VVIMP Corporate Law Summary CA Final Corporate Allied Laws Specially for Nov 12 Attempt (1) Neeraj...

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By C.S. NEERAJ MUDGAL

9910965137 Visiting Faculty ICSI www.neerajmudgal.com

SUMMARYSUMMARYSUMMARYSUMMARY OFOFOFOF IMPORTANT TOPICS IMPORTANT TOPICS IMPORTANT TOPICS IMPORTANT TOPICS

FOR FOR FOR FOR CA FINAL LAWCA FINAL LAWCA FINAL LAWCA FINAL LAW

BY : NEERAJ MUDGAL

STUDENTS ARE ADVISED TO MAKE THOUROUH ANALYSIS OF TOPICS

DIRECTORS, SEBI ACT AND SEBI(ICDR)REGULATION & FEMA 1999

““““WISH U HAVE GREAT KNOWLEDGE AND LUCKWISH U HAVE GREAT KNOWLEDGE AND LUCKWISH U HAVE GREAT KNOWLEDGE AND LUCKWISH U HAVE GREAT KNOWLEDGE AND LUCK””””

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SCRA 1956

OBJECTS OF THE ACT

An Act to prevent undesirable transactions in securities by regulating the business of dealing

therein by providing for certain other matters connected therewith.

The act extends to the whole of the india.

The does not apply to the following:

� The government

� The RBI

� Local authorities

� Any corporation set up by special law.

� any person who has effected any transaction with or through the agency of any such authority

as is referred to in this clause

� any convertible bond or share warrant or any option or right in relation thereto,

� where the exemption has been given by the CG

Power of CG to withdraw the recognition of the STX SEC. 5

The CG may by in the public interest or in the interest of trade, by written notice and specifying the reasons and

after giving a ROOBH to the Governing Body, withdraw the recognition of the STX.

Contracts up to the date of withdrawl shall be valid.

Power of CG to SUPERCEDE the Governing Body of the STX [Sec. 11]

The CG may by notification intimate that it is considering the Supercession of the governing body of the STX.

It shall give a ROOBH to the governing body of STX. If still satisfied about supercession ,it may by NIOG

declare the Governing Body as superceded.

CG may appoint the new governing body to perform the functions of STX. And order the property to vest in the

stx.

Power of CG(SEBI) to make or amend the rules of STX [sec.8]

The CG is empowered to make or amend all or any of the rules of STX related to the matters specified in

section 3 ( the governing body of such stock exchange, the powers and duties of the office bearers of the

stock exchange, membership of STX, the procedure for the registration of partnerships )

STX shall make or amend the rules with in 2 months .

Otherwise the sebi may itself make or amend the rules,. the rules shall be valid as if the same were made or

amended by the recognized stock exchange itself.

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Power to put restriction on the rights of the member [ Sec. 7] a recognised stock exchange is empowered to amend rules to provide for all or any of the following matters:

(a) Restriction of voting right to members only.

(b) Regulation of voting rights by specifying that each member is entitled to one vote only irrespective of

number of shares held.

(c) Restriction on right of members to appoint proxy.

Establishment of Clearing Corporation [ sec. 8A]

A recognized stock exchange may, with the prior approval of the Securities Exchange Board of India,

transfer the duties and functions of a clearing house to a clearing corporation, being a company

incorporated under the Companies Act, 1956 for the purpose of:

(a) The periodical settlement of contracts and differences there under

(b) The delivery of, and payment for, securities;

(c) Any other matter incidental to, or connected with, such transfer

Sebi may grant the approval if it is in the interest of trade/public.

Additional Trading floor [ sec. 13A] Additional Trading Floor' means a trading ring or trading facility offered by a recognized stock exchange

outside its area of operation.

a Stock Exchange may establish additional trading floor with the prior approval of the Securities Exchange

Board of India.

Power to Suspend Trading of the STX [Sec. 12]

Central Government is vested with power to suspend business in case of emergency for a period not

exceeding 7 days by notification in Gazette. Central Government also have power to extend this period by a like

notification. However, extension can be ordered by the Central Government only after giving the ROOBH to

the Governing Body of the STX..

Corporatization and Demutualisation [ sec. 4B]

(1) All recognised stock exchanges shall, within the time specified by the Securities and Exchange Board of

India, submit a scheme for corporatisation and demutualisation for its approval:

(2) On receipt of the scheme , the Securities and Exchange Board of India may, make enquiry and obtaining

further information, and if it is satisfied that it would be in the interest of the trade and also in the public

interest, then it may approve the scheme with or without modification.

(4) Where the scheme is approved , the scheme so approved shall be published immediately by—

(a) the Securities and Exchange Board of India in the Official Gazette;

(b) the recognised stock exchange in such two daily newspapers circulating in India, as may be specified by

the Securities and Exchange Board of India,

and upon such publication, the scheme shall have effect and be binding on all persons and authorities.

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Right to appeal against refusal of Listing permission by STX [ Sec. 22A]

Where a co makes an application for listing permission to a STX and the Permission is refused then

The Appeal may be made to SAT within

� 15 days of receipt of reasons of refusal, if the Stock Exchange has furnished the reasons for refusal

to the company.

� Within 15 days from the expiry of specified time.(specified time means 10 weeks from the date of

closure of subscription list., if no refusal is communicated by STX)

Any person aggrieved by the decision of the SAT may file the appeal to the Supreme Court within 60 days

from the date of order of SAT.

Title to dividends: [Section 27]

a holder of security can legally receive and retain any dividend declared by the company even if he has

transferred the security for valuable consideration. However, he (i.e. holder of security who is a

transferor) cannot receive or retain the dividend if the transfer deed with all other documents required

for transfer are lodged with the company within 15 days of the date on which the dividend became

due.

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BANKING REGULATION ACT 1949

Mandatory to use the words bank, banker ,banking or banking co. [sec.7]

Above mentioned words are mandatorily required to be used as part of the name by a company

carrying on the business of banking. Others cannot use these words.

However for a subsidiary of a banking company and an association of banks, this section is not

applicable.

Disposal of Non-Banking assets(sec.9)

A Banking Co may hold the immovable property for its own use for a period of 7 years from the date

of acquisition and for an extended period upto 5 year with the permission of RBI.

Board of Directors to include persons with professional or other experience [10A.] Minimum fifty-one per cent of the total number of members of the Board of Directors of a banking company

shall consist of persons, who- shall have special knowledge or practical experience in respect of one or more

of the following matters, namely,- accountancy,agriculture and rural economy,banking, co-operation,

economics,finance,law,small-scale industry, any other matter the special knowledge of, and practical

experience, which would, in the opinion of the Reserve Bank, be useful to the banking company: However out of the aforesaid number of Directors, not less than two shall be persons having special

knowledge or practical experience in respect of agriculture and rural economy, co-operation or small-scale

industry AND

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shall not have substantial interest in any company, not being a company registered under section 25 of the

Companies Act, 1956 or any firm, which carries on any trade, commerce or industry and which, in either case,

is not a small-scale industrial concern, or

shall not be proprietors of any trading, commercial or industrial concern, not being a small-scale industrial

concern.

Reserve Fund [Sec. 17]

Every banking co shall transfer to its reserve fund min. 20% of its profits before declaring the dividend. Howev

er CG may give exemption if the balance of reserve fund and securities together is not less than paid up capital

of the co.

CASH RESERVE.[Sec. 18]

Every banking company, not being a scheduled bank, shall maintain in India by way of cash reserve a sum

equivalent to at least three per cent of the total of its demand and time liabilities in India as on the last Friday of

the second preceding fortnight and shall submit to the Reserve Bank before the twentieth day of every month a

return showing the amount so held on alternate Fridays during a month with particulars of its demand and time

liabilities in India on such Fridays or if any such Friday is a public holiday, at the close of business on the

preceding working day.

Rates of interest charged by banking companies not to be subject to scrutiny by courts. [Sec 21A.] —

a transaction between a banking company and its debtor shall not be re-opened by any court on the ground that

the rate of interest charged by the banking company in respect of such transaction is excessive.

. Amendments of provisions relating to appointments of managing directors, etc., to be subject to

previous approval of the Reserve Bank. [Sec. 35B ]— appointment or re-appointment or termination of appointment or remuneration of a chairman, a

[managing director or any other director, whole-time or otherwise or of a manager or a chief executive

officer by whatever name called, shall not have effect unless approved by the Reserve Bank; and

provisions of co act shall not apply.

If the appointment or reappointment is found to be invalid then the acts done upto such date shall be

valid and after such date the acts shall be invalid.

Power of Reserve Bank to remove managerial and other persons from office.[Sec. 36 AA] —

RBI may in the public interest or for preventing the affairs of a banking company being conducted in a

manner detrimental to the interests of the depositors or for securing the proper management of any

banking company it is necessary so to do

By order remove [any chairman, director,] chief executive officer (by whatever name called) or other officer or employee of the banking company. The removed person shall be disqualified for a period upto 5 years in future to hold similar position in

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any Banking co.

The aggrieved person may make an appeal within 30 days of RBI order to CG.

The decision of the Central Government on such appeal, and subject thereto, the order made by the

Reserve Bank under sub-section (I), shall be final and shall not be called into question in any court.

RBI may appoint a suitable person in place of the removed person.

Power of Reserve Bank to appoint additional directors, [36AB.]

RBI may, in the interest of banking policy or in the public interest or] in the interests of the banking

company or its depositors, appoint one or more additional director for a period of 3 years at a time and

may extend the time in future upto 3 years at a time. Such director shall not incur any liability, shall

not be liable to hold the qualification shares and shall not be considered in total no of directors of the

banking co.

Power of Central Government to acquire undertakings of banking companies in certain cases

[36AE] RBI may, in the interests of the depositors of such banking company, or in the interest of banking

policy, or for the better provision of credit generally or of credit to any particular section of the

community or in any particular area,

by order and after give a reasonable opportunity of showing cause against the proposed action

acquire the undertaking of any banking co.

such undertaking may vest in the CG or in any other banking co. all the assets and liabilities and

documents etc. shall get transferred to the CG or any other banking co as the case may be.

36AG. Compensation to be given to shareholders of the acquired bank.

If the amount of compensation offered is not acceptable to any person to whom the compensation is

payable, such person may, before such date as may be notified by the Central Government in the

Official Gazette, request the Central Government in writing, to have the matter referred to the Tribunal

. Inspection. [Sec.35]

the Reserve Bank at any time may, and on being directed so to do by the Central Government shall,

cause an inspection to be made of any banking company and its books and accounts; the Reserve Bank, at any time, may also cause a scrutiny to be made by any one or more of its officers, of the affairs of any banking company and its books and accounts; and Central Government, if it is of opinion after considering the report that the affairs of the banking company are being conducted to the detriment of the interests

of its depositors, may, after giving reasonable opportunity to the banking company to make a

representation in connection with the report, by order in writing—

(a) prohibit the banking company from receiving fresh deposits; (b) direct the Reserve Bank to apply under section 38 for the winding up of the banking

company:

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THE PREVENTION OF MONEY-LAUNDERING ACT, 2002

An Act to prevent money-laundering and to provide for confiscation of property derived from, or

involved in, money-laundering and for matters connected therewith or incidental thereto.

Money Laundering [ sec.2(1)(p) & 3]

Whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is

actually involved in any process or activity connected with the proceeds of crime and projecting it as

untainted property shall be guilty of offence of money-laundering.

Proceeds of Crime[sec. 2(1)(u)]

"proceeds of crime" means any property derived or obtained, directly or indirectly, by any person as a

result of criminal activity relating to a scheduled offence or the value of any such property;

Punishment for money-laundering.[Sec.4]

Whoever commits the offence of money-laundering shall be punishable with rigorous imprisonment

for a term which shall not be less than three years but which may extend to seven years and shall

also be liable to fine which may extend to five lakh rupees: In case of offences in paragraph 2 of Part A of the Schedule, imprisonment may extend to 10 years

Banking companies, financial institutions and intermediaries to maintain records.—

Sec.12

(1) Every banking company, financial institution and intermediary shall—

(a) maintain a record of the prescribed transactions, whether such transactions comprise

of a single transaction or a series of transactions within a month;

(b) furnish information of transactions referred to in clause (a) to the Director within

such time as may be prescribed;

(c) verify and maintain the records of the identity of all its clients, in such manner as

may be prescribed:

The records referred to in sub-section (1) shall be maintained for a period of ten years

Powers of Director to impose fine. [Sec. 13] --

If the Director, in the course of any inquiry, finds that a banking company, financial institution or an

intermediary or any of its officers has failed to comply with the provisions contained in section 12,

then, he may, by an order, levy a fine on such banking company or financial institution or intermediary

which shall not be less than ten thousand rupees but may extend to one lakh rupees for each failure.

Appeal to Appellate Tribunal. [Sec. 26]-- the Director or any person aggrieved by an order made by

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the Adjudicating Authority under this Act, may prefer an appeal to the Appellate Tribunal. Any banking company, financial institution or intermediary aggrieved by any order of the Director

made under section 13, may prefer an appeal to the Appellate Tribunal. Every appeal shall be filed within a period of forty-five days from the date on which a copy of the

order made by the Adjudicating Authority or Director is received.

the Appellate Tribunal may, after giving the parties to the appeal an opportunity of being heard, pass

such orders thereon as it thinks fit, confirming, modifying or setting aside the order appealed against.

The appeal filed before the Appellate Tribunal shall be dealt with by it as expeditiously as possible

and endeavour shall be made by it to dispose of the appeal finally within six months from the date of

filing of the appeal.

Appeal to High Court. [Sec. 42]-- Any person aggrieved by any decision or order of the Appellate

Tribunal may file an appeal to the High Court within sixty days from the date of communication of the

decision or order of the Appellate Tribunal to him on any question of law or fact arising out of such

order: Provided that the High Court may, if it is satisfied that the appellant was prevented by sufficient cause

from filing the appeal within the said period, allow it to be filed within a further period not exceeding

sixty days.

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COMPETITION ACT 2002

Sec. 2(f)

"consumer"

means any person who-

(i) buys any goods for a consideration which has been paid or promised or partly paid and partly

promised, or under any system of deferred payment and includes any user of such goods other than the

person who buys such goods for consideration paid or promised or partly paid or partly promised, or

under any system of deferred payment when such use is made with the approval of such person,

whether such purchase of goods is for resale or for any commercial purpose or for personal use;

(ii) hires or avails of any services for a consideration which has been paid or promised or partly paid

and partly promised, or under any system of deferred payment and includes any beneficiary of such

services other than the person who hires or avails o the services for consideration paid or promised, or

partly paid and partly promised, or under any system of deferred payment, when such services are

availed of with the approval of the first-mentioned person whether such hiring or availing of services

for any commercial purpose or for personal use;

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Sec. 2(r)"relevant market"

means the market which may be determined by the Commission with reference to the relevant product

market or the relevant geographic market or with reference to both the markets; Sec. 2(s)"relevant geographic market"

means a market comprising the area in which the conditions of competition for supply of goods or

provision of services or demand of goods or services are distinctly homogenous and can be

distinguished from the conditions prevailing in the neighbouring areas;

Sec. 2(t)"relevant product market"

means a market comprising all those products or services which are regarded as interchangeable or

substitutable by the consumer, by reason of characteristics of the products or services, their prices and

intended use;

Anti competitive agreements [Sec. 3] No enterprise or association of enterprises or person or association of persons shall enter into any

agreement in respect of production, supply, distribution, storage, acquisition or control of goods or

provision of services, which causes or is likely to cause an appreciable adverse effect on competition

within India. Any such agreement shall be void.

HORIZONTAL-ANTI COMPETITIVE AGREEMENTS[Sec 3(3)] Any agreement which—

(a) directly or indirectly determines purchase or sale prices;

(b) limits or controls production, supply, markets, technical development, investment or

provision of services;

(c) shares the market or source of production or provision of services by way of allocation of

geographical area of market, or type of goods or services, or number of customers in the market

or any other similar way;

(d) directly or indirectly results in bid rigging or collusive bidding,

shall be presumed to have an appreciable adverse effect on competition:

VERTICAL ANTI-COMPETITIVE AGREEMENTS[ Sec. 3(4)]

(4) Any agreement amongst enterprises or persons at different stages or levels of the production chain

in different markets, in respect of production, supply, distribution, storage, sale or price of, or trade in

goods or provision of services, including—

(a) tie-in arrangement;

(b) exclusive supply agreement;

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(c) exclusive distribution agreement; (d) refusal to deal;

(e) resale price maintenance,

shall be void if such agreement causes or is likely to cause an appreciable adverse effect on

competition in India.

Abuse of dominant position [Sec 4] No enterprise shall abuse its dominant position. There shall be an abuse of dominant position , if an enterprise.—-

(a) directly or indirectly, imposes unfair or discriminatory—

(i) condition in purchase or sale of goods or service; or (ii) price in purchase or sale (including predatory price) of goods or service,

(b) limits or restricts— (i) production of goods or provision of services or market therefore; or

(ii) technical or scientific development relating to goods or services to the prejudice of

consumers; or (c) indulges in practice or practices resulting in denial of market access; or

(d) makes conclusion of contracts subject to acceptance by other parties of supplementary obligations

which have no connection with the subject of such contracts; or

(e) uses its dominant position in one relevant market to enter into, or protect, other relevant

market.

Regulation of combinations[ Sec. 6]

No person or enterprise shall enter into a combination which causes or is likely to cause an appreciable

adverse effect on competition within the relevant market in India and such a combination shall be

void.

Notice of formation of the combination shall be given to CCI and the combination shall be valid only

if the approval is granted by CCI or a period of 210 days elapse from the date of notice and no

communication is received from CCI.

Composition of CCI [ Sec. 8] (1) The Commission shall consist of a Chairperson and not less than two and not more than 6 other

Members to be appointed by the Central Government: Provided that the Central Government shall appoint the Chairperson and a Member during the first

year of the establishment of the Commission. (2) The Chairperson and every other Member shall be a person of ability, integrity and standing and

who, has been, or is qualified to be, a judge of a High Court; or, has special knowledge of, and

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professional experience of not less than fifteen years in international trade, economics, business,

commerce, law, finance, accountancy, management, industry, public affairs, administration or in any

other matter which, in the opinion of the Central Government, may be useful to the Commission. (3) The Chairperson and other Members shall be whole-time Members.

Term of office of Chairperson and other Members[sec10] The Chairperson and every other Member shall hold office as such for a term of five years from the

date on which he enters upon his office and shall be eligible for re-appointment: Provided that no Chairperson or other Member shall hold office as such after he has attained the age of

65 years.

Resignation, removal and suspension of Chairperson and other members[SEC. 11] The Chairperson or any other Member may, by notice in writing under his hand addressed to the

Central Government, resign his office:

Provided that the Chairperson or a Member shall, unless he is permitted by the Central Government to

relinquish his office sooner, continue to hold office until the expiry of three months from the date of

receipt of such notice or until a person duly appointed as his successor enters upon his office or until

the expiry of his term of office, whichever is the earliest.

Restriction on employment of Chairperson and other Members in certain cases [Sec 12] The Chairperson and other Members shall not, for a period of 2 years from the ' date on which they

cease to hold office, accept any employment in, or connected with the management or administration

of, any enterprise which has been a party to a proceeding before the Commission under this Act: Provided that nothing contained in this section shall apply to any employment under the Central

Government or a State Government or local authority or in any statutory authority or any corporation

established by or under any Central, State or Provincial Act or a Government company as defined in

section 617 of the Companies Act, 1956 (1 of 1956).

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SECURITISATION AND RECONSTRUCTION OF FINANCIAL ASSESTS AND

ENFORCEMENT OF SECURITY INTEREST ACT, 2002

“An Act to regulate securitization and reconstruction of financial assets and enforcement of security

interest and for matters connected therewith or incidental thereto”.

Sec 2(v)"reconstruction company" means a company formed and registered under the Companies Act,

1956 (1 of 1956) for the purpose of asset reconstruction;

Sec.2(z)"securitisation" means acquisition of financial assets by any securitisation company or

reconstruction company from any originator, whether by raising of funds by such securitisation

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company or reconstruction company from qualified institutional buyers by issue of security receipts

representing undivided interest in such financial assets or otherwise;

Sec. 2(o)"non-performing asset" means an asset or account of a borrower, which has been classified by

a bank or financial institution as sub-standard, doubtful or

loss asset,-- (a) in such authority or body; (b) in any other case, in accordance with the directions or guidelines relating to assets

classifications issued by the Reserve Bank;

Provisions of this Act not to apply in certain cases[Sec 31] The provisions of this Act shall not apply to--

(a) a lien on any goods, money or security ; (b) a pledge of movables (c) creation of any security in any aircraft

(d) creation of security interest in any vessel (e) any conditional sale, hire-purchase or lease or any other contract in which no security

interest has been created; (f) any rights of unpaid seller

(g) any properties not liable to attachment (h) any security interest for securing repayment of any financial asset not exceeding one

lakh rupees;

(i) any security interest created in agricultural land;

(j) any case in which the amount due is less than twenty per cent of the principal amount

and interest thereon.

Registration of securitisation companies or reconstruction companies [Sec.3]

securitisation company or reconstruction company shall not commence or carry on the business of

securitisation or asset reconstruction without-- (a) obtaining a certificate of registration and (b) having the owned fund of not less than two crore rupees or such other amount not

exceeding fifteen per cent of total financial assets acquired or to be acquired by the

securitisation company or reconstruction company, as the Reserve Bank may, by

notification, specify:

Registration procedure co shall make an application for registration to the Reserve Bank.

Conditions to be satisfied

(a) company has not incurred losses in any of the three preceding financial years; (b) company has made adequate arrangements for realisation of the financial assets

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acquired for the purpose of securitisation or asset reconstruction and shall be able to

pay periodical returns and redeem on respective due dates on the investments made in

the company by the qualified institutional buyers or other persons;

(f) that the directors of securitisation company or reconstruction company have adequate

professional experience in matters related to finance, securitisation and reconstruction

that the board of directors of such company, does not consist of more than half of its

total number of directors who are either nominees of any sponsor or associated in any

manner with the sponsor or any of its subsidiaries; (g) that any of its directors has not been convicted of any offence involving moral

turpitude; (h) that a sponsor, is not a holding company of the securitisation company or

reconstruction company, as the case may be, or, does not otherwise hold any

controlling interest in such company; (i) that securitisation company or reconstruction company has complied with or is in a

position to comply with prudential norms specified by the Reserve Bank. (j) that company has complied with one or more conditions specified in the guidelines

issued by the Reserve Bank for the said purpose.

Grant of certificate of registration

The Reserve Bank may, after being satisfied that the conditions are fulfilled, grant a certificate of

registration to commence or carry on business of securitisation or asset reconstruction, subject to such

conditions which it may consider, fit to impose.

RBI may also reject the application after giving an opportunity of being heard to the applicant.

Any substantial changes and changes in the location of registered office shall be done only with the

approval of RBI.

Sec 4. Cancellation of certificate of registration The Reserve Bank may cancel a certificate of registration granted to a securitisation company or a

reconstruction company, if such company-- a. ceases to carry on the business of securitisation or asset reconstruction; or b. ceases to receive or hold any investment from a qualified institutional buyer; or

c. has failed to comply with any conditions subject to which the certificate of registration has

been granted to it; or d. at any time fails to fulfil any of the conditions referred to in clauses (a) to (g) of sub-section (3)

of section 3; or e. fails to--

a comply with any direction issued by the Reserve Bank under the provisions of

this Act; or b maintain accounts in accordance with the requirements of any law or any

direction or order issued by the Reserve Bank under the provisions of this Act;

or

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c submit or offer for inspection its books of account or other relevant documents

when so demanded by the Reserve Bank; or d obtain prior approval of the Reserve Bank required under sub-section (6) of

section 3:

Appeal to Central government

(2) A securitisation company or reconstruction company aggrieved by the order of cancellation of

certificate of registration may prefer an appeal, within a period of thirty days from the date on which

such order of cancellation is communicated to it, to the Central Government: PROVIDED that before rejecting an appeal such company shall be given a reasonable opportunity of

being heard.

Sec. 13 Enforcement of security interest (1) any security interest created in favour of any secured creditor may be enforced, without

the intervention of court or tribunal, by such creditor in accordance with the provisions of this Act.

(2) Where any borrower, who is under a liability to a secured creditor under a security

agreement, makes any default in repayment of secured debt or any instalment thereof, and his account

in respect of such debt is classified by the secured creditor as non-performing asset, then, the secured

creditor may require the borrower by notice in writing to discharge in full his liabilities to the secured

creditor within sixty days from the date of notice failing which the secured creditor shall be entitled to

exercise all or any of the rights under sub-section (4).

(3) The notice referred to in sub-section (2) shall give details of the amount payable by the

borrower and the secured assets intended to be enforced by the secured creditor in the event of non-

payment of secured debts by the borrower. (4) In case the borrower fails to discharge his liability in full within the period specified in sub-section

(2), the secured creditor may take recourse to one or more of the following measures to recover his

secured debt, namely:-- (a) take possession of the secured assets of the borrower including the right to transfer by

way of lease, assignment or sale for realising the secured asset;

(b) take over the management of the business of the borrower including the right to transfer

by way of lease, assignment or sale for realising the secured asset: PROVIDED that the right to transfer by way of lease, assignment or sale shall be

exercised only where the substantial part of the business of the borrower is held as

security for the debt: PROVIDED FURTHER that where the management of whole of

the business or part of the business is severable, the secured creditor shall take over the

management of such business of the borrower which is relatable to the security for the

debt. (c) appoint any person (hereafter referred to as the manager), to manage the secured assets

the possession of which has been taken over by the secured creditor;

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(d) require at any time by notice in writing, any person who has acquired any of the

secured assets from the borrower and from whom any money is due or may become due to the

borrower, to pay the secured creditor, so much of the money as is sufficient to pay the

secured debt.

(8)If the dues of the secured creditor together with all costs, charges and expenses incurred by him are

tendered to the secured creditor at any time before the date fixed for sale or transfer, the secured asset

shall not be sold or transferred by the secured creditor, and no further step shall be taken by him for

transfer or sale of that secured asset. ========================================================================

INTERCORPORATE LOAN/GUARANTEE/SECURITY/INVESTMENT

SEC. 372A.

Public Company

A public company shall not make directly or indirectly

� Any loan

� Give any guarantee or provide security.

� Acquire securities.

Exceeding the higher of the following :

60% of the PAID UP CAPITAL +FREE RESERVES

OR which ever is

HIGHER

100% OF THE FREE RESERVES

The limit is for both PRESENT AND PROPOSED G/S/I.

[PRESENT + PROPOSED] should be less than or equal to THE HIGHER LIMIT

UPTO LIMIT : UNANIMOUS BOARD APPROVAL MUST BE OBTAINED.

BEYOND THE LIMIT: PRIOR SR.

However in case of the guarantee the approval may be taken subsequently subject to the following

conditions:

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� A resolution has been passed at the Board Meeting authorizing such guarantee in accordance

with the provisions of this section

� There exists exceptional circumstances which prevent the company from obtaining prior SR

� The above said Board Resolution is confirmed with in 12 months by the GM or at the ensuing

AGM which ever is earlier.

IF THE TOTAL LOAN/GUARANTEE/SECURITY/INVESTMENT IS GREATER THAN

60% of the [PUC + FREE RESERVES] AND A TERM LOAN TAKEN FROM PFI IS STILL

SUBSISTING THEN

APPROVAL OF PFI SHALL BE TAKEN.

the provisions of this section are not applicable :

� private company

� L/G/S/I made by a hoding company in its whollely owned subsidiary

� Allotment made in pursuance of section 81(1)(a).

========================================================================

SOLE SELLING AGENT SOLE SELLING AGENT SOLE SELLING AGENT SOLE SELLING AGENT APPROVALS REQUIRED FOR APPOINTMENT OF SSA

SEC. 294 & 294AA

PUC. PUC< 50 LAC PUC 50 LAC OR MORE

SUB. INT.

No BR

OR (Subsequent)

BR

SR (subsequent)

CG Approval (subsequent)

Yes BR

Prior CG Approval

OR ( sub)

BR

Prior CG

Subsequent SR

17:



Substantial Interest

For Individual

Individual and his relative holds beneficial interest of more than 5% of the PUC or Rs. 5,00,000 PUC

which ever is lesser.

For firm

If partner(s) or relatives beneficially hold more than 5% of the PUC or Rs. 5,00,000 PUC which ever

is lesser.

For Body Corporate

Body corporate along with director and their relative beneficially hold more than 5% of the PUC or

Rs. 5,00,000 PUC which ever is lesser.

POWER OF CG TO PROHIBIT THE APPOINTMENT OF SSA[ Section 294AA]

CG may by notification in the official Gazette prohibit the appointment of SSA for any class of goods

( for the time being specified in the notification) if CG is of the opinion that demand of such goods is

substantially greater than its production or supply.

* the BOARD RESOLUTION must contain the conditional clause then only appointment shall

be valid.

Amount of compensation due to premature termination

Compensation if payable shall be paid for Lower of the following periods:

Unexpired period of the agency

Or

3 years

On the basis of the average of the remuneration drawn during the period of preceding 3 financial year

or for a shorter period as the case may be.

18:



OPPRESSION & MISMANAGEMNT OPPRESSION & MISMANAGEMNT OPPRESSION & MISMANAGEMNT OPPRESSION & MISMANAGEMNT

Section 397 Section 398

Any Member(s)

May apply to the CLB if

� The Affairs of the

company are being

managed in a manner

oppressive to any

member(s) OR

� The affairs of the

company are being

managed in a manner

which is Prejudicial to

the Public Interest.

If on receiving the application

CLB is satisfied that

circumstances are such that it is

Just and Equitable to Wind up

the company, but the winding up

of the company will rather be

prejudicial to the applicants then

CLB may pass an order under

section 402.

Any Member(s)

May apply to the CLB,

(a)

if affairs of the company are being managed

in a manner:

� Prejudicial to the interests of the

company

OR

� Prejudicial to the public interest

(b) if there has taken place a material

change in the ownership or control of the

company and because of such change it is

likely that the affairs of the company will

be managed in the aforesaid manner

if the CLB is of the opinion that the affairs

of the company are being managed or likely

to be managed in the aforesaid manner then

the CLB may pass the suitable order under

section 402

Applicants under section 397 and 398

Company having Share Capital

At least100 members or 1/10th

of the total no of members which ever is less

OR

19:



Any member(s) holding not less than 1/10th

of the issued capital of the company.

The applicants should not have defaulted in the payment of calls due on their shares.

Company not having share capital

At least 1/5th

of the total no of members.

* where the shares are transferred after the filing of application to CLB, application shall

continue to be valid.

* even if some of the applicant disassociate themselves from the application by filing an affidavit,

the application shall be valid.

� Directors may also file application under section 409.

=======================================================================

COMPROMISE, ARRACOMPROMISE, ARRACOMPROMISE, ARRACOMPROMISE, ARRANGEMENT & NGEMENT & NGEMENT & NGEMENT &

AMALGAMATIONAMALGAMATIONAMALGAMATIONAMALGAMATION

Section 391

Procedure of scheme of Compromise or Arrangement

� The company / member/ creditor/ liquidator may make an application to the court along with

the Draft scheme, summon of the judge and the affidavit.

� The court may by order fix the date and time of the class meeting and also appoint the

chairman of the meeting.

� The members/creditors as the case may be shall approve the Compromise / Arrangement by :

Majority in number &

Holding 3/4th

by value amongst those who are present and voting.

� With in 7 days of the class meeting the chairman shall submit his report to the court.

� Within 7 days after the chairman has filed his report to the court, the company shall file the

application to the court for sanctioning the scheme along with 3 annexures :

� Latest Balance Sheet,

� Latest Audit Report,

� Statement of Pendency of investigation under earlier suits under

section 235-251 and the like.

� The court may pass the order for sanctioning the scheme.

20:



� The company shall file the copy of the order with ROC along with the copy of the scheme in

form no. 21.

Any person interested in the affairs of the co may make an application for winding up of the company

under section 392 even if not entitled to make application under sec. 391

Section 394

Where an application is made under section 391 to the HC &

The application shows to the court that:

� The scheme of compromise or arrangement is proposed as part of the scheme of amalgamation

or reconstruction &

� All the assets & liabilities or any part of the transferor company are proposed to be transferred

to the transferee company.

Then the HC may pass the following orders:

� Dissolution of the transferor company without winding up provided it has obtained the NOC

from the Official Liquidator.[ NOC from OL always]

� Approving the scheme of compromise or arrangement( Amalgamation, reconstruction) of the

company being wound up provided that it has obtained the NOC from ROC/CLB

Effective Date and Appointed Date

Effective date means the date on which the legal aspects gets completed i.e. the date on which the

copy of the court order is filed with the ROC.

Appointed date means the date on which Assets & Liabilities of Transferor company stands

transferred to the Transferee company. It is same as the effective date or a later date, however it can

never be an earlier date. It may be mentioned in the scheme of amalgamation or if not mentioned in

the scheme then the court may fix it at the time of sanctioning the scheme. However even if the

appointed date is mentioned in the scheme, still the court may prescribe a new appointed date and then

such date shall be treated as the appointed date.

Power of Central Government to order amalgamation in the Public Interest

Section 396

Where the CG is satisfied that it is essential in public interest that two or more companies should

amalgamate, it may by notified order in the official Gazette provide for the amalgamation of those

companies in to a single company.

21:



CG shall notify the draft order of amalgamation in official Gazette . it shall send a copy of the draft

order to the concerned companies stating the amount of compensation in lieu of the rights

� Any person aggrieved with the amount of compensation, may file an appeal to CLB with in 30

days from the date of the publication of the order as above. The CLB shall pass an appropriate

order.

� Further within time allowed by the CG (not being less than 2 months), the company, creditors,

members may file objections, suggestions to CG

After considering the above, the CG shall pass its final order either confirming, modifying or

nullifying its original order by a NIOG.

Reconstruction of Company under Members’ Voluntary-winding up [ Section 494]

liquidator of the transferor company may, with the sanction of a special resolution of that company

(i) receive, by way of compensation or part compensation for the transfer or sale, shares,

policies, or other like interest in the transferee company, for distribution among the members

of the transferor company ; or

(ii) enter into any other arrangement whereby the members of the transferor company may, in

lieu of receiving cash, shares, policies, or other like interests or in addition thereto, participate

in the profits of, or receive any other benefit from, the transferee company.

Arrangement with the creditors in voluntary winding up (Section 517)

(1) Any arrangement entered into between a company about to be, or in the course of being, wound up

and its creditors shall, subject to the right of appeal under this section, be binding on the company and

on the creditors if it is sanctioned by a special resolution of the company and acceded to by three-

fourths in number and value of the creditors.

(2) Any creditor or contributory may, within three weeks from the completion of the arrangement,

appeal to the Court against it and the Court may thereupon, as it thinks just, amend, vary, confirm or

set aside the arrangement.

========================================================================

GOVERNMENT COMPANYGOVERNMENT COMPANYGOVERNMENT COMPANYGOVERNMENT COMPANY Sec. 617:

(a)A government company is any company in which at least 51% of the PUC is held by:

� Central Government

� State Government

� Jointly by both of them.

(b) any company which is subsidiary of a government company is also a government company.

22:



* Paid Up Capital includes both the equity and preference share capital.

Sec 620

Following are certain privileges granted to the government companies by way of exemptions:

� It shall not be required to add the word “private” after its name.(All)

� All the directors of the company shall be non-rotational.[WOG]

� Approval of CG is not required for increasing the number of directors. [All]

� Approval of the CG is not required for the appointment of Managerial person or a non- rotational director. [All]

� Sole-selling agent can be appointed with out CG approval even if the appointee has substantial interest.[ All]

� Sole-selling agent can be made with out CG approval and SR even if the PUC of the company is 50 lacs or

more.[All]

� Restrictions on payment of Managerial Remuneration do not apply to a government company.[All]

� A person can be appointed as MD or MGR in 2 or more companies without the approval of the CG[WOG]

Audit [sec.619]

� The auditor of the government companies shall be appointed by the CAG[ Comptroller and Auditor General of

India]

� The remuneration shall be fixed by the shareholders.

Applicability of the provisions of audit of government companies to certain companies [ sec. 619B]

Provisions of section 619 shall apply to the following companies.

Any company in which not less than 51% of the PUC is held by the one or more of the following or any combination

thereof:

� CG and government company

� SG and government company

� CG , SG and government company

� CG, SG and corporations controlled by CG.

� Corporation owned or controlled by CG or SG.

� More than one Government company.

======================================================================================= FOREIGN COMPANYFOREIGN COMPANYFOREIGN COMPANYFOREIGN COMPANY Sec. 591 Foreign company means a company registered outside india

AND having PLACE OF BUSINESS in india

Controlled foreign company

in terms of section 591(2),

company incorporated outside india

in which at least 50 % of the PUC is held by

Indian Citizens or bodies corporate incorporated in india

And having a place of business in india

Filing of the Documents in terms of section 597, a foreign company shall file all the document and returns with the following ROC:

23:



� ROC, New Delhi

� ROC of the state with in whose jurisdiction the principal place of business of the company is situated.

Documents

(a) the charter, statutes, or memorandum and articles of a foreign company or other instrument

constituting or defining the constitution of a foreign company; or

(b) the registered or principal office of a foreign company; or

(c) the directors or secretary of a foreign company; or

(d) the name or address of any of the persons authorised to accept service on behalf of a foreign

company; or

(e) the principal place of business of the company in India

Intimation of alterations to the ROC(sec. 593)

Prescribed time

31st January of the following year

with respect to: constitution of the company

address of the registered or principal office of the company

directors and secretary of the company.

with in 30 days of the alteration with respect to: Person authorized to accept service of notice on behalf of the company

principal place of business in india

World Accounts 3 copies of the balance sheet and profit and loss account, including documents relating to every subsidiary of

the foreign company as submitted by it to the prescribed authority in the country of its incorporation under the

provisions of the law in that country, shall be filed with its registrar within a period of 9 months form the

closure of the financial year of the foreign company.

indian Business Account 3 copies of the Balance sheet and profit and loss account of indian business duly audited by the PCA in india, in

the form prescribed in schedule VI, drawn up in rupees, shall be filed with the registrar with in 9 months of the

closure of the financial year.

Prospectus[ section 603]

a company incorporated outside india can issue shares or debentures in india,

[ sec. 595]

foreign company can issue prospectus in india.-

Validity of contracts[sec. 599] Any failure by a foreign company to comply with any of the foregoing provisions of this Part shall not affect the

validity of any contract, dealing or transaction entered into by the company or its liability to be sued in respect

thereof; but the company shall not be entitled to bring any suit, claim any set-off, make any counter-claim or

24:



institute any legal proceeding in respect of any such contract, dealing or transaction, until it has complied with

the provisions of this Part.

Cessation of place of business [sec. 597] If a foreign company ceases to have a place of business in india, it shall forthwith give notice of the fact to the

ROC and thereafter it will have no other obligation to file any document with the registrar, provided it has no

other place of business in india.

Wining up of foreign companies[sec. 584] Where a foreign company ceases to carry on business in india, it may be wound up as an unregistered company

under part X. winding up is possible even where the company has been dissolved or otherwise cease to exist

under the laws of the country under which it was incorporated.

========================================================================

DIVIDENDDIVIDENDDIVIDENDDIVIDEND Meaning of dividend Sec. 2(14A) : Dividend includes interim dividend.

Sources of Paying the dividend � Current financial year profit ( revenue profit) after providing for depreciation.

� Accumulated profits of previous financial years( revenue) after providing for the depreciation.

� Amount provided by CG or SG for the payment of dividends in pursuance of a guarantee given by that

government.

Payment of dividend without providing for depreciation The CG may allow any company to pay dividend with out providing for depreciation in the public interest.

The company shall make an application to the CG in form 23AAC

It shall give a certificate from the CS or the Director that the company has not concealed any material facts.

It shall give an undertaking that the company shall not come with an IPO or invite the Public deposits in the

next 18 months

Transfer to Reserves sec. 205(2A) in terms of companies( transfer of profits of reserves) rules 1975

these rules are applicable to the equity shares and the participating preference shares.

Dividend proposed (%of PUC) Transfer to reserves(as % of current profits)

10% or less Nil

More than 10 but upto 12.5 2.5%( min)

More than 12.5 but upto 15 5%(min)

More than 15 but upto 20 7.5%(min)

More than 20 10% (min)

25:



Declaration of dividend out of Past reserves sec. 205 A(3) read with co(declaration of dividend out of

reserves)rules 1975.

Dividend can be declared out accumulated profits subject to the following conditions:

The rate of dividend declared does not exceed the average of the rates at which dividends was declared by it in

the 5 immediately preceding years or 10% of its PUC which ever is les.

The total amount to be drawn from the accumulated profits does not exceed 10% of the sum of the PUC and

Free reserves. The amount so drawn shall first be utilized to set off the losses incurred in the financial year

before declaring the dividend.

The balance of reserves after such drawl does not fall below 15% of the its PUC.

Brief Procedure of Payment of Dividend

the Company shall declare dividend at the AGM

with in 5 days it shall deposit the amount of dividend in the “separate bank account”

within 30 days of AGM the company shall dispatch the dividend warrants.

If on the expiry of 30 days of AGM any amount of dividend is unpaid or unclaimed , then with in 7 days

thereafter it shall be deposited in the “Special Bank Account” by the name of Unpaid dividend Account of XYZ

Ltd. in a scheduled bank.

It may remain in that account for 7 years. If on the expiry of 7 years , there remains some amount as unclaimed ,

with in 30 days the amount shall be transferred to the “investor Education and Protection Fund under section

205C.

The BOD shall be given the acknowledgement receipt.

Where the amount is not transferred with in 7 days to Special Bank Account the company shall pay an interest

@ 12% after the expiry of 30 days

Investor Education and Protection Fund [section 205C] (1) The Central Government shall establish a fund to be called the Investor Education and Protection Fund

(hereafter in this section referred to as the "Fund") .

(2) There shall be credited to the Fund the following amounts, namely:-

(a) amounts in the unpaid dividend accounts of companies: (b) the application moneys received by companies for allotment of any securities and due for refund

(c) matured deposits with companies:

(d) matured debentures with companies:

(e) the interest accrued on the amounts referred to in clauses (a) to (d):

(f) grants and donations given to the Fund by the Central Government, State Governments, companies or any

other institutions for the purposes of the Fund: and

(g) the interest or other income received out of the investments made form the Fund:

Provided that no such amounts referred to in clauses (a) to (d) shall form part of the Fund unless such

amounts have remained unclaimed and unpaid for a period of seven years from the date they become

due for payment.

Payment of Interest out of Capital [section 208] (1) Where any shares in a company are issued for the purpose of raising money to defray the expenses of the

construction of any work or building, or the provision of any plant, which cannot be made profitable for a

lengthy period, the company may :

(a) pay interest out of capital

26:



(b) charge the sum so paid by way of interest, to capital as part of the cost of construction of the work

or building, or the provision of the plant.

(2) if it is authorised by the articles or by a special resolution.

(3) if co obtains previous sanction of the Central Government.

(5) The payment of interest shall be made only for such period as may be determined by the Central

Government ; and that period shall in no case extend beyond the close of the half-year next after the

half-year during which the work or building has been actually completed or the plant provided.

=====================================================================

WINDING UPWINDING UPWINDING UPWINDING UP Modes of Winding UP

Section 425 of the companies act 1956 lays down the following 3 modes of winding up:

� Winding up by the Court i.e. Compulsory winding up

� Voluntary Winding up ;and

� Winding up subject to supervision of the court

Compulsory Winding Up

Jurisdiction of court for winding up petitions Section 10 of the companies act, 1956 provides that the jurisdiction for entertaining winding up petition

vests in the High Court having jurisdiction in relation to the place where the registered office of the

company is situated. For the purposes of jurisdiction to wind up companies, the expression registered office

means the place, which has longest been the registered office of the company during 6 months immediately

preceding the presentation of the petition for winding up.

Grounds on which a company may be wound up by the court.[sec. 433]

A company may be wound up by the Court,

(a) if the company has, by special resolution, resolved that the company be wound up by the Court ;

(b) if default is made in delivering the statutory report to the Registrar or in holding the statutory

meeting ;

(c) if the company does not commence its business within a year from its incorporation, or suspends its

business for a whole year ;

(d) if the number of members is reduced, in the case of a public company, below seven, and in the case

of a private company, below two ;

(e) if the company is unable to pay its debts ;

(f) if the Court is of opinion that it is just and equitable that the company should be wound up

Who may file the petition for winding up [sec. 439] An application for the winding up of a company has to be made by way of petition to the court. A petition may

be presented under section 439 by any of the following persons:

1) The company

2) any creditor or creditors , including any contingent or prospective creditor(s)

3) Any Contributory or contributories

27:



4) .ROC

5) Person authorized by CG under sec. 243

However employee, worker and trade union can not make the petition for winding up.

Power of the Court to declare dissolution of the company void[sec. 559]

Sec. 559 empowers the court to make an order at any time within 2 years of the date of dissolution, declaring

the dissolution to be void in appropriate cases.

Kinds of voluntary winding up

Sec. 488 divides voluntary winding up in to two kinds:

a) Members’ Voluntary winding up [ solvency Declaration is made]

b) Creditors’ Voluntary winding up[company is not solvent]

Appointment of liquidator[ sec. 502]

The creditors of the company, at their respective meeting, may nominate a person to be liquidator for the

purpose of winding up the affairs and distributing the assets of the company. if the creditors and the company

nominate different persons, the person nominated by the creditors shall be liquidator, subject to an application

to the court by any director, member or creditor of the company within seven days after the date on which the

nomination was made by the creditors.

If no person is nominated by the creditors , the person nominated by the members shall be liquidator and vice-

versa.

Appointment of committee of inspection[sec.503] The creditors, at the same or subsequent meeting, may appoint a committee of inspection, consisting of not

more than 5 persons. If such a committee is appointed , the company may appoint such number of persons, not

exceeding 5,as they think fit to act as members of committee, provided that the creditors may resolve that all or

any of the persons so appointed by the company ought not be members of the committee of inspection. If the

creditors so resolve, the persons appointed by the company shall not , unless the court otherwise directs, be

qualified to act as members of the committee of inspection.

Contributories[ section 426 to 432]

In terms of section 428 a Contributory means a person liable to contribute to the assets of a company

in the event of its being wound up, and includes a holder of fully paid-up shares. It may be noted that

holders of fully paid up shares will not be liable to contribute to the company’s assets, but shall be

eligible to participate in the distribution of surplus assets, if any.

� In case of a deceased member, his legal representatives is contributory

� In the case of insolvent member, his assignee is contributory

� If a contributory happens to be body corporate, which has been ordered to be wound up , the

liquidator of the body corporate will be treated as contributory

� But the term contributory does not include ordinary debtor of the company.

28:



order of priority of debts

from the provisions of sec. 529, 529A, 530, it can be concluded that following shall be the order of

priority of debts:

� secured creditors pari-passu with workmen’s dues

� cost and charges of winding up

� preferential debts provided under section 530

� floating charges

� unsecured charges

if there is any surplus after discharging the above debts, capital is repaid first to preference

shareholders and then to the equity shareholders.

Fraudulent preference[sec. 531]

Fraudulent preference means transfer of property, delivery of goods or payment etc. made in favour of

some creditor with a dishonest motive within 6 months before the commencement of winding up of

the company.

The essence of fraudulent preference is to give preference to one creditor over another, leading to

inequality between them. Such transactions are invalid.

Effect of floating charge on the assets of insolvent company

Where a company is being wound-up, a floating charge on the undertaking or property of the company

created within the twelve months immediately preceding the commencement of the winding up, shall,

unless it is proved that the company immediately after the creation of the charge was solvent, be

invalid, except to the amount of any cash paid to the company at the time of, or subsequently to the

creation of, and in consideration for, the charge, together with interest on that amount at the rate of

five per cent per annum or such other rate as may for the time being be notified by the Central

Government in this behalf in the Official Gazette

Disclaimer of onerous property by the liquidator[sec. 535]

Onerous property means a property which in effect has ceased to be an asset and has become liability.

Sec. 535 gives powers to the liquidator to get rid of such property by disclaiming it and thus save the

insolvent company’s assets from further losses. For disclaiming such assets by the liquidator,

permission of eh court is required and he must exercise this right within 12 months from the date of

commencement of winding up or within extended time as may be allowed by the court.

Following types of properties are regarded as onerous property for the purposes of this section:

� Land of any tenure, burdened with onerous covenant.

� Shares or stock in companies

� Any other property which is unsleable or not readily saleable.

� Unprofitable contracts

29:



Fraudulent conduct of business[ sec. 542]

It provides that when in the course of winding up of a company, it appears that the business of the

company has been carried on with intent to defraud creditors or any other persons or for any fraudulent

purpose, the court may declare that any persons who are knowingly parties to the carrying on the

business in the manner aforesaid shall be personally responsible, without any limitation of liability, for

all or ay of the debts or other liabilities of the company. the court may pass an order on the application

of the OL or Liquidator or any creditor or any contributory of the company.

The person guilty of fraudulent conduct of the business shall be punishable with imprisonment up to 2

years or with fine up to rs. 50000/- or with both.

Recovery of damages from Delinquent Persons/ officers[sec. 543] 1) If in the course of winding up a company, it appears that any person who has taken part in the promotion or

formation of the company, or any past or present director, manager, liquidator or officer of the company

(a) has misapplied, or retained, or become liable or accountable for, any money or property of the

company ; or

(b) has been guilty of any misfeasance or breach of trust in relation to the company ;

the Court may, on the application of the Official Liquidator, of the liquidator, or of any creditor or contributory,

made within the time specified in that behalf in sub-section (2), examine into the conduct of the person,

director, manager, liquidator or officer aforesaid, and compel him to repay or restore the money or property or

any part thereof, respectively, with interest at such rate as the Court thinks just, or to contribute such sum to the

assets of the company by way of compensation in respect of the misapplication, retainer, misfeasance or breach

of trust, as the Court thinks just.

(2) An application under sub-section (1) shall be made within five years from the date of the order for winding

up, or of the first appointment of the liquidator in the winding up, or of the misapplication, retainer, misfeasance

or breach of trust, as the case may be, whichever is longer.

===============================================================================

PRODUCER COMPANYPRODUCER COMPANYPRODUCER COMPANYPRODUCER COMPANY

Main objects of a Producer company

Sec. 581B. Objects of Producer Company. (1) The objects of the Producer Company shall relate to all or any of the following matters, namely:-

(a) production, harvesting, procurement, grading, pooling, handling, marketing, selling, export of

primary produce of the Members or import of goods or services for their benefit :

Provided that the Producer Company may carry on any of the activities specified in this clause either

by itself or through other institution;

(b) processing including preserving, drying, distilling, brewing, vinting, canning and packaging of

30:



produce of its Members;

(c) manufacture, sale or supply of machinery, equipment or consumables mainly to its Members;

(d) providing education on the mutual assistance principles to its Members and others;

(e) rendering technical services, consultancy services, training, research and development and all other

activities for the promotion of the interests of its Members;

(f) generation, transmission and distribution of power, revitalisation of land and water resources, their

use, conservation and communications relatable to primary produce;

(g) insurance of producers or their primary produce;

(h) promoting techniques of mutuality and mutual assistance;

Sec. 581C. Formation of Producer Company and its registration. (1) Any ten or more individuals, each of them being a producer or any two or more producer

institutions, or a combination of ten or more individuals and producer institutions, desirous of forming

a Producer Company having its objects specified in section 58IB and otherwise complying with the

requirements of this Part and the provisions of this Act in respect of registration, may form an

incorporated Company as a Producer Company under this Act.

Sec. 581-I. Amendment of articles. (1) Any amendment of the articles shall be proposed by not less than two-third of the elected directors

or by not less than one-third of the Members of the Producer Company, and adopted by the Members

by a special resolution.

Membership of producer company

Sec. 581 D

No person, who has any business interest which is in conflict with business of the Producer Company,

shall become a Member of that Company.

A Member, who acquires any business interest which is in conflict, with the business of the Producer

Company, shall, cease to be a Member of that Company and be removed as a Member in accordance

with articles.

581ZB. Share capital. (1) The share capital of a Producer Company shall consist of equity shares only.

Voting rights

31:



Sec. 581D(1)

(a) In a case where the membership consists solely of individual members, the voting rights shall be

based on a single vote for every Member

(b) In a case where the membership consists of Producer institutions only, the voting rights of such

Producer institutions shall be determined on the basis of their participation in the business of the

Producer Company in the previous year, as may be specified by articles :

Provided that during the first year of registration of a Producer Company, the voting rights shall be

determined on the basis of the shareholding by such Producer institutions.

(c) In a case where the membership consists of individuals and Producer institutions, the voting rights

shall be computed on the basis of a single vote for every Member.

No of Directors

581-O. Number of directors.

Every Producer Company shall have at least five and not more than fifteen directors :

Provided that in the case of inter-State co-operative society incorporated as a Producer Company, such

Company may have more than fifteen directors for a period of one year from the date of its

incorporation as a Producer Company.

Appointment of Directors

581P. Appointment of directors. (1) Save as provided in section 58IN, the Members who sign the memorandum and the articles may

designate therein the Board of directors (not less than five)

(2) The election of directors shall be conducted within a period of ninety days of the registration of the

Producer Company :

(3) Every person shall hold office of a director for a period not less than one year but not exceeding

five years as may be specified in the articles

Board Meeting

Sec.581V. Meetings of Board and quorum. A meeting of the Board shall be held not less than once in every three months and at least four such

meetings shall be held in every year.

The Chief Executive shall give notice as aforesaid not less than seven days prior to the date of the

meeting of the Board and if he fails to do so, he shall be punishable with fine which may extend to one

thousand rupees :

The quorum for a meeting of the Board shall be one-third of the total strength of directors, subject to a

minimum of three.

Annual General Meeting

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Sec. 581ZA. Annual general meetings. (1) Every Producer Company shall in each year, hold, in addition to any other meetings, a general

meeting, as its annual general meeting and shall specify the meeting as such in the notices calling it,

and not more than fifteen months shall elapse between the date of one annual general meeting of a

Producer Company and that of the next:

Provided that the Registrar may, for any special reason, permit extension of the time for holding any

annual general meeting (not being the first annual general meeting) by a period not exceeding three

months.

(2) A Producer Company shall hold its first annual general meeting within a period of ninety days

from the date of its incorporation.

=========================================================================

INSPECTION & INSPECTION & INSPECTION & INSPECTION & INVESTIGATIONINVESTIGATIONINVESTIGATIONINVESTIGATION

WHO CAN INSPECT?WHO CAN INSPECT?WHO CAN INSPECT?WHO CAN INSPECT?

In terms of sec. 209A(1) following are entitled to do inspection:

� The registrar

� Any other officer authorized by the CG

� Any other officer authorized by the SEBI.

Of books of accounts and other books and papers

On the basis of the report following action could be taken:

� Launching the prosecution against the company.

� Order of investigation under section 235 or 237

� Order of appointment of Government directors under sec. 408

PENALTIESPENALTIESPENALTIESPENALTIES

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(8) If default is made in complying with the provisions of this section, every officer of the company who is in default shall

be punishable with fine which shall not be less than fifty thousand rupees, and also with imprisonment for a term not

exceeding one year.

VACATION OF OFFICEVACATION OF OFFICEVACATION OF OFFICEVACATION OF OFFICE

(9) Where a director or any other officer of a company has been convicted of an offence under this section he shall, on and

from the date on which he is so convicted, be deemed to have vacated his office as such and on such vacation of office,

shall be disqualified for holding such office in any company, for a period of five years from such date

POWER OF THE ROC TO SEIZE THE DOCUMENTS[SEC. 234A]POWER OF THE ROC TO SEIZE THE DOCUMENTS[SEC. 234A]POWER OF THE ROC TO SEIZE THE DOCUMENTS[SEC. 234A]POWER OF THE ROC TO SEIZE THE DOCUMENTS[SEC. 234A]

The ROC can seize books and papers of a company after obtaining an order from the Magistrate of the First Class or

Presidency Magistrate if he has reason to believe that they may be destroyed, mutilated, falsified, altered or secreted. The

Magistrate by order authorize the ROC to enter the place where such books and papers are kept and to search that place and

to seize such books and papers.

ROC shall return the books and papers within 30 days after seizure under intimation to the Magistrate. Before returning

such books and papers, registrar may take copies or extracts from them or place identification marks on them.

DISCRETIONARY POWERSDISCRETIONARY POWERSDISCRETIONARY POWERSDISCRETIONARY POWERS

Investigation on the Report of the ROC[sec. 235(1)]The Central Government may, where a report has been made by the

Registrar under sub-section of section 234, appoint one or more competent persons as inspectors to investigate the affairs

of a company and to report thereon in such manner as the Central Government may direct

Investigation on the opinion of the CLB[sec. 237(b)]The CG may appoint inspectors if, in the opinion of the Company

Law Board, there are circumstances suggesting

(i) that the business of the company is being conducted with intent to defraud its creditors, members or any other persons,

or otherwise for a fraudulent or unlawful purpose, or in a manner oppressive of any of its members, or that the company

was formed for any fraudulent or unlawful purpose ;

(ii) that persons concerned in the formation of the company or the management of its affairs have in connection therewith

been guilty of fraud, misfeasance or other misconduct towards the company or towards any of its members ; or

(iii) that the members of the company have not been given all the information with respect to its affairs which they might

reasonably expect, including information relating to the calculation of the commission payable to a managing or other

director, or the manager, of the company.

MANDATORY POWERSMANDATORY POWERSMANDATORY POWERSMANDATORY POWERS

Investigation on the application of the members 235(2)Investigation on the application of the members 235(2)Investigation on the application of the members 235(2)Investigation on the application of the members 235(2)

Where-

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(a) in the case of a company having a share capital, an application has been received from not less than two

hundred members or from members holding not less than one-tenth of the total voting power therein, and

(b) in the case of a company having no share capital, an application has been received from not less than one-fifth

of the persons on the companyies register of members,

the Company Law Board may, after giving the parties an opportunity of being heard, by order, declare that the affairs of

the company ought to be investigated by an inspector or inspectors, and on such a declaration being made, the Central

Government shall appoint one or more competent persons as inspectors to investigate the affairs of the company and to

report thereon in such manner as the Central Government may direct

INVESTIGATION OF INVESTIGATION OF INVESTIGATION OF INVESTIGATION OF SUBSIDIARY COMPANYSUBSIDIARY COMPANYSUBSIDIARY COMPANYSUBSIDIARY COMPANY

the rights conferred by subsection 2 upon members of a company may be exercised in respect of any subsidiary, by

members of the holding company as if they alone were members of the subsidiary company.

INVESTIGATION ON SPECIAL RESOLUTIOINVESTIGATION ON SPECIAL RESOLUTIOINVESTIGATION ON SPECIAL RESOLUTIOINVESTIGATION ON SPECIAL RESOLUTION/ COURT ORDER [ SEC. 237(A)]N/ COURT ORDER [ SEC. 237(A)]N/ COURT ORDER [ SEC. 237(A)]N/ COURT ORDER [ SEC. 237(A)]

the CentralGovernment

shall appoint one or more competent persons as inspectors to investigate the affairs of a company and to report thereon in

such manner as the Central Government may direct, if

(i) the company, by special resolution ; or

(ii) the Court, by order,

declares that the affairs of the company ought to be investigated by an inspector appointed by the Central Government

POWER OF SEIZURE OF DOCUMENTS POWER OF SEIZURE OF DOCUMENTS POWER OF SEIZURE OF DOCUMENTS POWER OF SEIZURE OF DOCUMENTS

Sec. 240A of the act provides where an inspector has reasonable grounds to believe that relevant books or papers may be

destroyed/ falsified/ altered or secreted, he may make an application to the Magistrate of First Class or Presidency

Magistrate, as the case may be , and obtain an order for seizure of such books and papers. The order may authorize him to

enter the place, where such books and papers are kept , to search the place and seize them

FOLLOW UP ACTION ON THE REPORTFOLLOW UP ACTION ON THE REPORTFOLLOW UP ACTION ON THE REPORTFOLLOW UP ACTION ON THE REPORT

On receipt of the report of the inspector, the CG may take one or more of the following actions:

1. Prosecution for criminal offence[ sec. 242]1. Prosecution for criminal offence[ sec. 242]1. Prosecution for criminal offence[ sec. 242]1. Prosecution for criminal offence[ sec. 242]

if the report reveals that any person has,in relation to the company or in relation to any other body corporate whose affairs

have been investigated by virtue of section 239, been guilty of any offence for which he is criminally liable, the central

govt. after taking such legal advice as it thinks fit, prosecute such person along with officers

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2. Winding up of the company[ sec. 243]2. Winding up of the company[ sec. 243]2. Winding up of the company[ sec. 243]2. Winding up of the company[ sec. 243]

if the report reveals that

� the affairs of the company are being conducted with the intent to defraud the creditors, members or other persons

or for a fraudulent or unlawful purpose or in a manner oppressive of any of its members or

� the persons concerned with the formation of the company or the management of its affairs have been guilty of

fraud or misconduct

the CG may take the following actions

� present application to the court for winding up of the company on the ground that it is just and equitable to do so,

or

� make an application to the CLB for an order under section 397 or 398 for grant of relief against oppression or

mismanagement of the company or

both.

RECOVERY OF DAMAGES[SEC. 244]RECOVERY OF DAMAGES[SEC. 244]RECOVERY OF DAMAGES[SEC. 244]RECOVERY OF DAMAGES[SEC. 244]

Section 244 provides that where from the report it appears that:

a) A fraud, misfeasance or misconduct in connection with the promotion or formation or management of the affairs

of the company has taken place or

b) Misappropriation of property of the company has been committed and the company is therefore entitled to bring

an action fro damages for misconduct or for the recovery of any property which has been misapplied or

wrongfully retained.

The CG may itself bring proceedings for that purpose in the name of the company.

EXPENSES OF INVESTIGATION [SEC. 245]EXPENSES OF INVESTIGATION [SEC. 245]EXPENSES OF INVESTIGATION [SEC. 245]EXPENSES OF INVESTIGATION [SEC. 245]

Expenses of investigating the affairs of the company are in the first instance be incurred by the CG then these shall be duly

reimbursed to the CG by the company whose affairs are investigated and by the persons on whose application the

investigation is ordered.

If an accused is convicted under the provisions of section 242, the court may order reimbursement of these expenses to the

central government by the accused.

The scope of this section is not merely confined to recovery of expenses of investigation, but also extends to recovery of

costs and expenses which the CG may incur under section 244.

RESTRICTION ON TRANSFER AND ISSUE OF SHARES AND DEBENTURES[SEC.250]RESTRICTION ON TRANSFER AND ISSUE OF SHARES AND DEBENTURES[SEC.250]RESTRICTION ON TRANSFER AND ISSUE OF SHARES AND DEBENTURES[SEC.250]RESTRICTION ON TRANSFER AND ISSUE OF SHARES AND DEBENTURES[SEC.250]

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With a view to prevent corporate takeover, this section empowers the CLB to impose the following restrictions on the

shares and debentures and prevent change in composition of the Board of directors of the company which may be

prejudicial to the public interest:

� Freezing the voting rights in the shares/debenture which have changed and

� Declaring the transfer of shares/debentures as void

� Prohibition of issue of shares

The Jurisdiction of the CLB can be invoked:

On a reference made to it by the CG in connection with any investigation under section 247 or

On a complaint made by any person

SAVING FOR LEGAL ADVISERS AND BANKERS[SEC. 251]SAVING FOR LEGAL ADVISERS AND BANKERS[SEC. 251]SAVING FOR LEGAL ADVISERS AND BANKERS[SEC. 251]SAVING FOR LEGAL ADVISERS AND BANKERS[SEC. 251]

Nothing in sections 1[234 to 247 and 250] shall require the disclosure to CLB or to the Central Government or to the

Registrar or to an inspector appointed by Central Government].

(a) by a legal adviser, of any privileged communication made to him in that capacity, except as respects the name and

address of his client; or

(b) by the bankers of any company, body corporate 4[***] or other person, referred to in the sections aforesaid, as such

bankers of any information as to the affairs of any of their customers other than such company, body corporate 4[***] or

person

PROTECTION TO THE EMPLOYEES OF THE COMPANY DURING INVESTIGATION[ SEC. 635B]PROTECTION TO THE EMPLOYEES OF THE COMPANY DURING INVESTIGATION[ SEC. 635B]PROTECTION TO THE EMPLOYEES OF THE COMPANY DURING INVESTIGATION[ SEC. 635B]PROTECTION TO THE EMPLOYEES OF THE COMPANY DURING INVESTIGATION[ SEC. 635B]

This section gives protection to employees of a company, which is being investigated under the provisions of the

companies act, from victimization on account of disclosure of any particulars or information to the inspector during the

course of investigation. Co can take action only after giving notice of proposed action to CLB and if the CLB does not

issue the letter of objection .

ALL THE VERY BEST MAY GOD BLESS U

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