CONTENTS · Preface to the Twentieth Edition I-7 Preface to the First Edition I-9 Chapter-heads...

About the authors I-5Preface to the Twentieth Edition I-7

Preface to the First Edition I-9Chapter-heads I-11Section-wise Index I-55

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 ? 5

2.2 Definition of a company 6

2.3 Characteristic features of a company 6

2.3-1 Incorporated association 6

2.3-2 Legal entity distinct from its members 6

2.3-3 Artificial person 10

2.3-4 Limited liability 10

2.3-5 Separate property 11

2.3-6 Transferability of shares 12

2.3-7 Perpetual succession 12

CONTENTS

PAGE

I-13

2.3-8 Common seal 12

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 One Person Company 32

3.1B Small Company 35

3.2 Public company [Section 2(71)] 35

3.3 Distinction between private and public company 35

3.4 Special privileges and exemptions available to private compa-nies 37

3.5 Conversion of a private company into a public company 38

3.6 Conversion of a public company into a private company 39

3.7 Statutory company 40

3.8 Registered companies 40

3.9 Limited liability companies 40

3.9-1 Companies limited by shares 40

3.9-2 Companies limited by guarantee 41

3.9-3 Companies limited by guarantee having share capital 41

3.10 Unlimited liability company 41

PAGE

CONTENTS I-14

3.11 Associations not for profit [Section 8] 423.11-1 Alteration of Memorandum and Articles of Associa-

tion 433.11-2 Partnership Firm may become Member 443.11-3 Conversion of a company formed under section 8 into

any other kind 443.11-4 Exemptions 44

3.12 Government companies 453.12-1 Exemptions 49

3.13 Foreign company 493.13-1 Special provisions relating to foreign companies 503.13-2 Other obligations of a foreign company (Sec. 382) - A

foreign company is further bound by the followingobligations 51

3.14 Holding and subsidiary companies 583.15 Public financial institutions [Sec. 2(72)] 593.16 Producer Companies 62

3.16-1 Overview of the provisions 623.16-2 Incorporation of Producer Companies 633.16-3 Objects of a Producer Company 633.16-4 Formation of Producer Company and its registration

[Section 581C] 653.16-5 Memorandum of association of a producer company

shall state 663.16-6 Directors 663.16-7 Subscription to the memorandum by non-incorpo-

rated body of producer institution 673.16-8 Status of a Producer Company 673.16-9 Articles of Association [Section 581G] 673.16-10 Registration of Producer Company 693.16-11 Amendment of Memorandum and Articles of Asso-

ciation of a producer company 703.16-12 Benefits to Members [Section 581E] 713.16-13 Voting rights of members of a producer company 713.16-14 Membership and conflicting business interest 723.16-15 Inter-State Cooperative Societies can become Pro-

ducer Company [Sections 581J-581N] 723.16-16 Transformation of inter-State co-operative society into

producer company 743.16-17 Officers and other employees of the society [Section

581N] 76

PAGE

I-15 CONTENTS

3.16-18 Directors of the society 763.16-19 Transfer of existing benefits, etc. on transformation 773.16-20 Appointment of Directors and their tenure [Section

581P] 773.16-21 Vacation of office by directors of a producer com-

pany [Section 581Q] 773.16-22 Powers and functions of the Board [Section 581R] 793.16-23 Committee of Directors [Section 581U] 803.16-24 Meetings of the Board and Quorum [Section 581V] 803.16-25 Liability of directors [Section 581T] 813.16-26 Chief Executive Officer (CEO) and his functions [Sec-

tion 581W] 81

3.16-27 Secretary of Producer Company [Section 581X] 82

3.16-28 General Meetings [Sections 581ZA, 581S, 581Y and581Z] 82

3.16-29 Period of Notice 84

3.16-30 Contents of the Notice and Circulation of the notice 84

3.16-31 Quorum and Voting Rights 84

3.16-32 Filing of documents following AGM with ROC [sub-section (10) of section 581ZA] 85

3.16-33 Producer institution as member 85

3.16-34 Extraordinary General Meeting on Requisition [Sec-tion 581ZA(5)] 85

3.16-35 Share capital, special rights, bonus shares, transfer andtransmission [Sections 581ZB to 581ZD and 581ZJ] 86

3.16-36 The shares of a producer company has limited trans-ferability 86

3.16-37 Issue of bonus share 87

3.16-38 Finance, Accounts and Audit [Sections 581ZE to581ZI] 87

3.16-39 Internal Audit 87

3.16-40 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) 87

3.16-41 Donation or subscription by producer company 88

3.16-42 General and Other Reserves 88

3.16-43 Loans to Members and Investments [Sections 581ZKand 581ZZ] - Loans and Advances 89

PAGE

CONTENTS I-16

3.16-44 Register of investments [Section 581ZL(7) & (8)] 91

3.16-45 Amalgamation, Merger or Division of Producer Com-pany [Section 581ZN] 91

3.16-46 Penalties [Section 581ZM] 94

3.16-47 Dispute Resolution [Section 581ZO] 95

3.16-48 Allied Provision 96

3.16-49 Striking off the name of producer company 96

3.16-50 Reconversion of a Producer Company to inter-StateCo-operative Society [Sections 581ZS and 581ZT] 97

3.16-51 Power of the Central Government to modify the pro-visions of the Companies Act, 1956 in their applica-tion to Producer Company [Section 581ZT] 98

3.17 Illegal Association [Sec. 464] 98

3.17-1 Exceptions 98

3.17-2 Effects of an illegal association 99

3.18 Unregistered Companies [Section 375] 100



4FORMATION AND INCORPORATION OF A COMPANY

4.1 Promotion 102

4.1-1 Who is a promoter 102

4.1-2 When promotion begins and ends 104

4.1-3 Legal position of a promoter 104

4.1-4 Duties of promoters 105

4.1-5 Remedies available to the company against the pro-moter for breach of his duties 107

4.1-6 Liability of promoters 109

4.1-7 Remuneration of promoters 110

4.1-8 Pre-incorporation contracts 110

4.2 Registration/Incorporation of a company 112

4.2-1 Procedure for registration/incorporation of a com-pany : Important Steps 113

4.3 Integrated Process for incorporation 115

4.4 Certificate of incorporation 117

PAGE

I-17 CONTENTS

4.4A Effect of certificate of incorporation 118

4.4B Conclusiveness of certificate of incorporation 118

4.5 Commencement of business 119



5MEMORANDUM OF ASSOCIATION

5.1 Meaning and importance 121

5.2 Memorandum of Association - Whether an unalterable charter 121

5.3 Form and contents 122

5.3-1 The name clause [Sec. 4(1)(a)] 124

5.3-2 The registered office clause [Sec. 4(1)(b)] 128

5.3-3 The objects clause [Section 4(1)(c)] 129

5.3-4 Doctrine of ultra vires 129

5.3-5 Liability clause [Sec. 4(1)(d)] 133

5.3-6 The capital clause [Sec. 4(1)(e)] 133

5.3-7 Name of a nominee in case of ‘One Person Company’[Sec. 4(1)(f)] 134

5.3-8 The association or subscription clause [Sec. 4(1)(e)] 134

5.4 Alteration of memorandum 135

5.4-1 Change of name 135

5.4-2 Change of registered office 137

5.4-3 Change in Objects Clause 139

5.4-4 Change in Liability Clause 141

5.4-5 Alteration of Capital Clause 141



6ARTICLES OF ASSOCIATION

6.1 Introduction 145

6.2 Memorandum and articles - Their relationship 145

6.3 Distinction between memorandum of association and articlesof association 147

PAGE

CONTENTS I-18

6.4 Contents 147

6.4-1 Provisions for Entrenchment 147

6.4-2 Regulations required in case of unlimited company,company limited by guarantee and private companylimited by shares 149

6.5 Model form of articles 149

6.6 Signing of articles 149

6.7 Alteration of articles 150

6.7-1 Limitation on power to alter articles 151

6.7-2 What amounts to alteration of articles 154

6.7-3 Effect of altered articles 155

6.7-4 Procedure for alteration of articles of association 155

6.8 Binding effect of memorandum and articles 156

6.8-1 Members bound to the company 156

6.8-2 Company bound to members 157

6.8-3 Members bound to members 158

6.8-4 Whether company or members bound to outsiders 159

6.8-5 Whether Directors are bound by whatever is con-tained in the articles 160

6.9 Doctrine of constructive notice 160

6.10 Doctrine of indoor management 161



7PROSPECTUS

7.1 Steps which are necessary before the issue of Prospectus 167

7.2 Meaning and definition of a prospectus 167

7.3 Contents of a prospectus 170

7.3-1 Information to be given in a Prospectus 170

7.3-2 Reports to be set out in the Prospectus 171

7.3-3 Declaration 172

7.3-4 Other Matters 172

7.3-5 Statement of an Expert included in a Prospectus 172

7.3-6 Penalty for non-compliance 173

7.3-7 Exemptions 173

PAGE

I-19 CONTENTS

7.3-8 Variation in terms of contract or objects in prospec-tus (Section 27) 173

7.3-9 Offer of sale of shares by certain members of com-pany (Section 28) 174

7.4 SEBI Regulations relating to prospectus 1747.5 Draft Prospectus to be made public 1757.6 Abridged Form of Prospectus 1767.7 Is issue of prospectus (including abridged prospectus) compul-

sory/when prospectus is not required to be issued 1777.7A Statutory requirements in relation to a prospectus 177

7.7A-1 Dating of prospectus 177

7.7A-2 Registration of prospectus 177

7.7A-3 When Registrar shall refuse registration of a prospec-tus 178

7.7A-4 Penalty 178

7.8 Prospectus by implication/Deemed prospectus [Sec. 25] 178

7.8-1 Additional requirements relating to deemed prospec-tus 179

7.9 Shelf Prospectus and Information Memorandum [Section 31] 179

7.10 Red-herring prospectus [Section 32] 180

7.11 Mis-statements in a prospectus and their consequences 181

7.11-1 What is an untrue statement/mis-statement ? 181

7.11-2 Remedies for mis-statement in a prospectus 183

7.11-3 Civil Liability 183

7.11-4 Criminal Liability 184

7.11-5 Liability under section 36, i.e., Punishment for fraudu-lently inducing persons to invest money 184

7.11-6 Class Action Suit/Action by Affected Persons (Sec-tion 37) 185

7.12 Golden Rule for framing of Prospectus 1857.13 Allotment of shares in fictitious names prohibited [Section 38] 1867.14 Announcement regarding proposed issue of capital 186TEST YOUR KNOWLEDGE 187PRACTICAL PROBLEMS 187

8ACCEPTANCE OF PUBLIC DEPOSITS

8.1 Meaning of deposits 190

PAGE

CONTENTS I-20

8.2 Acceptance of deposits 1928.2-1 Acceptance of Deposits from Members 1928.2-2 Acceptance of Deposits from Public 1948.2-3 Deposits accepted before commencement of the Com-

panies Act, 2013 197

9SHARE AND SHARE CAPITAL

9.1 Meaning and nature of a share 1989.1-1 Meaning 1989.1-2 Nature of a share 198

9.2 Share v. Share certificate 2009.3 Share v. Stock 2019.4 Kinds of shares 201

9.4-1 Preference Shares or Preference Share Capital 2029.4-2 Types of Preference Shares 2039.4-3 Equity shares [Sec. 43] 2059.4-4 Preference shares compared with equity shares 2069.4-5 Non-voting shares 2069.4-6 Par Value of Shares 2069.4-7 Global Depository Receipts [Section 41] 206

9.5 Raising of capital/Issue of shares 207

9.5-1 Private placement of shares 207

9.5-2 By an offer for sale 208

9.5-3 By inviting public through prospectus 208

9.5-4 Issue of shares to existing shareholders 2089.6 Public issue of shares 209

9.6-1 Book Building 2099.6-2 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 209

9.7 Employees Stock Option Scheme [ESOS] 2359.7A Employee Stock Purchase Scheme [ESPS] 2379.8 Book Building 2389.9 SEBI Regulations for Preferential Issue 2449.10 Allotment of shares 250

9.10-1 Meaning of allotment 250

PAGE

I-21 CONTENTS

9.10-2 General principles regarding allotment 250

9.10-3 Statutory provisions regarding allotment 253

9.11 Jurisdictions of the Court 255

9.12 Allotment of shares to a charitable institution by way of dona-tion - Whether allowed 255

9.13 Return as to allotment 256

9.14 Underwriting 256

9.14-1 Meaning of underwriting 256

9.14-2 Sub-underwriting 257

9.15 Brokerage 258

9.16 Buy-back/Purchase of its own shares by a company 258

9.16-1 Sources to Buy-Back 259

9.16-2 Conditions for buy-back 259

9.16-3 Benefits/Objectives underlying buy-back of shares 261

9.16-4 SEBI Regulations : SEBI (Buy-back of Securities) 261

9.16-5 Penalty 264

9.16-6 Prohibition for buy-back in certain circumstances[Sec. 70] 264

9.16-7 Giving of Loan/Financial Assistance Prohibited 265

9.17 Issue of securities at a premium 266

9.18 Issue of shares at a discount 268

9.19 Issue of sweat equity shares [Section 54] 268

9.19-1 SEBI Regulations with respect to Sweat Equity 270

9.20 Share certificate [Section 56] 272

9.20-1 Time of issue of share certificate [Section 56] 272

9.20-2 Object and effect of share certificate [Section 46] 273

9.21 Issue of share certificate [Section 46] 274

9.22 Rights shares/Further issue of capital [Section 62] 275

9.22-1 Further allotment out of unsubscribed portion of capi-tal 276

9.22-2 SEBI regulations regarding rights issues [w.e.f. 26-8-2009 as amended up to 1-9-2014] 277

9.22-3 Duty of transferor to transferee in respect of rightsshares 279

9.22-4 Allotment to renouncee 279

9.22-5 Procedure for issue of rights shares 279

PAGE

CONTENTS I-22

9.23 Conversion of loans or debentures into shares 281

9.23-1 Share Capital to Stand Increased 282

9.24 Bonus shares 282

9.24-1 SEBI Regulations, 2009 for issue of bonus shares 283

9.25 Distinction between bonus shares and rights shares 284

9.26 Reduction of share capital 284

9.26-1 Procedure for reduction of capital 285

9.26-2 Reduction of share capital without the sanction of theTribunal 286

9.26-3 Reduction of Capital v. Diminution of Capital 287

9.27 Calls on shares 287

9.27-1 Requisites of a valid call 288

9.27-2 Payment of calls otherwise than in cash 289

9.27-3 Payment of calls in advance 290

9.27-4 Interest on calls due but not paid 290

9.27-5 Quantum and Interval between two calls 290

9.28 Forfeiture of shares 290

9.28-1 Forfeiture of fully paid shares 293

9.28-2 Effect of forfeiture 293

9.28-3 Re-issue of forfeited shares 294

9.28-4 Annulment of forfeiture 295

9.29 Surrender of shares 295

9.30 Transfer of shares 295

9.30-1 Time within which transfer must be registered 296

9.30-2 Power of the Board of directors to refuse registrationof transfer of shares 297

9.30-3 Procedure of transfer 298

9.31 Blank transfer 299

9.31-1 Ills associated with blank transfers 300

9.32 Transfer of partly-paid shares 300

9.33 Transfer of shares held in joint names 300

9.34 Transfer when complete 300

9.35 Right of transferees pending registration of transfer [Sec. 126] 301

9.36 Notice of refusal 301

9.36-1 Returning back the documents 302

9.36-2 Retention of certificates 302

PAGE

I-23 CONTENTS

9.37 Appeal against refusal to register transfer 303

9.38 Transfer of shares on the basis of pre-incorporation transferdeeds 305

9.39 Transfer of shares after winding-up - Whether valid 305

9.40 Transfer of shares under Depository System 305

9.41 Transfer of shares in favour of pledgee 306

9.42 Transfer of shares by way of gift 307

9.43 Forged transfer 307

9.43-1 Consequences of forged transfer 307

9.44 Priority between transferees 308

9.45 Transmission of shares and debentures 308

9.46 Distinction between transfer and transmission 310

9.47 Nomination of shares and debentures 310

9.48 Secretarial practice/Steps with regard to registration of trans-fer of shares 310

9.49 Transfer by legal representative 312

9.50 Lien on shares 313

9.51 Lien and forfeiture compared 314

9.52 Variation of shareholders’ rights 314

9.52-1 Can equity shares already issued be converted intoredeemable preference shares ? 315

9.52-2 Can redeemable preference shares be converted intoconvertible preference shares ? 315



10MEMBERSHIP

10.1 Definition of a member 323

10.1-1 Can purported promise to convert loan into shares bea ground for rectification of Register of members? 324

10.2 Member v. Shareholder 324

10.3 Modes of acquiring membership 325

10.3-1 By subscribing to the memorandum of association 325

10.3-2 By agreement and registration 325

10.3-3 By agreeing to purchase qualification shares 326

PAGE

CONTENTS I-24

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] ? 326

10.4 Who may become a member 327

10.4-1 Minor 327

10.4-2 Company 328

10.4-3 A partnership firm 328

10.4-4 A foreigner 329

10.4-5 Receiver/Official Liquidator 329

10.4-6 Can a public office be registered as a member 329

10.4-7 Societies registered under the Societies RegistrationAct, 1860 330

10.4-8 Can shares be held in the name of a trade union ? 330

10.4-9 Joint membership 330

10.4-10 Hindu undivided family 331

10.5 Termination of membership 331

10.6 Impersonation as a shareholder 332

10.7 Rights of a member/shareholder 332

10.7-1 Contractual and other Rights 333

10.7-2 Statutory Rights 333

10.7-3 Other Rights 33310.8 Duties and Liability of members 33410.9 Member v. Contributory 33510.10 Expulsion of a member 335TEST YOUR KNOWLEDGE 337PRACTICAL PROBLEM 337

11REGISTERS AND RETURNS

11.1 Introduction 33811.2 Statutory books to be kept by a company 33811.3 Optional books 33811.4 Register of Charges [Section 85] 33911.5 Register of members/debentureholders 340

11.5-1 Register of Members/Debenture-holders and Indexof Members/Debenture-holders, etc. [Section 88] 340

PAGE

I-25 CONTENTS

11.5-2 Foreign Register 341

11.5-3 Penalty 341

11.5-4 Shares held in Trust 341

11.5-5 Inspection of Register of Members, etc. [Section 94] 341

11.6 Register of Investments not held in company’s name [Section187] 342

11.7 Register of fixed deposits [Section 73] 342

11.8 Books of account 342

11.8-1 Place of maintenance of books of account 342

11.8-2 Inspection of books of account, etc. of companies 343

11.8-3 Period for which books of account to be preserved 343

11.9 Register of contracts or arrangements in which directors areinterested [Section 189] 343

11.9-1 Entries in the register 344

11.9-2 Place of keeping and inspection of the register 344

11.9-3 Period for which register to be preserved 344

11.9-4 Filing of particulars 344

11.9-5 To be produced at general meeting 344

11.9-6 Exemptions 344

11.9-7 Penalty 344

11.10 Register of Directors and Key Managerial Personnel and theirshareholding [Section 170] 345

11.10-1 Filing of Return with the Registrar 346

11.10-2 Can the register be kept in loose-leaf form ? 346

11.11 Register of Loans and Investments by company [Section 186] 346

11.12 Minutes book 347

11.12-1 Inspection of minute-books of general meeting [Sec-tion 119] 349

11.12-2 Signing of minutes of board meetings 349

11.12-3 Minutes kept in a loose-leaf form 350

11.13 Annual return [Section 92] 350

11.13-1 Signing of the Annual Return 351

11.13-2 Place of keeping 351

11.14 Return of allotment [Section 39] 351

11.15 Place of keeping and inspection of registers, returns, etc. [Sec-tion 94] 352

PAGE

CONTENTS I-26

11.15-1 Period for which the registers, returns and recordsare required to be kept 352

11.15-2 Inspection of registers and returns [Section 94] 353

11.15-3 Penalty 353

11.15-4 Power of the Central Government to order inspection 353

11.15-5 Registers, etc., to be evidence 353



12INVESTMENTS, LOANS, BORROWINGS

AND DEBENTURES

12.1 Investments 357

12.1-1 Meaning of ‘investments’ 357

12.1-2 Investments to be held in company’s own name 357

12.1-3 Investments in other companies and bodies corpo-rate/Inter-corporate loans and investments 359

12.2 Implied power to borrow ? 361

12.2-1 Exercise of borrowing powers 362

12.2-2 Temporary loans 362

12.2-3 Ultra vires borrowings 362

12.2-4 Charges under the Companies Act, 2013 364

12.2-5 Registration of charges [Section 77] 366

12.2-6 Register of charges to be kept by Registrar [Section 81] 368

12.2-7 The memorandum of satisfaction [Sections 82 and 83] 368

12.2-8 Rectification by Central Government in register ofcharges [Section 87] 369

12.2-9 Company’s register of charges [Section 85] 36912.2-10 Modification of charges 370

12.3 Debentures 37012.3-1 Meaning and definition 37012.3-2 Characteristic features of a debenture 37112.3-3 Debenture stock 37112.3-4 Distinction between ‘shareholder’ and ‘debenture-

holder’ 371

12.3-5 Issue of debentures 372

12.3-6 Kinds of debentures 376

PAGE

I-27 CONTENTS

12.3-7 Debenture trust deed 378

12.3-8 Rights/Remedies of debenture-holders 381

12.3-9 SEBI Regulations, 2009 pertaining to convertible debtinstruments 382



13DIVISIBLE PROFITS AND DIVIDEND

13.1 Meaning of Dividend 389

13.2 Concept of Profit 390

13.3 Profits v. Divisible Profits 390

13.3-1 Meaning of Divisible Profits 390

13.3-2 ‘Profits available for Distribution’ v. ‘Profits availablefor dividend’ 390

13.4 Sources out of which dividends may be paid 391

13.4-1 Out of current profits 391

13.4-2 Out of past reserves 391

13.4-3 Monies provided by Government 392

13.4-4 Depositing dividend declared in a scheduled bank ina separate account 392

13.5 Provision for depreciation 392

13.6 Declaration of dividend on preference and equity shares 392

13.6-1 Dividend on preference shares 393

13.6-2 Dividend on equity shares 394

13.6-3 Interim dividend 395

13.7 Payment of dividend 396

13.7-1 Dividend payable to whom 396

13.7-2 Dividend is to be paid in cash 396

13.7-3 Time within which dividends to be paid 397

13.8 Dividend warrants 398

13.9 Dividend mandate 398

13.10 Unpaid and unclaimed dividends 399

13.10-1 Unpaid dividends 399

13.10-2 Transfer of unpaid dividend to Investor Education andProtection Fund [Fund] 400

PAGE

CONTENTS I-28

13.11 Establishment of Investor Education and Protection Fund[Sec. 125] 400

13.12 Can dividends be paid out of capital ? 402

13.13 Payment of dividend out of capital profits 403



Annex 13.1 Specimen resolutions 410

14COMPANY MANAGEMENT

14.1 Meaning of a Director 41114.2 Who may be appointed as a Director ? 41214.3 Qualifications for Directors 41214.4 Disqualifications of a Director 41214.5 Legal position of directors 414

14.5-1 Directors as agents 41414.5-2 Directors as trustees 41514.5-3 Directors as managing partners 41514.5-4 Are directors employees of the company? 415

14.6 Full time v. Part time Director 41614.7 Appointment of Directors 417

14.7-1 Appointment of first directors [Section 152] 417

14.7-2 Appointment of directors at general meeting 418

14.7-3 Deemed re-appointment of a retiring director [Sec.152] 419

14.7-4 Rotational and non-rotational directors vis-a-visprivate company 419

14.7-5 Appointment of a director other than a retiring direc-tor [Sec. 160] 420

14.7-6 Appointment by Board of directors [Section 161] 421

14.8 Resident Director 423

14.9 Independent Director 424

14.9-1 Who is an Independent Director 424

14.9-2 Selection of Independent Director 425

14.9-3 Manner of Appointment 425

14.9-4 Re-appointment 426

14.9-5 Remuneration 426

PAGE

I-29 CONTENTS

14.9-6 Resignation or Removal 426

14.9-7 Separate Meetings 427

14.9-8 Evaluation Mechanism 427

14.9-9 Term of office 427

14.9-10 Liability of Independent Directors 427

14.9-11 Compliance with the Company’s Code of Conduct 428

14.10 Appointment of directors by proportional representation[Section 163] 430

14.10-1 Single transferable vote 430

14.10-2 Cumulative voting 432

14.11 Appointment of Directors by third parties (Nominee Directors) 432

14.12 Assignment of office by Director [Section 166] 434

14.13 Minimum and maximum number of directors 435

14.14 Appointment of woman director on the Board 435

14.15 Appointment of director elected by small shareholders [Sec-tion 151] 435

14.16 Number of directorships 437

14.17 Vacation of office of a director [Section 167] 438

14.18 Removal of a director 438

14.18-1 Removal by shareholders 439

14.18-2 Removal by Tribunal [Section 242] 441

14.19 Resignation by a Director 441

14.20 Validity of the acts of a director where his appointment is invalid [Section 176] 443

14.21 Powers of the Board of Directors 444

14.21-1 Restrictions on powers of directors 447

14.22 Political contributions by Directors [Section 182] 449

14.22-1 Meaning of Political Contribution 449

14.23 Related party transactions [Sec. 188] 450

14.24 Interested Directors 453

14.24-1 Disclosure of interest 454

14.25 Duties of Directors 454

14.25-1 Statutory duties 455

14.25-2 General duties 456

14.26 Liabilities of Directors 458

14.26-1 Liability to the company 458

PAGE

CONTENTS I-30

14.26-2 Liability to third parties 459

14.26-3 Liability for breach of statutory duties 460

14.26-4 Liability for acts of co-directors 460

14.26-5 Criminal liability 460

14.27 Loans to Directors 461

14.28 Remuneration of Directors (Managerial Remuneration) 462

14.28-1 Meaning of managerial remuneration 462

14.28-2 Directors’ entitlement to remuneration 463

14.28-3 Manner of payment of managerial remuneration 463

14.28-4 Sitting Fees 463

14.28-5 Overall limits to managerial remuneration 464

14.28-6 Determination of managerial remuneration 464

14.28-7 Individual ceiling on managerial remuneration 464

14.28-8 Remuneration payable to an Independent director 465

14.28-9 Refund of excess remuneration 465

14.28-10 Additional remuneration from subsidiary 465

14.28-11 Private companies 465

14.28-12 Managerial remuneration vis-a-vis Schedule V 466

14.28-13 Perquisites not included in managerial remuneration 468

14.28-14 Remuneration payable to a managerial person in twocompanies 468

14.28-15 Meaning of effective capital 468

14.29 Managing Director and other Key Managerial Personnel 469

14.29-1 Meaning of Managing director 469

14.29-2 Managing director - Whether an employee 469

14.29-3 Meaning of Key Managerial Personnel 470

14.29-4 Appointment of managing director 470

14.29-5 Approval of the Central Government 471

14.29-6 Number of companies of which one person may beappointed Managing Director/Key Managerial Per-sonnel 472

14.29-7 Filling of vacancy in the office of whole-time keymanagerial personnel 472

14.29-8 Tenure of appointment 472

14.29-9 Remuneration 473

14.29-10 Disqualifications 473

PAGE

I-31 CONTENTS

14.30 Manager 473

14.30-1 Meaning 473

14.30-2 Disqualifications of a manager 474

14.30-3 Number of companies a person can be appointedmanager 474

14.30-4 Remuneration of manager [Section 197] 474

14.31 Prohibition of simultaneous appointment of different catego-ries of managerial personnel [Section 196] 474

14.32 Distinction between managing director and manager 474

14.33 Whole time director 475

14.34 Procedure for appointment of managing director/whole timedirector/manager 475



15COMPANY SECRETARY AND PRACTISING

COMPANY SECRETARY

15.1 Definition of company secretary/secretary 48515.2 Appointment of whole-time company secretary 485

15.2-1 Compulsory appointment of a whole-time companysecretary 485

15.2-2 Manner of appointment of whole-time company sec-retary 486

15.2-3 Whole-time company secretary not hold office in morethan one company 486

15.2-4 Vacation of office of the whole-time company secre-tary 486

15.2-5 Penalty 48615.3 Procedure for appointment 48615.4 Position of company secretary 48715.5 Duties of secretary 489

15.5-1 General duties 489

15.5-2 Statutory duties 489

15.6 Liabilities of company secretary 490

15.6-1 Statutory liabilities 490

15.6-2 Contractual liabilities 493

15.7 Functions of company secretary [Section 205] 493

PAGE

CONTENTS I-32

15.8 Secretarial audit [Section 204] 49315.9 Rights of company secretary 49415.10 Role of company secretary 495

15.10-1 As statutory officer 49515.10-2 Secretary as a coordinator 49615.10-3 As an administrative officer 498

15.11 Dismissal of a company secretary 49815.12 Company secretary in practice 499

15.12-1 Who can use the designation of Secretary 49915.12-2 Who can practise 49915.12-3 Who cannot practise 50015.12-4 Can a firm practise 50015.12-5 Areas of practice 50115.12-6 Certificate of practice 50215.12-7 Cancellation of certificate of practice 502

15.12-8 Restoration of Certificate of Practice 503

15.12-9 Company secretary not to engage in any other busi-ness or occupation 503

15.12-10 Can a company secretary have more than one office 503

15.13 Professional misconduct 504

15.14 Quality Review Board 505


Annex 15.1 The First Schedule to the Company Secretaries Act, 1980as amended in 2006 508

Annex 15.2 The Second Schedule to the Company Secretaries Act,1980 as amended in 2006 511

Annex 15.3 Resolution under regulation 168 of the Company Secre-taries Regulations, 1982 513

16COMPANY MEETINGS-I - GENERAL

16.1 Meaning of ‘meeting’ 515

16.2 Kinds of meetings 515

16.3 Requisites of a valid meeting 516

16.4 Meeting to be properly convened 516

16.4-1 Proper authority 516

16.4-2 Proper and adequate notice 516

PAGE

I-33 CONTENTS

16.5 Meeting to be legally constituted 522

16.5-1 Chairman of a meeting 522

16.5-2 Quorum 524

16.5-3 Presence of Directors and Auditors 526

16.6 Meeting to be properly conducted 527

16.6-1 Ascertaining the sense of the general meeting 527

16.6-2 Rules in respect of voting 528

16.6-3 Passing of resolutions by postal ballot 530

16.6-4 Proxy [Section 105] 532

16.6-5 Motion, amendment, point of order 534

16.7 Resolutions 535

16.7-1 Ordinary resolution [Section 114(1)] 536

16.7-2 Special resolution 536

16.7-3 Resolutions requiring special notice 536

16.7A Validity of votes 537

16.8 Circulation of members’ resolutions [Section 111] 537

16.9 Registration of certain resolutions and agreements [Section 117] 539

16.10 Minutes [Section 118] 539



Annex 16.1 Specimen of notice, agenda, proxy, minutes, resolutions,etc. notice and agenda of annual general meeting 549

17COMPANY MEETINGS-II -

GENERAL BODY MEETINGS

17.1 Need for meetings 553

17.2 Annual General Meeting (AGM) 553

17.2-1 Which companies to hold 553

17.2-2 Gap between two AGMs [Section 96] 553

17.2-3 Extension of Time 554

17.2-4 What about a situation where Annual Accounts arenot ready 554

17.2-5 Meeting beyond Statutory Time 555

17.2-6 Cancelling or postponing of convened meeting 555

17.2-7 Can a general meeting properly convened be cancelledor its holding deferred? 556

PAGE

CONTENTS I-34

17.2-8 Day, hour and place of AGM 556

17.2-9 Can a company hold two AGMs on the same day? 556

17.2-10 Business to be transacted [Section 102] 556

17.2-11 Notice of the meeting 557

17.3 Extraordinary General Meeting (EGM) 559

17.4 Class meetings 562



18COMPANY MEETINGS-III - BOARD MEETINGS

18.1 Need for Board Meetings 568

18.2 When to hold 568

18.2-1 First Meeting 568

18.2-2 Subsequent Meetings 568

18.3 Participation of directors through video conferencing or otheraudio visual means [Section 173(2)] 569

18.4 Board meeting 571

18.4-1 Notice of Board Meeting 571

18.4-2 Proper authority to call meeting of Board of Direc-tors 572

18.4-3 Notice - Whom to be given 572

18.4-4 Notice to interested directors 572

18.4-5 Notice of adjourned meeting 572

18.5 Contents and Agenda of Board Meeting 573

18.6 Time and place of Board meeting 573

18.7 Quorum 574

18.8 Adjournment for want of quorum 575

18.9 Passing of Resolutions by Circulation [Section 175] 575

18.10 Minutes of the Board meeting 577

18.11 Duties of company secretary with respect to Board Meetings 581

18.11-1 Before the meeting 582

18.11-2 During the meeting 582

18.11-3 After the meeting 583

18.12 Chairman of Board Meetings 583

PAGE

I-35 CONTENTS



Annex 18.1 Specimen of notice, agenda and minutes 589

19ACCOUNTS AND AUDIT

ACCOUNTS

19.1 Books of account required to be kept 593

19.2 Inspection of Books of Account 595

19.2-1 Directors’ right of inspection 596

19.2-2 Right of a shareholder to inspect books of account 596

19.2-3 Investigation by the Serious Fraud InvestigationOffice (SFIO) 596

19.3 Persons responsible for keeping proper books of account [videsub-section (6) of section 128] 597

19.4 Financial Statements 597

19.4-1 Preparation and presentation of financial statements 598

19.5 Authentication of financial statements 600

19.6 Can Approval of Annual Accounts be delegated? 601

19.7 Publication of quarterly results - Requirements under listingAgreement 601

19.8 Board’s Report 603

19.8-1 Directors’ Responsibility Statement 604

19.8-2 Disclosures with respect to employees’ stock optionscheme 605

19.8-3 Reserves and Dividends 606

19.8-4 Conservation of energy, technology absorption, for-eign exchange earnings and outgo 606

19.8-5 Contracts and arrangements with related parties 607

19.8-6 Policy on directors’ appointment and remuneration 607

19.8-7 Disclosure about the number of meetings of theBoard/Committees 607

19.8-8 Notes forming part of the accounts 607

19.8-9 Additional information under the Companies(Accounts) Rules, 2014 608

19.8-10 Corporate Social Responsibility Report 608

19.8-11 Composition of Audit Committee 609

19.8-12 Other disclosures in the Board’s Report 609

PAGE

CONTENTS I-36

19.8-13 Management Discussion and Analysis Report as perClause 49 of the Listing Agreement 609

19.8-14 Corporate Governance Report 610

19.8-15 Disclosure under the Sexual Harassment of Womenat Workplace (Prevention, Prohibition and Redressal)Act, 2013 610

19.8-16 Report to be signed by the Chairman of the Board 610

19.9 Circulation of Financial Statements 611

19.10 Adoption and filing of Financial Statements 613

19.10-1 Filing of financial statements with the Registrar 613

19.10-2 Filing of financial statements in XBRL format 614

19.11 Reporting on revised annual statements of accounts 614

19.11-1 Re-opening of accounts on Court’s or Tribunal’sorders 615

19.11-2 Voluntary revision of Financial Statements or Board’sReport 616

19.12 Accounting Standards 616

19.12-1 Convergence of Accounting Standards in India withInternational Financial Reporting System (IFRS) 618

19.12-2 National Financial Reporting Authority 620

19.13 Internal Audit 620

AUDIT

19.14 Need for audit/Objective of audit 621

19.15 Who can be appointed as an Auditor (Qualifications) 623

19.16 Who cannot be appointed as an Auditor (Disqualifications) 624

19.16-1 Disqualification due to fraudulent acts 626

19.16-2 Ceiling on Audit 626

19.17 Auditor not to render certain services 626

19.18 Appointment of First Auditors 627

19.19 Appointment of subsequent Auditors 627

19.19-1 Appointment of subsequent auditor for a Governmentcompany 628

19.20 Tenure of appointment 629

19.21 Compulsory rotation of auditors 629

19.21-1 Period for rotation 629

19.21-2 Cooling off period 630

19.21-3 Joint Audit 630

PAGE

I-37 CONTENTS

19.22 Reappointment of retiring auditor 630

19.23 Rights of retiring auditor [Section 140(4)] 631

19.24 Casual vacancy 632

19.25 Removal and resignation of an auditor 633

19.25-1 Removal before expiry of the term 633

19.25-2 Resignation of Auditor 634

19.25-3 Removal by the Tribunal 634

19.26 Remuneration of auditors 634

19.27 Status of the auditor 635

19.27-1 As an officer of the company 636

19.28 Rights of the company auditor 636

19.28-1 Right of access to books and account, etc. 636

19.28-2 Right to obtain Information or Explanation 637

19.28-3 Rights with respect to Branch Accounts 637

19.28-4 Right to sign the report 638

19.28-5 Right to receive notices, etc. 638

19.28-6 Right to attend general meeting 638

19.28-7 Right to remuneration 638

19.28-8 Auditors’ lien 639

19.29 Duties of Company Auditor 639

19.29-1 Duty to make a report under section 143 640

19.29-1A Companies (Auditors’ Reports) Order, 2015 (CARO) 645

19.29-2 Compliance with auditing standards 647

19.29-3 Duty to report fraud 647

19.29-4 Duty to attend general meeting 648

19.29-5 Duty to make statement in Prospectus 648

19.30 Duty to produce documents and evidence 648

19.31 Duty to acquaint themselves with their duties 649

19.32 Limitation of Auditor’s duties 649

19.33 Special provisions relating to audit of Government Companies 650

19.33-1 Appointment of Auditors 651

19.33-2 Audit of Government Companies 651

19.34 Punishment for Contravention 652

19.34-1 Penalty on the company and officers in default 652

19.34-2 Penalty on the auditor 652

PAGE

CONTENTS I-38

19.35 Audit Committee 653

19.35-1 Establishment of vigil mechanism 657

19.36 Joint audit 658

19.37 Cost audit [Section 148] 660

19.37-1 Maintenance of cost records 660

19.37-2 Appointment and remuneration of cost auditor 661

19.37-3 Report of Cost Auditor 661

19.37-4 Cost Audit to be in addition to financial audit 662

19.37-5 Appointment of a firm of cost accountants as costauditors 662

19.37-6 Cost Auditor cannot be internal auditor 662

19.37-7 Penalties 663

19.37-8 Secretarial audit 663



Annex 19.1 General instructions for preparation of balance sheet andstatement of profit and loss of a company 671

Annex 19.2 Extracts from Secretarial Standard-10 (SS-10) on Board’sReport 686

Annex 19.3 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 692

20INSPECTION, INQUIRY AND INVESTIGATION

INSPECTION

20.1 Power to call for information, inspect books and conductinquiries 695

20.2 What books and papers can be inspected? 697

20.3 Place and time of inspection 697

20.4 Duties of directors, officers, employees of the company toassist in inspection 697

20.5 Powers of the inspector 698

20.6 Supply of report 699

20.7 Inspection by Reserve Bank 699

PAGE

I-39 CONTENTS

INVESTIGATION

20.8 Investigation 700

20.9 Who can apply and the scope of investigation 700

20.9-1 On the report of Registrar or inspector 700

20.9-2 The company, by passing special resolution [Section210(1)(b)] 700

20.9-3 The Court or Tribunal, by order [Section 210(2)] 700

20.9-4 In public interest 701

20.10 Guidelines for ordering investigation into company’s affairs 701

20.10-1 Complaint for violation by SEBI - Whether a bar toinvestigation 702

20.10-2 Fraud on creditors and on the court 702

20.11 Investigation into affairs of a company by Serious Fraud Inves-tigation Office 702

20.12 Investigation into company’s affairs in other cases 703

20.13 Security for payment of costs and expenses of investigations 706

20.14 Firm, body corporate or association not to be appointed asinspector 706

20.15 Investigation of ownership of a company [Section 216] 707

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 711

20.19 Expenses of investigation 712

20.20 Protection of employees during investigation 712

20.21 Publication of Inspector’s Report 713

20.22 Freezing of Assets of company 713

20.23 Imposition of restrictions upon securities [Section 222] 714

20.24 Saving for legal advisors and bankers [Section 227] 714

20.25 Investigations etc. of foreign companies [Section 228] 714

20.26 Non-disclosure of information in certain cases [Section 457] 715

20.27 Penalty for furnishing false statements, mutilation or destruc-tion of documents 715

20.28 Difference between Inspection and Investigation 715

20.29 Role of secretary with regard to investigation 716



PAGE

CONTENTS I-40

21MAJORITY RULE AND MINORITY PROTECTION

21.1 Rule of majority 721

21.2 Personal rights of members 723

21.3 Representative and Derivative Action 724

21.4 Exceptions to ‘the rule in Foss v. Harbottle’ 726

21.4-1 Ultra vires and illegal acts 726

21.4-2 Breach of fiduciary duties 726

21.4-3 Fraud or oppression against minority 727

21.4-4 Inadequate Notice of a resolution passed at a meet-ing of members 728

21.4-5 Qualified majority 728

21.4-6 Where the personal rights of an individual memberhave been infringed 728

21.4-7 Statutory exceptions 728


22PREVENTION OF OPPRESSION AND

MISMANAGEMENT

22.1 Application to Tribunal for relief in cases of oppression, etc. 731

22.1-1 Application to the Tribunal 731

22.1-2 Who can apply [Section 241] 732

22.1-3 Who cannot apply 740

22.2 Power of Tribunal 741

22.2-1 Conditions for relief under section 242 741

22.2-2 Relief under section 242 743

22.3 Meaning of oppression 745

22.3-1 Oppression may be past or continuing nature 748

22.3-2 Applicability of principle of dissolution of partnership 749

22.3-3 Acts held as oppressive 750

22.3-4 Acts held as not oppressive 758

22.3-5 Matrimonial differences 764

22.4 Meaning of public interest 765

PAGE

I-41 CONTENTS

22.5 Petition to contain all material facts 765

22.5-1 True scope of section 241 766

22.6 Oppression of majority 767

22.7 Limitation 768

22.8 Prevention of mismanagement 769

22.8-1 Application to Tribunal for relief in cases of misman-agement 769

22.8-2 Relief by the Tribunal 770

22.8-3 Instance of mismanagement 770

22.8-4 Conditions precedent for obtaining relief 771

22.8-5 Acts held as mismanagement 772

22.8-6 Acts held as not mismanagement 776

22.8-7 Private agreement for investment and section 241 777

22.8-8 Oppression and mismanagement and family centredCompanies 778

22.8-9 Affairs of a company include affairs of its subsidi-ary(ies) in appropriate cases 783

22.8-10 Waiver, estoppel or acquiescence by a shareholderholding 10% or more of shares in the company 784

22.8-11 Interim Order 784

22.8-12 Amalgamation of transferor company after filing ofpetition under section 241 785

22.9 Effect of ‘Arbitration clause’ in the Articles/Separate Agree-ment 785

22.10 Appeals against the orders of the Tribunal and variation of theorder of Tribunal 786

22.11 Difference between winding up proceedings and proceedingsunder sections 241 and 242 787

22.12 Composite/simultaneous petition under sections 241 and 271 -Whether maintainable 788

22.13 Powers of the Tribunal [Section 242] 789

22.13-1 Whether the provisions of the Evidence Act and Codeof Civil Procedure are applicable to proceedingsunder section 241 794

22.13-2 Some more cases on oppression and mismanage-ment 796

22.14 Class Action 803

22.14-1 Who may file an application 804

PAGE

CONTENTS I-42

22.14-2 Against whom an application may be filed 804

22.14-3 Relief under a class action 804

22.14.4 Procedure to be followed by the Tribunal 806

22.14-5 Order of the Tribunal 808

22.14-6 Differences between application under section 241/244 and class action under section 245 808



23COMPROMISES, ARRANGEMENTS,

RECONSTRUCTION AND AMALGAMATION

23.1 Meaning of compromise 814

23.2 Meaning of arrangement 814

23.3 Statutory provisions regarding compromise or arrangement 816

23.4 Exercise of the Tribunal’s discretion 820

23.5 Powers of the Tribunal 828

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)] 833

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 230 834

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 117 835

23.7 Reconstruction and amalgamation 835

23.8 Meaning of reconstruction 835

23.9 Meaning of amalgamation and merger 836

23.10 Difference between amalgamation and reconstruction 836

PAGE

I-43 CONTENTS

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 840

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 848

23.12-2 Duties of the Tribunal with respect to reconstruction/amalgamation 848

23.12-3 Amalgamation with existing company only 850

23.12-4 Synergy of operation 851

23.12-5 Compliance with the scheme 851

23.12-6 Effect on legal proceedings 852

23.12-7 Critical dates in amalgamation, mergers, etc. 853

23.12-8 Valuation of shares and fairness of exchange ratio 854

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] 862

23.15-1 Purchase of Minority Shareholding [Section 236] 863

23.15-2 Registration of offer of schemes involving transfer ofshares 863

23.16 Amalgamation of companies in public interest [Section 237] 867

23.16-1 Saving of proceedings 868

23.16-2 Protection of members and creditors 869

23.16-3 Role of Tribunal 869

23.17 Preservation of Books and Papers of Amalgamated Company[Section 239] 869

23.18 Offences committed prior to merger, amalgamation [Section240] 870

23.19 Impact of Stamp Duty on amalgamation 870

23.20 Some more cases on Compromises, Arrangements, amalgam-ations etc. 870



PAGE

CONTENTS I-44

Annex 23.1 Salient features of SEBI (Substantial Acquisition ofShares and Takeovers) Regulations, 2011 883

24REVIVAL AND REHABILITATION OF

SICK COMPANIES

24.1 Determination of Sickness 88824.2 Measures for revival and rehabilitation 88924.3 Procedure in pursuant of the application 890

24.3-1 Appointment of interim administrator 89024.3-2 Committee of Creditors 89024.3-3 Order for Winding up proceeding 89024.3-4 Appointment of Company Administrator 891

24.3-5 Power and Duties of company administrator [Section260] 891

24.3-6 Scheme of revival and rehabilitation 891

24.4 Sanction of the scheme 892

24.5 Winding up if scheme not approved by creditors 893

24.6 Implementation of the scheme 893

24.6-1 Conclusive evidence 893

24.6-2 Transfer of property and liabilities 893

24.6-3 Binding nature of the scheme 893

24.6-4 Modification, enforcement etc. of contracts 894

24.6-5 Company administrator to implement the scheme 894

24.6-6 Sale Proceeds to be used as directed 894

24.7 Review of the sanctioned scheme 894

24.8 Liability for misfeasance etc. 894

24.9 Punishment for certain offences 895

24.10 Bar on jurisdiction 895

24.11 Rehabilitation and Insolvency Fund 895



25WINDING UP

25.1 Meaning 897

25.2 Modes of winding up [Section 270(1)] 897

PAGE

I-45 CONTENTS

25.3 Winding up by the Tribunal 897

25.3-1 Inability to pay its debts [Section 271(1)(a)] 899

25.3-2 Winding up by Special Resolution [Section 271(1)(b)] 919

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)] 925

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)] 926

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)] 935

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

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

PAGE

CONTENTS I-46

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 95025.6-5 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 95525.6-9 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? 96125.7-2 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 965

25.11-1 Power to stay winding up [Section 289] 96525.11-2 Settlement of list of contributories [Section 285] 967

25.11-3 Delivery of property to Company Liquidator [Section283] 967

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] 97025.11-10 Power to modify the terms and conditions after

confirmation of sale of properties 97025.12 Dissolution of company [Section 302] 970

25.12-1 Effect of order of dissolution 97125.13 Enforcement of and appeal from orders 971

25.13-1 Enforcement of Orders [Section 424(3)] 97125.13-2 Appeals from Orders [Section 421] 971

PAGE

I-47 CONTENTS

VOLUNTARY WINDING UP

25.14 Meaning and manner of voluntary winding up 97225.15 Declaration of solvency [Section 305] 97225.16 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] 977

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

25.23 Costs of voluntary winding-up [Section 323] 980

25.24 Summary procedure for Liquidation [Section 361] 980

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 981

PAGE

CONTENTS I-48

25.25 Liquidators 981

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 987

25.27-1 Notice by Company Liquidator of his appointment[Section 312] 987

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 996

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] 998

25.35 Liabilities and rights of certain fraudulently preferred person[Section 331] 998

25.36 Effect of floating charge [Section 332] 999

25.37 Disclaimer of onerous property [Section 333] 999

25.38 Avoidance of transfers, etc. after commencement of winding-up [Section 334] 1001

25.39 Avoidance of certain attachments [Section 335] 1001

25.40 Offences by officers of companies in liquidation [Section 336] 1002

PAGE

I-49 CONTENTS

25.41 Penalty for fraud by officers [Section 337] 1004

25.42 Liability for not keeping proper books [Section 338] 1004

25.43 Liability for fraudulent conduct of business [Section 339] 1004

25.44 Damages for misfeasance etc. [Section 340] 1006

25.44-1 Misfeasance, what constitutes 1009

25.44-2 Legal representatives, liability of 1010

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 1011

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] 1012

25.46-4 Disposal of books and papers of company [Section347] 1012

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] 1014

25.47-2 Company Liquidation Dividend and UndistributedAssets Account [Section 352] 1014

25.48 Default by the Company Liquidator to make returns [Section353] 1015

25.49 Meetings to ascertain wishes of creditor and contributories [Sec-tion 354] 1015

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

25.51 Contributory 1017

25.51-1 Meaning of contributory 1017

25.51-2 Contributory vis-a-vis Member 1018

25.51-3 Persons liable as contributories 1018

25.51-4 Liability of contributories [Section 285] 1020

PAGE

CONTENTS I-50

25.51-5 Liability of present members 1020

25.51-6 Liability of past members 1020

25.51-7 Nature of liability of contributory [Section 296] 1021

25.51-8 Contributory’s right of set off 1022

25.52 Unregistered companies 1022

25.52-1 Meaning of unregistered company [Section 375] 1022

25.52-2 Winding-up of an unregistered company [Section375] 1023

25.52-3 Procedure for winding up of unregistered company 1024

25.52-4 Winding-up of a firm as an unregistered company 1024

25.53 Winding-up of a Foreign Company 1024

25.54 Removal of name of company from register of companies 1025

25.54-1 Procedure for removing the name 1025

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 1026

25.54-4 Effect of Restoration 1030

25.54-5 Position of creditors on restoration 1030

25.55 Vanishing Company 1031

25.56 Transfer of winding-up proceedings to Tribunal 1031

25.57 Some more cases on winding up 1031



26AUTHORITIES UNDER THE COMPANIES ACT, 2013

AND MISCELLANEOUS PROVISIONS

26.1 Registrar of Companies (R.O.C.) 1045

26.1-1 Meaning 1045

26.1-2 Duties of Registrar 1046

26.1-3 Filing fees 1046

26.1-4 Powers of Registrar (ROC) 1046

26.1-5 Disposal of Records in the Offices of Registrars 1047

26.2 Regional Director 1048

26.3 National Financial Reporting Authority [Section 132] 1049

PAGE

I-51 CONTENTS

26.3-1 Role of NFRA 1049

26.3-2 Powers of NFRA 1050

26.3-3 Constitution and functioning of NFRA 1050

26.3-4 Books of account and annual report of NFRA 1051

26.4 Serious Fraud Investigation Office [Section 211] 1051

26.4-1 Role of SFIO 1051

26.4-2 Constitution of SFIO 1052

26.4-3 Powers of SFIO 1052

26.4-4 Report of Investigation 1053

26.5 National Company Law Tribunal and National Company LawAppellate Tribunal 1053

26.5-1 Civil Court not to have jurisdiction [Section 430] 1053

26.5-2 Expeditious disposal of applications, petitions orappeal [Section 422] 1053

26.5-3 Order of the Tribunal 1054

26.5-4 Appeal to the Appellate Tribunal [Section 421] 1054

26.5-5 Appeal to the Supreme Court [Section 423] 1054

26.5-6 Procedure to be followed by the Tribunal and Appel-late Tribunal [Section 424] 1054

26.5-7 Powers of the Tribunal and Appellate Tribunal 1055

26.5-8 Rules to be followed in proceeding before the Tribu-nal 1056

26.5-9 Meditation and Conciliation Panel 1056

26.6 Special Courts 1056

26.6-1 Jurisdiction of the Special Court 1056

26.6-2 Summary Trial by the Special Court 1057

26.6-3 Application of the Code of Criminal Procedure [Sec-tion 438] 1057

26.6-4 Appeal and Revision [Section 437] 1057

MISCELLANEOUS PROVISIONS

26.7 Offences to be non-cognizable [Section 439] 1057

26.8 Compounding of certain offences under the Companies Act[Section 441] 1058

26.9 Punishment for Fraud [Section 447] 1060

26.9-1 Penalties for false statements made and false evidencegiven [Section 448] 1060

PAGE

CONTENTS I-52

26.9-2 Penalty where no specific penalty is provided else-where in the Act [Section 450] 1061

26.9-3 Punishment in case of repeated default [Section 451] 1061

26.9-4 Penalty for wrongful withholding of property [Sec-tion 452] 1061

26.9-5 Penalty for improper use of the words “Limited” and“Private Limited” [Section 453] 1064

26.9-6 Power of Central Government to make Rules 1064

26.10 Dormant Company 1064

26.11 Service of documents 1066

26.11-1 Service of documents on a company 1066

26.11-2 Service of documents on R.O.C. [Section 20] 1066

26.11-3 Service of documents on members by company [Sec-tion 20] 1066

26.12 Company law in a computerised environment - E-filing - Intro-duction 1067

26.12-1 Filing of applications, documents, inspection etc. inelectronic form 1067

26.12-2 Electronic form to be exclusive, alternative or addi-tional 1068

26.12-3 Providing of value added services through electronicform [Section 401] 1068

26-12-4 Application of provision of Information TechnologyAct, 2000 1068

26.12-5 What is e-Governance 1068

26.12-6 E-filing of petitions and application before the Tribu-nal 1074

26.13 The Depositories Act, 1996 : An Analysis 1076

26.13-1 Objectives 1076



SUBJECT INDEX 1085

PAGE

I-53 CONTENTS

CONTENTS · Preface to the Twentieth Edition I-7 Preface to the First Edition I-9 Chapter-heads...

Documents

Transcript of CONTENTS · Preface to the Twentieth Edition I-7 Preface to the First Edition I-9 Chapter-heads...