2 Against whom an application may be filed 803
22.14-3 Relief under a class action 803
22.14.4 Procedure to be followed by the Tribunal 805
22.14-5 Order of the Tribunal 807
22.14-6 Differences between application under section 241/244 and class action under section 245 807
TEST YOUR KNOWLEDGE 807
PRACTICAL PROBLEMS 809
23COMPROMISES, ARRANGEMENTS,
RECONSTRUCTION AND AMALGAMATION
23.1 Meaning of compromise 813
23.2 Meaning of arrangement 813
23.3 Statutory provisions regarding compromise or arrangement 815
23.4 Exercise of the Tribunal’s discretion 819
23.5 Powers of the Tribunal 827
23.6 Information as to compromise or arrangement [Section 230] 832
23.6-1 Matter to be addressed in the Tribunal’s order [Sec-tion 230(7)] 832
23.6-2 Is consent of stock exchange necessary for a schemeunder clause 24 of Listing Agreement ? 833
23.6-3 Whether a scheme of arrangement sanctioned bythe Tribunal would prevail over parallel agreementbetween the company and a shareholder? 833
23.6-4 Financial corporations, statutory corporations andGovernment being shareholders/lenders etc. 833
23.6-5 Buy-back of shares affected under section 230 833
23.6-6 Takeover offer under section 230 834
23.6-7 Reduction of Share Capital under section 230 834
23.6-8 Debt Recovery Tribunal and the Companies Act inthe context of compromise and arrangement 834
23.6-9 Compliance with section 117 834
PAGE
I-43 CONTENTS
23.7 Reconstruction and amalgamation 834
23.8 Meaning of reconstruction 835
23.9 Meaning of amalgamation and merger 835
23.10 Difference between amalgamation and reconstruction 836
23.11 Reverse Merger 838
23.11-1 Features of Reverse Merger 839
23.11-2 Characteristics of a Shell Company 839
23.11-3 Legal Structure and Compliance 839
23.11-4 Procedure of a Reverse Merger 840
23.11A Legal provisions regarding reconstruction and amalgamation 841
23.12 Reconstruction/Amalgamation by sale of undertaking [Section232] 841
23.12-1 Effect of amalgamation 847
23.12-2 Duties of the Tribunal with respect to reconstruction/amalgamation 847
23.12-3 Amalgamation with existing company only 850
23.12-4 Synergy of operation 850
23.12-5 Compliance with the scheme 851
23.12-6 Effect on legal proceedings 851
23.12-7 Critical dates in amalgamation, mergers, etc. 852
23.12-8 Valuation of shares and fairness of exchange ratio 853
23.13 Merger and Amalgamation of certain companies [Section 233] 859
23.14 Merger or Amalgamation with foreign company [Section 234] 861
23.15 Power to acquire shares of shareholders dissenting from schemeor contract approved by majority [Section 235] 861
23.15-1 Purchase of Minority Shareholding [Section 236] 862
23.15-2 Registration of offer of schemes involving transfer ofshares 863
23.16 Amalgamation of companies in public interest [Section 237] 866
23.16-1 Saving of proceedings 868
23.16-2 Protection of members and creditors 868
23.16-3 Role of Tribunal 868
23.17 Preservation of Books and Papers of Amalgamated Company[Section 239] 869
23.18 Offences committed prior to merger, amalgamation [Section240] 869
PAGE
CONTENTS I-44
23.19 Impact of Stamp Duty on amalgamation 869
23.20 Some more cases on Compromises, Arrangements, amalgam-ations etc. 869
TEST YOUR KNOWLEDGE 877
PRACTICAL PROBLEMS 879
Annex 23.1 Salient features of SEBI (Substantial Acquisition ofShares and Takeovers) Regulations, 2011 882
24REVIVAL AND REHABILITATION OF
SICK COMPANIES
24.1 Determination of Sickness 88724.2 Measures for revival and rehabilitation 88824.3 Procedure in pursuant of the application 889
24.3-1 Appointment of interim administrator 88924.3-2 Committee of Creditors 88924.3-3 Order for Winding up proceeding 88924.3-4 Appointment of Company Administrator 890
24.3-5 Power and Duties of company administrator [Section260] 890
24.3-6 Scheme of revival and rehabilitation 890
24.4 Sanction of the scheme 891
24.5 Winding up if scheme not approved by creditors 892
24.6 Implementation of the scheme 892
24.6-1 Conclusive evidence 892
24.6-2 Transfer of property and liabilities 892
24.6-3 Binding nature of the scheme 892
24.6-4 Modification, enforcement etc. of contracts 893
24.6-5 Company administrator to implement the scheme 893
24.6-6 Sale Proceeds to be used as directed 893
24.7 Review of the sanctioned scheme 893
24.8 Liability for misfeasance etc. 893
24.9 Punishment for certain offences 894
24.10 Bar on jurisdiction 894
24.11 Rehabilitation and Insolvency Fund 894
TEST YOUR KNOWLEDGE 895
PRACTICAL PROBLEM 895
PAGE
I-45 CONTENTS
25WINDING UP
25.1 Meaning 896
25.2 Modes of winding up [Section 270(1)] 896
25.3 Winding up by the Tribunal 896
25.3-1 Inability to pay its debts [Section 271(1)(a)] 898
25.3-2 Winding up by Special Resolution [Section 271(1)(b)] 918
25.3-3 Company acting against the interests of sovereigntyand integrity of India, the security of the State, thefriendly relations with foreign states, public order,decency or morality [Section 271(1)(c)] 919
25.3-4 Failure of revival or rehabilitation of a sick companyunder Chapter XIX [Section 271(1(d)] 920
25.3-5 Company’s affairs been conducted in a fraudulent orunlawful manner etc. [Section 271(1)(e)] 924
25.3-6 Company making default in filing with the Registrarits Financial Statements or Annual returns for imme-diately preceding five consecutive financial years [Sec-tion 271(1)(f)] 925
25.3-7 Just and Equitable [Section 271(1)(g)] 925
25.4 Who can make petition [Section 272] 934
25.4-1 The Company [Section 272(1)(a)] 934
25.4-2 Creditor’s petition [Section 272(1)(b)] 934
25.4-3 Contributory’s petition [Section 272(1)(c)] 938
25.4-4 Joint petition [Section 272(1)(d)] 939
25.4-5 The Registrar [Section 272(1)(e)] 939
25.4-6 Person authorized by the Central Government [Sec-tion 272(1)(f)] 940
25.4-7 Central Government’s/State Government’s petition[Section 272(1)(g)] 940
25.4-8 Section 69 of the Indian Partnership Act and Windingup 940
25.4-9 Can a petition be made for winding up by workers’union of a company 940
25.4-10 Right of any other person to be heard 941
25.4-11 Admission of the winding up petition 941
25.4-12 Winding-up and the Arbitration and Conciliation Act,1996 945
PAGE
CONTENTS I-46
25.4-13 Procedure for making and service of the winding uppetition 946
25.5 Commencement of winding up [Section 357] 947
25.6 Procedure for winding up order 948
25.6-1 Petition 948
25.6-2 Powers of the Tribunal [Section 273] 94825.6-3 Recall of winding up order 95025.6-4 Can winding up order be passed without hearing the
company concerned 95125.6-5 Admission of winding up petition does not necessar-
ily lead to Winding up order 95125.6-6 Stay of suits etc. on winding up order [Section 279] 95125.6-7 Statement of affairs to be filed on winding up 95525.6-8 Appointment of Company Liquidator 95625.6-9 Winding up Committee 956
25.7 Consequences of winding up order 95725.7-1 Does Board of directors become functus officio when
a company is ordered to be wound up? 96225.7-2 Directors and Officers of the company to submit to
the Tribunal audited books and accounts 96225.8 Submission of report by Company Liquidator [Section 281] 96225.9 Promoters, directors etc. to cooperate with the Company
Liquidator [Section 284] 96425.10 Advisory Committee [Section 287] 964
25.10-1 Constitution and proceedings of Advisory Committee 96425.11 General powers of Tribunal in case of winding up by Tribunal 966
25.11-1 Power to stay winding up [Section 289] 96625.11-2 Settlement of list of contributories [Section 285] 967
25.11-3 Delivery of property to Company Liquidator [Section283] 968
25.11-4 Set off [Section 295] 96825.11-5 Power to make calls [Section 296] 96925.11-6 Power to adjust Rights of Contributories [Section
297] 96925.11-7 Power to order costs [Section 298] 96925.11-8 Power to Order Public Examination of Promoters,
Directors, etc. [Section 300] 96925.11-9 Power to arrest absconding person [Section 301] 970
PAGE
I-47 CONTENTS
25.11-10 Power to modify the terms and conditions afterconfirmation of sale of properties 970
25.12 Dissolution of company [Section 302] 97125.12-1 Effect of order of dissolution 971
25.13 Enforcement of and appeal from orders 97125.13-1 Enforcement of Orders [Section 424(3)] 97125.13-2 Appeals from Orders [Section 421] 972
VOLUNTARY WINDING UP
25.14 Meaning and manner of voluntary winding up 97225.15 Declaration of solvency [Section 305] 97325.16 Meeting of Creditors [Section 306] 97325.17 Commencement of voluntary winding up 97425.18 Consequences of voluntary winding up 974
25.18-1 Effect on status of company [Section 309] 97425.18-2 Board’s powers to cease [Section 313] 97425.18-3 Avoidance of transfers, etc. [Section 334] 97425.18-4 Discharge of employees 975
25.19 Appointment of Company Liquidators [Section 310(1)] 97525.19-1 Notice of appointment of Company Liquidator to be
given to ROC [Section 312] 97625.19-2 Power and Duties of Company Liquidator in volun-
tary winding up [Section 314] 97625.19-3 Appointment of Committees [Section 315] 97725.19-4 Power of Company Liquidator to accept shares, etc.
as consideration of sale of property of the company[Section 319] 977
25.19-5 Duty of the Company Liquidator to inform theIncome-tax Officer 977
25.19-6 Duty of the Company Liquidator to report progress[Section 316] 978
25.19-7 Report to the Tribunal for examination of persons forsuspected fraud [Section 317] 978
25.19-8 Final meeting and dissolution [Section 318] 978
25.19-9 Dissolution of the company 979
25.20 Liquidation and winding up distinguished 979
25.21 Arrangement when binding on company and creditors in vol-untary winding up [Section 321] 980
25.22 Application to Tribunal to have questions determined [Section322] 980
PAGE
CONTENTS I-48
25.23 Costs of voluntary winding-up [Section 323] 981
25.24 Summary procedure for Liquidation [Section 361] 981
25.24-1 Appointment of Liquidator 981
25.24-2 Report by the Official Liquidator 981
25.24-3 Realization of assets and payment of liabilities by theOfficial Liquidator 981
25.24-4 Dissolution of the Company 982
25.25 Liquidators 982
25.26 Liquidators in compulsory winding up 98225.26-1 Provisional Liquidator 98225.26-2 Appointment, removal and resignation of Company
Liquidator 98325.26-3 Advisory Committee to act with Company Liquidator 98325.26-4 Powers and Duties of Company Liquidator in com-
pulsory winding up [Section 290] 983
25.26-5 Duties of Company Liquidator in compulsory wind-ing up 986
25.27 Liquidators in voluntary winding up 988
25.27-1 Notice by Company Liquidator of his appointment[Section 312] 988
25.28 Liquidator in Summary Procedure 988
25.28-1 Powers and Function of Official Liquidator [Section360] 988
25.28-2 Official Liquidator in a summary procedure [Section361 to Section 365] 988
25.29 Provisions applicable to every mode of winding up 988
25.30 Debts of all descriptions to be admitted to proof [Section 324] 988
25.31 Application of insolvency rules in winding up of insolvent com-panies [Section 325] 990
25.32 Preferential Payments 990
25.32-1 Overriding preferential payment 996
25.32-2 Priority between unsecured creditors 997
25.32-3 Fraudulent preference [Section 328] 997
25.33 Avoidance of voluntary transfer [Section 329] 998
25.34 Transfer for benefit of all creditors [Section 330] 999
25.35 Liabilities and rights of certain fraudulently preferred person[Section 331] 999
25.36 Effect of floating charge [Section 332] 1000
PAGE
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25.37 Disclaimer of onerous property [Section 333] 1000
25.38 Avoidance of transfers, etc. after commencement of winding-up [Section 334] 1002
25.39 Avoidance of certain attachments [Section 335] 1002
25.40 Offences by officers of companies in liquidation [Section 336] 1003
25.41 Penalty for fraud by officers [Section 337] 1004
25.42 Liability for not keeping proper books [Section 338] 1005
25.43 Liability for fraudulent conduct of business [Section 339] 1005
25.44 Damages for misfeasance etc. [Section 340] 1006
25.44-1 Misfeasance, what constitutes 1010
25.44-2 Legal representatives, liability of 1011
25.44-3 Liability of Partners and Directors of Body Corporate[Section 341] 1011
25.45 Prosecution of Delinquent Officer and Members of the Com-pany [Section 342] 1011
25.46 Miscellaneous provisions 1012
25.46-1 Statement that a company is in liquidation [Section344] 1012
25.46-2 Books and papers of company to be evidence [Sec-tion 345] 1012
25.46-3 Inspection of books and papers by creditors andcontributories [Section 346] 1013
25.46-4 Disposal of books and papers of company [Section347] 1013
25.46-5 Information as to pending liquidations [Section 348] 1013
25.47 Distribution of property of company [Section 320] 1014
25.47-1 Deposit of money by the Official Liquidator and Com-pany Liquidator [Sections 349 to 351] 1015
25.47-2 Company Liquidation Dividend and UndistributedAssets Account [Section 352] 1015
25.48 Default by the Company Liquidator to make returns [Section353] 1016
25.49 Meetings to ascertain wishes of creditor and contributories [Sec-tion 354] 1016
25.49-1 Rules relating to meetings of creditors and contribu-tories 1016
25.50 Power of the Tribunal to declare dissolution of a Companyvoid 1017
PAGE
CONTENTS I-50
25.51 Contributory 1018
25.51-1 Meaning of contributory 1018
25.51-2 Contributory vis-a-vis Member 1018
25.51-3 Persons liable as contributories 1019
25.51-4 Liability of contributories [Section 285] 1021
25.51-5 Liability of present members 1021
25.51-6 Liability of past members 1021
25.51-7 Nature of liability of contributory [Section 296] 1022
25.51-8 Contributory’s right of set off 1023
25.52 Unregistered companies 1023
25.52-1 Meaning of unregistered company [Section 375] 1023
25.52-2 Winding-up of an unregistered company [Section375] 1024
25.52-3 Procedure for winding up of unregistered company 1025
25.52-4 Winding-up of a firm as an unregistered company 1025
25.53 Winding-up of a Foreign Company 1025
25.54 Removal of name of company from register of companies 1025
25.54-1 Procedure for removing the name 1026
25.54-2 Removal of the name by special resolution by a com-pany [Section 248(2)] 1026
25.54-3 Restriction on making application under section 248 1027
25.54-4 Effect of Restoration 1031
25.54-5 Position of creditors on restoration 1031
25.55 Vanishing Company 1031
25.56 Transfer of winding-up proceedings to Tribunal 1032
25.57 Some more cases on winding up 1032
TEST YOUR KNOWLEDGE 1037
PRACTICAL PROBLEMS 1041
26AUTHORITIES UNDER THE COMPANIES ACT, 2013
AND MISCELLANEOUS PROVISIONS
26.1 Registrar of Companies (R.O.C.) 1046
26.1-1 Meaning 1046
26.1-2 Duties of Registrar 1047
26.1-3 Filing fees 1047
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I-51 CONTENTS
26.1-4 Powers of Registrar (ROC) 1047
26.1-5 Disposal of Records in the Offices of Registrars 1048
26.2 Regional Director 1049
26.3 National Financial Reporting Authority [Section 132] 1051
26.3-1 Role of NFRA 1051
26.3-2 Powers of NFRA 1051
26.3-3 Constitution and functioning of NFRA 1052
26.3-4 Books of account and annual report of NFRA 1053
26.4 Serious Fraud Investigation Office [Section 211] 1053
26.4-1 Role of SFIO 1053
26.4-2 Constitution of SFIO 1053
26.4-3 Powers of SFIO 1054
26.4-4 Report of Investigation 1054
26.5 National Company Law Tribunal and National Company LawAppellate Tribunal 1055
26.5-1 Civil Court not to have jurisdiction [Section 430] 1055
26.5-2 Expeditious disposal of applications, petitions orappeal [Section 422] 1055
26.5-3 Order of the Tribunal 1056
26.5-4 Appeal to the Appellate Tribunal [Section 421] 1056
26.5-5 Appeal to the Supreme Court [Section 423] 1056
26.5-6 Procedure to be followed by the Tribunal and Appel-late Tribunal [Section 424] 1056
26.5-7 Powers of the Tribunal and Appellate Tribunal 1056
26.5-8 Rules to be followed in proceeding before the Tribu-nal 1057
26.5-9 Meditation and Conciliation Panel 1057
26.6 Special Courts 1058
26.6-1 Jurisdiction of the Special Court 1058
26.6-2 Summary Trial by the Special Court 1059
26.6-3 Application of the Code of Criminal Procedure [Sec-tion 438] 1059
26.6-4 Appeal and Revision [Section 437] 1059
MISCELLANEOUS PROVISIONS
26.7 Offences to be non-cognizable [Section 439] 1059
PAGE
CONTENTS I-52
26.8 Compounding of certain offences under the Companies Act[Section 441] 1061
26.9 Punishment for Fraud [Section 447] 1063
26.9-1 Penalties for false statements made and false evidencegiven [Section 448] 1063
26.9-2 Penalty where no specific penalty is provided else-where in the Act [Section 450] 1063
26.9-3 Punishment in case of repeated default [Section 451] 1063
26.9-4 Penalty for wrongful withholding of property [Sec-tion 452] 1063
26.9-5 Penalty for improper use of the words “Limited” and“Private Limited” [Section 453] 1067
26.9-6 Power of Central Government to make Rules 1067
26.10 Dormant Company 1067
26.11 Service of documents 1068
26.11-1 Service of documents on a company 1068
26.11-2 Service of documents on R.O.C. [Section 20] 1069
26.11-3 Service of documents on members by company [Sec-tion 20] 1069
26.12 Company law in a computerised environment - E-filing - Intro-duction 1069
26.12-1 Filing of applications, documents, inspection etc. inelectronic form 1069
26.12-2 Electronic form to be exclusive, alternative or addi-tional 1070
26.12-3 Providing of value added services through electronicform [Section 401] 1070
26-12-4 Application of provision of Information TechnologyAct, 2000 1070
26.12-5 What is e-Governance 1070
26.12-6 E-filing of petitions and application before the Tribu-nal 1076
26.13 The Depositories Act, 1996 : An Analysis 1078
26.13-1 Objectives 1078
TEST YOUR KNOWLEDGE 1085
PRACTICAL PROBLEMS 1085
SUBJECT INDEX 1087
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