Prepared by Vijaya Kumar Poola Balija; email:poolavi

My Request to Readers: When ever you are studying, Please make short notes and share
they will succeed in their exams. (SHARE

Selected Notified Defonitions Unde

1

10

11

12

13

14

15

16

17

Chapter
Declaration and Pay
1
i)

ii)

iii)

iv)
v)

vi)

Chapter-2
Accounts and

Unit 1: Accounts of C
1
i)

ii)

iii)

iv)

v)

vi)

Vii)

2.2
i)

ii)
iii)

iv)

v)

vi)

2.3

2.4
i)

ii)

iii)

iv)

v)

2.5

i)

ii)

iii)

iv)

v)

vi)

vii)

viii)

ix)

x)

xi)

2.6
i)

ii)

iii)

iv)

2.7
i)

ii)

iii)
iv)
v)

vi)

2.8
i)

ii)
iii)

Unit 2 : Audit and

2.9
i)

ii)

iii)

iv)

v)

vi)

Vii)

viii)

2--10
i)

ii)

iii)

2.11
i)

ii)

iii)
2.12

2.13
i)

ii)

v)

vi)

2.14
i)

ii)
2.15

2.16

2.17
i)
ii)

iii)

iv)
v)
2.18

Prepared by Vijaya Kumar Poola Balija; email:poolavijayakum

My Request to Readers: When ever you are studying, Please make short notes and sha
succeed in their exams. (SHARE NOTE

Chapter-3 Appointment and Qual

3.1
i)

3.2

3.3

3.4
i)
ii)
iii)
iv)
v)

Vi)

vii)

3.5

3.6

3.7
3.8

3.9

3.1

3.11

3.12

3.13

3.14

3.15
A)

B)

C)

D)

3.16

3.17

3.18

3.19

3.2

3.21

3.22

3.23

3.24

3.25

3.26

Prepared by Vijaya Kumar Poola Balija; em

My Request to Readers: When ever you are studying, Please make short notes and share
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Chapter 4
Appointment and Remuneration o
4.1

4.2

4.3

4.4

4.5

4.6

4.7

4.8

4.9

4.10

4.11

Chapter 5

Meetings of Boards a
5.1

5.2
(i)

(ii)

(iii)

(iv)
(v)

5.3

5.4

5.5

5.6
i)

ii)

iii)
iv)

v)

vi)

vii)

viii)

>>
i)

ii)

iii)

5.7
>>>
i)

ii)

iii)

iv)
v)

vi)

>>>
i)

ii)

iii)

5.8
i)

ii)
iii)
iv)

v)

vi)
5.9
i)

ii)
iii)

iv)

v)
5.10

5.11

5.12

5.13
(i)

(ii)

(iii)

(iv)

(v)

(vi)

5.14
(i)
(ii)

(iii)

(iv)

5.15
(i)

(ii)

(iii)

(iv)

(v)

(vi)

(vii)

(viii)

(ix)

(x)

(xi)

(xii)
(xiii)

(xiv)

5.16
(i)

(ii)

(iii)

(iv)

5.17
(i)

(ii)

(iii)

(iv)

(v)

(vi)
(vii)

(viii)

5.18
(i)

(ii)

(iii)

(iv)

(v)
(vi)

(vii)

(viii)

(ix)
5.19
(i)

(ii)
(iii)

(iv)
5.20
(i)
(ii)
(iii)

(iv)
(v)
(vi)
(vii)

5.21
(i)

(ii)
(iii)

5.22

(i)

(ii)
5.23
(i)

(ii)

(iii)

(iv)
5.24
(i)
(ii)

(iii)
(iv)

Chapter 6
Inspection, Inquiry and
6.1
i)

ii)

iii)

iv)

v)

vi)
vii)

6.2
i)

ii)

iii)

6.3

6.4
i)

ii)

iii)

iv)

6.5
i)

ii)

iii)

6.6
i)
ii)

iii)

iv)
v)

vi)

6.7
i)

ii)

iii)

iv)
v)
vi)

vii)
viii)
ix)
x)
xi)

xii)
xiii)
xiv)
xv)

6.8

6.9
6.10
i)

ii)
iii)

6.11
i)

ii)

iii)

iv)

v)

vi)

vii)
viii)

ix)
x)

xi)

xii)

6.12
i)

ii)

6.13
i)

ii)

iii)

iv)
6.14
i)

ii)
iii)
iv)

v)
6.15
i)

ii)

iii)
6.16
i)

ii)
6.17

6.18

1
a)

b)

Chapter 7
Compromises, Arrangements
7.0

7.1

7.1.1

7.1.2

7.2

Prepared by Vijaya Kumar Poola Balija; email:poolavijayakumar@

y Request to Readers: When ever you are studying, Please make short notes and share it for Public
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Selected Notified Defonitions Under The Com

Abridged Prospectus
> Memorandum
> Salient features of prospectus
> SEBI
Associate Company
> Significant Influence(20%)
> Includes Joint Venture Company
> 20% of total share capital
Total sh cap means i) Paid up sh capital and ii) Convertible Preference sh capital
> Shares held as fiduciary capacity --> Not counted
Body Corporate or Corporation
> Includes Company Incorporated out side India but does not include
i) Co-Operative society @ Cooperative Societies and
ii) Any Other body corporate (Not company @ this Act)--> CG may by nootification specify
Financial Statement
i) BS
ii) P & L
iii) Cash Flow Statement
iv) Statement of changes in equity
v) Any explanatory note annexed to
w.r.t OPC, Small Company and Dormant Company- Cash Flow Statement Not
Foreign Company
> Any company or Body Corporate Incorporated Outside India
i) Place of Business in India---> Itself or through an agent, Physically or through eloctronic mode and
ii) Conducts any business activity in India in any other manner
Free Regerves
> As per latest Audited BS of a company---> Are available for distribution as dividend
Following Are not counted
i) Unrealised gains
ii) Notional gains or Revaluation of assets
Key Managerial Personnel
i) CEO or the MD or The Manager
ii) The CS
iii) WTD

iv) CFO and

v) Such other officer as may be prescibed
Officer
> Director, Manager, Key Managerial Personnel or any person
Officer Who is in defaultt
i) WTD
ii) Key Managerial Personnel
iii) If any specified director-that director, If no specified director---> All directors
iv) Any person who under immediate of board or any key managerial personnel
v) Person----> Advise----> Board
Professional capacity----> Not
vi) Director---> Participates in proceedings
vii) Issue or Transfer of any shares
a) Share transfer agents
b) Registrars
c) Merchant Bankers
Private Company
> Min---> 100000 or More
i) Restricts transfer of shares
ii) Except OPC---> Others Maximum 200 Members
> Incase of Joint Holding---> Counted as one
> Employees and past Employees are not counted
iii) Prohibits Public invitation/Offer
Promoter
a) Prospectos or Annual Report
b) Control Over affiars of the company
c) Person controls---> BOD
> Professional Capacity---> Not treated as promoter
Public Company
a) Not a Pvt Company
b) Min 500000 Or More
c) Subsidiary of Public Company
Realted Party
i) Director or his Relative
ii) A Key Managerial Personnel or his relative
iii) A Firm---> Director, Manager or his relative---> Partner
iv) Pvt Company---> Director, Manager or his RELATIVE---> Director
v) Public Company---> Holding> 2% of shares along with family
vi) Any Body Corporate---> Controlled by one of Director

vii) Any person---> Controlled by one of Director

viii) Any Company
A) HC, SC or Associate
B) Subsidiary of HC
ix) Such other person as may be prescribed
Small Company
> Other than Public Company
> Sha capital < or Equal to 50 Lakh or Such higher but not> 5 Crore
> Turnover < or equal to 2 Crore or Such higher but not > 20 Crore
Exception
Not applicable to
a) HC or SC
b) A Company U/S 8
c) A Company or Body Corporate governed by any special Act
SC or Subsidiary
i) Controls Composition of the BOD
ii) Controls > 1/2 Sha capital
a) A is SC of B, A controls C, C also SC of B
b) Control BOD- At it's Discretion can appoint or remove all or majority of the directors
c) Company includes any body Corporate
> Shares held as fiduciary capacity---> Not counted
> Sha capital means
i) Paid up equ sha capital and
ii) Convertible Pre sha capital

Employee Staock Option

> Option given---> Director, Officer or Employees of Same or HC or SC ----> Right to Purchase or subs
Sweat Equity Shares
> Equity Shares---> Directors or Emolyees----> @ discount or for Consideration other than cash------>
intellectual property rights or Value additions, By whatever name called

Chapter.1
Declaration and Payment of D
Declaration Of Dividend(Section 123)
Payment
a) Out of Cy Profit---> After depreciation
b) Out of Past Profits
c) Out of Both
d) Out of money provided by Govt
Transfer to Reserves
> Before declaring dividend

> Not Mandatory

Declaration of dividend out of Accumulated Profits: Companies( Declaration and Payment o
a) Rate shall not > avg of last 3 PY's
Rule----> Not apply if company not declared any dividend in each of the 3 PY's.
b) Amount Can be withdrawn from accumulated profits----> 1/10 of ( paid up sha capital + Free Reger
c) Amount drawn 1st should be used for set off of losses, Then only for dividend
d) Balance in accumulated regerves after withdrawal shall not fall < 15% of ( Paid up sha cap + Free R
e) PY Losses or Depreciation---> Set off against profit of the CY ---> Then only dividend----> Otherwise
Deposit in a scheduled bank within 5 days of declaration
Payment of Dividend
a) In Cash-- May be paid by cheque or warrant or in any electronic mode
b) To registered sha holder or to his order or to his banker
c) Provisions of (V) shall not apply to bonus issue & Making partly paid shares fully paid.
Prohibition on declaration of dividend:
Company not complied
> Section 73( Prohibition on acceptence of deposits from public)
> Section 74( Repayment of deposits, etc, accepted before the commencement of this Act
Interim Dividend
> Board may declare out of surplus in P & L or CY Profit
> Points applicable for normal dividend applicable here also

Right of dividend, Right shares and bonus shares to be held in abeyance pending registrat
> Transferee ---> No written direction given----> transfer to unpaid dividend account
> Right shares & Bonus issue in abeyance
Punishment for failure to distribute dividend ( Sec127)
i) Within 30 days from declaration---> If not, Every director---> With imprisionment--> 2 Yrs
ii) Also Rs.1000 per every day default continues
iii) Company---> Pay interest @ 18 % p.a---> Period default continues
iv) Following situations---> No Offence
a) Not paid--> Reason of operation of law
b) Sh holder given direction--> But can not be complied--> Given communication also
c) Dispute---> Right to receive
d) Dividend adjusted against lawful dues from sha holder
e) Where for any other reason---> Not doen within 30 days---> Not due to default on the company

Relevant Sections of the Companies Act,1956 applicable for examination

Unpaid or Unclaimed dividend ( Sec 205A of CA, 1956)
> 30 Days---Not paid
> Transfer within 7 days from expiry of 30 days
> To Spl account---> with Scheduled bank " Unpaid Dividend A/C of..Company Ltd/Company(Private
> " Dividend which remains unpaid"---> Warrany not been encashed or Not been paid or claimed
> If company not transfer within time to unpaid account, Interest @ 12 % p.a from date of default
> Unpaid a/c balance remains unpaid for 7 yrs, Transfer to Investor Education and Protection Fund

> If Company fails to cpmly this section---> Company & Every officer in default---> 5000 for every day
Payment of unpaid or unclaimed dividend (Section 205A(5) of the companies Act, 1956)
> Once transferred to IE & PF, No payment of form that a/c towards dividend
IE & PF ( Section 205C of the CA, 1956)
> Central Govt
> The following amounts Credited to the fund
a) Unpaid Dividend a/c
b) Application Money due for refund
c) Matured deposits
d) Matured Debentures
e) Interest accrued on a debentures above
f) Grants & Donations given to fund
g) Interest or other income on ---> Investment out of the fund money
> a--> d, Unclaimed for 7 Yrs, Then only transfer
Payment of Interest out of Capital ( Section 208 of the CA, 1956)
> To Defray the expenses of the construction of an provision of any plant
> Profit will come after lenthy period
> Company can pay interest
> Sum paid chage to P & L
> Should be Authorised by Articles or by a SR
Even though, Articles or by a SR authorised, CG permission required
> CG before sanctioning such payment---> Appoint a person---> To enquire---> Company should give
> Payment perion should not exceed 6 Months from half yr in which work completed
> Rate of interest max 4% p.a or as CG
> Payment of Interest won't reduce capital amount

Chapter-2
Accounts and Audit

Unit 1: Accounts of Companies

Books of Accounts, etc to be kept by Company( Section 128 of the CA,2013)
Maintenance of books of accounts
a) Every Company prepare & Keep @ it's registered office--> Including that of branch office or office, I
b) In a Position to explain Transactions---> Branch & RO office transactions
c) Accrual basis & Double entry system
Place of Maintenance of books of accounts
a) @ Regd Office
b) Any other place in India0---> Board resolution ---> file with ROC notice in writing giving full address
Electronic form of books of accounts
a) As per Companies ( Accounts) Rules, 2014---> Company may
b) Maintained in elecrtonic form shall :
1) Remain accessible in India

2) Complete & Unaltered

3) Information from brances----> Not altered
4) Capable of being displayed in a legible form
5) Proper system for storage, Retrieval, Disply or Printout
6) Backup---> Servers in India---> On a periodic basis
c) Intimate---> ROC---> Annual Basis @ the time of filing of Financial Statements
1) Name of the Service Provider(SP)
2) Internet Protocal address of SP
3) Location of SP
4) Incase---> Cloud, Such address provided by SP
Proper books of accounts in relation to a branch of the company
a) Kept at that branch office
b) Summarised returns periodically to regd office or other place by board

Persons Who can inspect(Sec128(3) and (4)

a) Maintained in India-By any director during business hrs
b)Incase financial infn maintained outside india-Director can but s.t Companies (Accounts ) Rules,2014
1) Summarised returns at qrtly intervals to R.O, There kept for open to inspection by directors.
2) Request by director
3) Within 15 Days company will give
4) Request by director himself not by POA or agent or representative.
c)Inspection inrespect of SC-Authorised by board
d)Officers and other employees should give assistance for inspection
Period of Maintenance ( Sec 128(5))
a) 8 FY immediately preceding FY
b) Company Existance for < 8 yrs for all such yrs
c) Investigation ordered-CG may specify such longer period
Persons Responsible for Maintenance & Penalty(Sec128(6))
a) 1)MD,WTD in charge of finance,CFO: or
2) Any other person charged by the board
b) 1) Imprissionment upto 1 Yr or
2) Fine not <50000 but upto 500000 or
3) Both
MCA Circular
FY commences earlier 1-4-2014, Old provisions
FY commences on or after 1-4-2014, 2013 Act provisions
Financial Statement (Section 129 of the Companies Act,2013)
Form of Financial statements shall (Sec 129(1))
a) The FS's shall
1) True & Fair View
2) Comply with AS's-Sec 133
3) Form or Forms-Schedule III

4) Items in FS-Inaccordance with AS's

b) Above provisions relating to nature and content of FS shall not aooly to following
1) Insurance Companies
2) Banking Companies
3) Company engaged in generation or supply of electricity
4) Any other company-For them separate Act is there
c) Disclosure not made, Still True and fair view
d) Reference to FS include reference to notes
Laying of Financial Statements (Section 129(2))
At Every AGM- BOD
Consolidated Financial Stements ( Section 129(3) & (4):
a) Company has 1 or more subsidiaries, Prepare CFS along with own
b) CFS also laid before AGM along with Own
c) Attach along with FS's-Form AOC-1, that contains salient features of subsidiary or subsidiries.
d) For the purpose of CFS, " Subsidiary" Include associate company and Joint venture.
e) CFS-Inaccordance with Sch III, Company which not reqrd to prepare CFS, Comply Sch III Enoughf
f) Provisions as applicable to HC, Also applicable to CSF's
Deviations from AS's (Sec 129(5)):
If FS's do not comply AS's, Disclose in FS's following
a) Deviation from AS's
b) Reasons for such deviation
c) Financial effect if any
Exemptions (Sec 129(6))
a) CG May-On own or on application-From complying with this sec-in public interest
b) That me unconditionally or s.t such conditions
Conravention(Sec 126(7))
a) MD, The WTD in charge of finance , The CFO or any othe person charged by the board- In absence1) Imprisionment upto 1 Yr or
2) Fine Rs.50000 to Rs.500000
3) Both with imprisionment and fine
CG to prescibe AS's (Section 133 of the Companies Act, 2013)
> CG on recommendation made by ICAI, in consultation with National Financial Reporting Authority.
> Till date AS prescribe AS's, AS prescribed by CA,1956 only applicable.
Financial Statement, Board's Report, etc (Sec 134 of the CA,2013)
Authentication of FS's [ Sec 134 (1),(2) & (7)]
a) The FS's, Including CFS if any-Before signing by following should be approved by board
1) Chairman of the company, where he is authorised by the board or
2) 2 Directors Out of which 1 Shall be MD and
3) The CEO, if he is Director in the company
4) The CFO, Wherever he is appointed
5) The CS , Wherever he is appointed
b) In Case of OPC, FS's should be signed by only 1 Director
c) The Auditors Report shall be attached to every Financial Statement

d) A signed copy of Financials including CFS , if any-issued,published and circulated along with followin
1) Notes Annexed
2) Auditor's Report
3) Director's Report
Board's Report [Sec 134(3) & (4)]:

a) Companies (Accounts) Rules,2014- Board's Report-Based on stand alone FS's - Separate section f
b) Laid in GM by BOD, Contents:
1) The extract of the Annual Return
2) No.Of meetings of the Board
3) Director's Responsibility Statement
4) A Stetement on Declaration given by Independent Directors U/S:149(6)
5) Incase Compny covered U/S:178(1)

i) Companies policy on Director's appointment and remuneration incl criteria for determining qualifica

6) Explanation or comment by board-On Auditors and CS in practice's Report's.

7) Particulars of Loans, Guarantees or investments U/S 186
8) Particulars of Contracts or arrangements with related parties referred to in Sec 188(1) in Form AOC9) State of the Company affairs
10) Amounts-Propose to carry to reserves
11) Amount-Dividend Recommendation
12) Material Changes and Commitments-Effects financial position, Occurred between BS date to Date
13) The Conservation of Energy, Technology absorption, Foreign exchange earnings ond outgo-Compa
14) A Statement indicating development and implementation of risk management policy
15) Details about policy developed & Implemented by the company on CSR initiatives taken during th
16) Listed Company and other public company-Having >25 Crore Paiup capital, Statement indication f
performance.
17) Shall also contain - As per Companies (Accounts) Rules,2014i) The Financial summary or highlights
ii) The changes in the nature of business if any
iii) Directors, Key Managerial peronnel- Appointed or Resigned
iv) The Names of the companies-Becomes/Ceased to be-Subsidiary, Associate or JV
v) The details relating to deposits
a) Accepted during the year
b) Unpaid/Unclaimed
c) Default in rapayment of loan/int-opg, Max, End
vi)Detais-deposits not in compliance with Ch V of the Act
vii) Significant Orders-Effects going concern
viii) Details-Adequacy of Internal financil controls-financial statements
C) Board's Report incase of OPC (Sec 134(4)):
Explanatory statement on auditors Report
Director's Responsibility Statement[Sec134(5)]:
a) The DRS Shall State that
1) In preperation of FS's- AS's followed- Explantion to materil departure
2) Selection of Accounting Policies

3) Proper & Sufficient care-Maintenance and Safekeeping books

4) Annual accounts-Prepared-Going Concern
5) Incase of Listed Company-Comment Internal Financial controls
6) To comply- Laws-Proper system director's devised
Signing of Board's Report[Sec134(6)]
Chairman-If authorised by Board or
2 Directors-1 MD or
Director-Only 1 is there
Contravention[Sec134(8)]
a) Company-50000 To 2500000
b) Every Officer of the company who is in default
1) Imprisonment-Upto 3 Yrs Or
2) Fine Rs.50000 to 500000 Or
3) Both

Corporate Social Responsibility ( Section 135 or the CA, 2013)

> Under CA, 1956---> No Provision for CSR
> Under CA,2013----> Sec 135 Introduced
> CSR implies---> Companies decide Voluntarily to contribute to a better society and a cleaner enviro
> Companies Integrate social and other useful concerns in their business operations.
CSR: The Companies ( CSR Policy) Rules, 2014 provides exhastive definition.
> Includes but not limited to
i) Projects or Programmes in Schedule VII
ii) Projects or Programmes ---> By BOD---> Recommendations of the CSR Committee of the Board--->
Which Company is required to constitute CSR Policy
a) Every Company---> It's HC or SC and a Foreign Company U/S 2(42) of the CA, 2013 , having its bran
1) Netwoth of Rs.500 crore or More, OR
2) Turnover of Rs. 1000 Crore or More, OR
3) A Net Profit of Rs. 5 Crore or More
During any FY shall constitute a CSR Committee of the Board.

b) CSR Committee---> Transparant monitoring mechanism---> For Implementation of the CSR Projects

c) However, The Networth , Turnover or NP of a Foreign Company--->As per BS and P&L A/C---> Sec 3
Exclusion of Companies
> Companies which ---> Ceases a company u/s 135(1)---> for 3 Consecutive FY's
1) Not Required to constitute a CSR Committee, And
2) Not Required to comply Sec 135
Composition of CSR Committee
a) 3 or More directors---> Out of which ar least 1 director should be Independent Director
b) An Unlisted Public Company or a Pvt company ---> Which no need to appoint Independent Directorc) A Pvt Company---> Having 2 directors on board---> Shall constitute CSR committee with 2 Directors
d) For Foreign Company---> CSR Committee---> 2 persons---> One shall be Sec 380(1)(d) and another
e) The Board's Report U/S 134(3) ---> Disclose composition of the CSR Committee
Duties of CSR Committee
> The CSR Committee Shall,

a) Formulate & Recommend to the Board, a CSR Policy---> Indicate the activities undertaken by the co
b) Recommend Amount of Expenditure on (a)
c) Monitor CSR Policy---> From time to time
Contents of the CSR Policy

a) List of CSR Projects or programmes---> Company plans to undertake---> Schedule VII---> Specifying

b) Monitering Process of---> Projects or Programmes

c) CSR Activities---> do not include---> Activities undertaken in normal cource of business of a compan
d) BOD---> Ensure---> Activities in CSR policy---> Covered in Schedule VII
e) CSR Policy---> Specify ---> Surplus arising out of CSR Projects or Programmes or Activities ---> Not
Duties of the board in relation to CSR
> The Board of every company reffered in Sec 135(1) shall
1) After taking recommendations by CSR committee---> Approve CSR Policy ---> Disclose ncontents o
manner as may be prescribed and
2) Ensure--> Activities included in CSR policy ---> Undertaken by the company
Amount of Contribution towards CSR
a) At least 2% of the avg Net profits of the company 3 immediately preceeding FY's---> In pursuance o
b) Preference to the local area and areas around it where it operates
c) Fails to spend---> Board specify reasons for not spending in it's Report
d) Administration of CSR expenditure ---> Company on it's own or other outside agency which has tra
5% of CSR exp in One FY
Exceptions to CSR Activities
Following are not considered as CSR Activities:
1) Undertaken outside India
2) Benefit only the employees of the company and their families
3) Contributioin to political party U/S 182
Calculation of avg Net Profit:
a) Inaccordance with Sec 198
b) " Net Profit"---> Not include
1) Profit from---> Any overseas branch or branches of the company
2) Dividend from other companies in India---> Covered U/S 135
c) Net Profit ---> Financial Stetements--->CA,1956---> Noneed to re-Calculate
d) Incase of foreign company---> NP---> According to Sec 381(1)(a) read with sec 198
CSR Reporting
a) Boards Report---> Contain---> Annual Report on CSR
b) Incase of Foreign Company---> BS filed U/S 381(1)(b) shall----> Annxure regarding report on CSR
Activities specified under sche VII:
> Activities to be included in CSR Policy---Schedule VII

1) Eradicating hunger, Poverty ang malnutrition, Promoting health care including preventive health ca

2) Promoting Education, Including Spl education and employment enhancing vacation skills especially
enhancement projects

3) Promoting gender equality, Empowering women, Setting up homes and hostels for women and Orp
for senior citizens and measures for reducing inequalities faced by socially and economically backwor

4) Ensuring environmental sustainability, ecological balance, Protection of Flora and fauna, animal we
quality of soil, air and wate;

5) Protection of National heritage, art and cul;ture including restoration of buildings and sites of histor
development of traditional arts and handisrafts
6) Measures for the benefit of armed forces veterans, war widows and their dependencts;
7) Training to promote rural sports, Nationally recognised sports, Paralympic sports and olympic sports
8) Contribution to the PM's National Relief Fund or any other fund setup by the CG for socio-Economic
tribes, other backword classes, Minorities and Women;
9) Contributions or funds provided to technology incubators located within academic institutions which
10) Rural Development Projects
11) Slum area development
> MCA---> Circular No:21/2014 dated 18-06-2014:
i) CSR Activities---> Should be covered in Sche VII
ii) Activities--->Projest/ Programme mode---> Not Marathons/Awards/ Charitable Contribution/ Advertis
iii) Expenses incurred to comply Act/ Statute---> Not qualified for CSR
iv) Salaries paid to CSR Staff---> Qualifies for CSR expense
v) " Any FY"referred u/s 135(1) ---> Implies any of the 3 preceeding FY's

vi) Expe incurred by foreign HC for CSR activities---> Qualify as CSR Spent of Indian SC--> s.t-- Routed

vii) 'Regd Trust' would include Trusts regd under IT Act1956, For those states where regn of trust is not
viii) Contribution to Corpus of a Trust/Society/Sec8 Companies---> Qualify as CSR exp----> If those are
activities---> Covered in Ssh VII
Right of Member to copies of Audited FS( Sec136 of CA, 2013)
Who are entitled for audited FS?
a) A copy of the FS's ---> Which laid before a company in it's GM, shall be sent to the following:
1) Every Member of the Company
2) To Every Trustee for debentures issued by company and
3) To other person---> Being the person so entitled
b) Consolidated Financial Statements, If any , Auditor's Report & every other notes which needs to be

c) Thease FS's shall be sent in ---> Not <21 days before the date of the meeting
d) In the case of ---> A listed Company:
1) The above prrovisions deemed to be coplied---> If made available for inspection @ regd office --->
2) Along With it, a Statement containing the salient features---> In form AOC-3---> Sent to every mem
3) Statement sent not < 21 Days before meeting unless the sha holders ask for full FS's
e) A company shall allow---> Every member or trustee to inspect the audited FS at it's regrd office dur
Manner of circulation of FS's in Certain cases:
a) Incase of Listed Companies & Public companies--> Which have a netwoth of > 1 Crore and Turnove
1) Who has demat a/c--> Electronically
2) Who are holding physical--->Through written request requested for electronic mode---> Elecronic m
3) For any others---> Physical copy---> Recognised mode u/s 20
b) Listed company shall also disclose on it's website
Subsidiary Companies
> Companies which has---> SC or SC's
1) Place separate audited a/s's on website, if any;

2) Copy of separate audited FS's of SC---> To any shar holder who asks it
Contravention
a) Any default in complying this sec, Company shall be liable to a penaulty of RS.25000
b) Officer who is in default---> Penaulty of Rs.5000
Copy of FS to be filed with Registrar ( Sec 137 of the CA, 2013)
Filing of FS's (Sec 137(1):
> A copy of the FS's, including Cons FS's if any, Along with annexure---> Duly adopted @ AGM----> Wi
or additional fees u/s 403
If FS's are not adopted (Sec 137(1))
a) Unadopted FS's along with reqd documents---> within 30 days from AGM file with registrar
b) Registrar will treat them as provisional---> Till adopted FS's filed
c) If FS's are adopted in adjourned AGM--->File with Registrar within 30 days from that meeting
Filing by OPC ( Sec 137(1))
> Within 180 days from ---> Closure of FY--> File FS's with Registrar.
Company having subsidiaries ( sec 137(1))
> Attach a/c's of SC's incorporated outside India and which have not established their place of busines
AGM not Held (Sec 137 (2))

> FS's & Statement of facts and reasons for not holding the AGM--->file with the Registrar within 30 d

Penaulty ( Sec 137(2))

> If this section Contravened,
a) Company---> Rs. 1000 for every day max 10 Lakhs and
b) The MD and The CFO,if any and if no MD and CFO, Directors who charged by board, IN ABSENCE OF
1) Imprisionment---> Upto 6 Months or
2) Fine---> Rs.100000 to Rs. 500000 or
3) Both
Internal Audit ( Section 138 of the CA, 2013)
Companies reqd to appoint Internal Auditors:
a) Following Companies reqd:
1) Every Listed Company
2) Every Unlisted Public company having
A) Paid Up sha capital ---> 50 Cr or more during preceeding FY or
B) Turnover of 200 Cr or more during Preceeding FY or
c) o/s Loans or borrowings from banks or PFI's > or euals to 100 Cr at any point of time during the Pre
d) o/s Deposits of > or equal to 25 Crore at any point of time during the Preceeding FY; and
3) Every Pvt Company having
A) Turnover of > or equal to 200 crores during the preceeding FY; or
B) o/s loans or borrowings from banks or pfi'S > OR equal to 100 Crore at any point of time during the

b) Audit Committee or the Board---> In consultation with---> Internal Auditor---> Formulate the Scope

Transitional Period:
> Anexisting company covering under above criteria---> Comply sec 136 within 6 months of commen
Who is Internal Auditor
a) CA or a CMA or such other professional ---> as decided by board; CA means CA whether in Practice
b) May or may not be an employee of the company

Unit 2 : Audit and Auditors

Appointment of Auditors ( Section 139 of CA, 2013)

Appointment of Auditor (Sec 139(1))
a) Every company --->at the 1 st AGM, Appoint---> Individual or a firm as---> auditor of the company
b) Auditor hold office----> Till the conclusion of it's 6th AGM & Thereafter till the conclusion of every 6t
The manner and procedure of selection of auditors prescribed under companies ( Audit and Auditors)
c) Manner and Procedure of selection and appointment of auditors:

1) A Company which is reqd to constitute an audit committee u/s 177: Competent authority is
qualifications & experience of the proposed auditors- They commensurate with the size & reqnts of th
professional iii) Call for such other information----> of proposed auditor as it may deem fit iv) Audit C

2) A Company which is not reqd to constitute an audit committee u/s 177: Competent authorit
qualifications & experience of the proposed auditors- They commensurate with the size & reqnts of th
professional iii) Call for such other information----> of proposed auditor as it may deem fit iv) Board sh

3) Board agrees with audit committee---> Recommend to members in the AGM

4) Board disagrees---> With committee---> Return back the recommendation to the committee---> Cit
5) If Board---> Disagree with audit committee---> Record reason---> Recommend own recommendatio
Recommend the same to members
d) In every AGM, Company place the matter relating to appointment of auditor----> For retification by
e) Before appointment----> Written consent of auditor and a certificate should be obtained
Certificate by Auditor: Companies ( Audit and Auditors) Rules, 2014
A) Is eligible----> Not disqualified under the Act, CA Act,1949 and rules & Regulations made thereunde
B) Appointment---->As per the term provided under the Act
C) Appointment---> Within the limits---> of the Act
D) List of Proceedings pending---> Sisclosed in the certificate are true and correct.
f) The certificate also contain---> Auditor satisfies sec 141
g) Company inform Auditor---> About his appointment and also file a notice ( In the form ADT-1) ---> W
> Appointment includes Reappointment
Term of Auditor ( Sec 139(2)
a) Listed and other prescribed class or classes of companies ( Except OPC and Small Companies) --->
1) An Individual for > 5 Consecutive Yr's and
2) An Audit firm for > 2 terms of 5 Consecutive Yr's
b) The Companies ( Audit & Auditors) Rules, 2014, Prescribed following companies for----> Sec 139(2)
1) All unlisted Public Companies having Paid up shar capital > or equal to 10 Crore
2) All pvt ltd companies having paid up shar capital > Or equal to 20 Crore
3) All Companies not 1 & 2, But
Public borrowings from financial institutions, Banks or Public Deposits of Rs.> or Equal to Rs.50 Crore
c) Cooling Off period:
1) 5 yr's from completion of term
2) An Audit Firm--> 5 Yr's from completion of term
d) Appointing another firm having common partner after expiry of term----> Not possible
e) Transitional Period:

> Existing Company which is required to comply sec 139(2)---> Comply requirement of this sub sectio

f) Nothing in this section shall prejudice---> Right of company to remove or ----> Right of auditor to re
Rotation of auditor (Sec 139(3) and (4)
Individual
> On the date of 1st AGM, After commencement of this section,
Auditor already completed
Auditor eligible for no.of yr's app
5 or more
3 yers
4
1
3
3
2
3
1
4
Firm
Auditor already completed
10 or more
9
8
7
6
5
4
3
2
1

Auditor eligible for no.of yr's app

3 yrs
3
3
3
4
5
6
7
8
9

Here, Word " Firm---> Shall include----> LLP

First Auditor (Sec 139(6))
a) Notwithstanding anything contained in sec 139(1), 1st Auditor of a company otherthan a govt comp
office till conclusion of 1st AGM
b) if the board fails---> Inform members---> Members in GM within 90 days---> Appoint auditor---> Au
Filling up Casual vacancy [ Sec139(8)]:

a) Board may within 30 days fill---> If vacancy due to resignation--->shall also be approved by compa

b) Auditor appointed for casual vacancy---> hold office---> Untill the conclusion of the next AGM
Appointment of Auditors in case of govt company or any other company having controlled
a) As per Sec 139(5), CAG of India---> Shall appoint
b) Within 180 days from the commencement of the FY---> Auditor holds office till conclusion of the AG
c) First Auditor[Sec139(7)]
1) By CAG within 60 days of incorporation
2) If CAG---> fails to appoint---> Board within next 30 days
3) If Board fails----> Inform members---> They will appoint within 60 days @ EGM----> Auditor holds o
d) Casual Vacancy [Sec 139(8)]
1) CAG---> Within 30 Days
2) If CAG---> fails to appoint---> Board within next 30 days
Re-appointment of retiring auditor[Sec139(9),(10) and(11)]
a) At any AGM, a retiring auditor may be re-appointed at an AGM, If-

1) Not disqualified for re-appointment

2) Not given notice in writing of his unwillingness to reappointed and
3) A SR not passed at meeting for the purpose---> Auditor shall not be reappointed
b) At AGM, If no auditor is appointed or re-appointed, the existing auditor ----> Shall continue to be the
Audit Committee Recommendations [Sec 139(11)]
Where company reqd to constitute---> Audit Committee u/s 177, All appointments, Casual Vacancy of
recommendations of such Committee.
Removal, Resignation of auditor and giving of spl notice[Except 2nd Proviso to Sec 140(4)
Removal of Auditor before the expiry of his term (Sec 140(1)
a) Auditor appointed u/s 139---> Removed---> For that SR & Previous approval of CG, by making an ap
b) Application to CG---> Within 30 days of Boards resolution
c) Company hold GM ----> Within 60 days of approval of CG---> For passing the SR.
d) Giving oppurtunity of being heard.
Resignation by Auditor [Sec 140(2) & (3)]
a) Auditor file ADT-2 with company & Registrar within 30 days from resignation.
b) Incase of Govt company---> File with CAG, Company & Registrar
c) Reasons & Other facts for resignation, In the statement.
d) Auditor fails to comply this Provision---> Fine 50000 to Rs. 5 Lakhs.
Appointing Auditor otherthan the retiring Auditor[Sec 140(4)]
a) If Retiring Auditor has not completed his tenure u/s 139(2), Special notice reqd for passing resolutio
Providing expressly that---> Retiring auditor not be reappointed.
b) On Receipt of such notice for resolution---> Forthwith send to Auditor
c) Auditor may make representation---> Company should send the same to all the members
d) If Fails to Send---> due to received too late or because mof companies default--->Readout at the m
e) If copy of representation is not sent as aforesaid---> File with the Registrar.
Eligibility, Qualifications and Disqualifications of Auditors [Sec141 of the CA,2013]
Qualificatios of an Auditor [Sec 141(1) & (2)]
a) CA within the meaning of the Chartered Accountants Act,1949
b) Incase of Firm- Majority partners qualified for appointment
c) Firm or LLP---> Appointed as auditors---> only CA is authorised to act & sign on behalf of the firm.
Disqualifications of Auditors[Sec 141(3)]
a) Following are not eligible for appointment
1) A Body Corporate other than a LLP
2) An Officer or Employee of the Company
3) Person----> Partner or in employment or officer or employee of the company
4) A person, or his relative or partner-

A) Holding any security or interest in the company or it's SC, or of it's HC or associate company or a S
value (Company ( Audit & Auditors) Rules, 2014.---> If Relative acquires more than Rs.100000, Audito

B) Is indebted to the company or it's SC, or of it's HC or associate company or a SC of such HC > Rs.5
C) Has given---> A guarantee or provided any security inconnection with indebtedness of any 3rd per
such HC, In excess of Rs.1 Lakh.

5) A person or a firm who, Whether directly or Indirectly, has business relationship with the company o
According to Companies ( Audit & Auditors ) Rules, 2014, "Business Relationship" means Transaction e

A) In the nature of professional services---> Permitted

B) In the ordinary cource of business of the company at arm's lenth price.
6) A Person---> Whose relative---> Director or is in the employment of the company as a director or ke
7) A person---> In fulltime employment or At the time of appointment holding > 20 Company audits
Ceiling no.of audits:
Before appointment, Company must obtain certificate from auditor----> Appointment should be with in
>20 company audits

Further, Council ageneral Guidelines, 2008 ( Chapter VIII): Clause ii of part II of the second schedule to
---> If holds> 20 Adudits u/s 141(3)(g) of the CA,2013
8) Convicted by a court of an offence involving fraud---> 10 yr's has elapsed from the date of convistio
9) Any Person, his entities engaged in consulting & Specified services u/s 144( Sec 144- Certain servic
Vacation of office by an auditor [ Sec 141(4)]
> Incures any disqualification u/s 141(3)----> deemed to have vacated his office---> Casual vacancy
Remuneration of auditors[ Sec 142 of the CA, 2013]
i) Fixed by the company in GM or in such manner decided in GM
ii) 1st Auditor----> Board may fix
iii) Remuneration include expenses incurred during rendering service.---> But not include---> Paid for

Powers and Duties of Auditors and Auditing Standards [Sec 143 of the CA, 2013]
Powers of Auditors[Sec 143(1)]
a) Access to books of a/c's and vouchers
b) Entitled to have necessary information and explanation from the officers of the company for the pe
c) Matters of inquiry: The auditor may inquire following
1) Loans & Advances by company on the basis of security---> Properly secured & Whether prejuducial
2) Transactions---> Mere book entries---> Prejudicial to the interest of the company
3) Company not being investment or banking company---> Sold investments @ less than purchase pr
4) Loans & advances by company shown as deposits
5) Whether personal expenses charged to revenue a/c
6) Shares---> Sold for cash---> Whether received---> Position shown in a/c books & BS correct, regular
d) Access to record of all it's subsidiaries---> So far as it relates to the Consolidated Financial Stateme
Duties of Auditors [ Sec 143(2),(3) and (4)]
a) Report to the members on following:
1) On a/s's examined by him and
2) On every FS's ---> Laid before---> GM and
b) While making Report---> Take into a/c provisions of this Act, Th\e a/cing & auditing standards and m
or under any order made u/s 143(1)
c) Express his opinion of the a/c's & FS's examined by him
d) The auditors report shall also state1) Whether he has sought & obtained all the information which is Necessary---> If not, Details thereof
2) Whether----> Proper books of a/c's reqred by law maintained. Books and proper returns from brance
3) Branch report---> Audit done by others u/s 143(8), and sent to companies auditor--->Manner in whi
4) Whether Companies BS & P and L a/c in the report---> In agreement with the books of a/c's and ret
5) Whether FS's comply with the AS's
6) Observations or comments on financial transactions or matters----> Which have adverse effect on f
7) Any director disqualified u/s 164(2)

8) Any qualification, Regervation or adverse remarks relating to maintenance of a/c's and other matte
9) Internal financial controls---> operating effectiveness of such controls
10) Such other matters as may be prescribed

e) The companies( Audit and Auditors) Rules, 2014 provides that the auditors report shall also include

1) Whether company disclosed---> impact if any of pending litigation on it's financial position in it's FS

2) Whether the company has made provision, as required by law or AS's for matrial forseeable losses,

3) Any delay in transfering to investor Education & Protection Fund a/c if any
f) If any nagative or qualifications---> Reasons for the same
g) Compliance with AS's:
1) Every auditor---> Shall comply---> AS's
2) CG may prescribe---> SA's recommended by ICAI, in consultation with & after examination of the re
3) Untill AS's notified----> As's issued by ICAI will prevail
h) Additional matters to be reported in case of specified companies:
> CG may, in consultation with NFRA, direct
i) Reporting of frauds by auditors [Sec 143(12)]

a) Notwithstanding anything contained in this Sec, Auditor in the cource of audit---> Reason to believe
Immediately report---> to CG not > 60 days of his knowledge and after following the below procedure

1) Auditor forward his reportto Board or audit committee--> Immediately after he comes to knowledge

2) Ion receipt of reply or observATIONS FROM Board or audit committee----> Along with his own comm
observations
3) In case auditor fails to receive reply within 45 days from board or audit committee---> Forward the

4) Send to the Secretary, MCA in a sealed cover by registered post with acknowledgement due or spee

5) Report shall be on auditors letterhead containing postal address , Email address and contact numbe
6) Report shall be in the form of a statement in Form ADT-4
b) No Contravention on the auditor---> If he done in good faith
c) Penalty for Non compliance of Sec 143(12)

If any auditor, Cost accountant in practice, Cost audit u/s 148, The CS in Practice--> Secretarial audit u
Audit of Govt Companies [Sec 143(5), (6), & (7)]
a) Appointed by CAG u/s 139(5) or u/s 139(7)
b) CAG will direct the auditor manner in which a/c's are audited---> Auditors need to submit report to
c) The Audit Report among other things, Include the following:
1) The directions if any issued by the CAG
2) The action taken thereon and
3) Its impact on the a/c's and FS of the company
d) The CAG shall within 60 days from the date of receipt of the audit report have a right to1) Conduct a supplementary audit of FS of the company
2) Comment upon or supplement such audit report

e) Any Comments given by the CAG, Company send to every person entitled to copies of audited FS's
time and in the same manner as the audit report.
f) Test Audit:

For Govt Companie or company controlled by SG or CG, CAG without prejudice to the provisions relate

Audit of a/c's of Branch Office of Company [Sec 143(8)]

a) Branch Office in India:
1) Company has branch office---> a/c's audited either by
A) Companies Auditor appointed u/s 139 or
B) Any other person qualified u/s 139
b) Branch office outside India:
By A) The companies auditor or B) By an Accountant or C) Any other person duly qualified under law o
c) Duties of branch auditor---> Same as Sec 143(1) To 143(4)

d) The branch auditor---> Report on the a/c's of the branch ----> send it to companies auditor---> who
e) The provisions regarding reporting of fraud by the auditor---> also apllies to branch auditor.
The Provisions of this sec i.e sec143 shall mutatis mutandis apply toa) The AMA in practice conducting Cost audit u/s 148 or
b) The CS in Practice conducting secretarial audit u/s 204.
Auditor Not to render certain Services [ Sec 144 of the CA, 2013]
Prohibited Services:
Only such other services as are approved by the BOD or the audit committee as the case may be--->
{ Whether such services are rendered directly or indirectly to the company or it's HC or SC), Namely
a) a/cing and book keeping services
b) Internal Audit
c) Design and implementation of any financial information system
d) Acturial Services
e) Investment Advisary Services
f) Investment Banking Services
g) Rendering of out sourced financial services
h) Mgt services and
i) any other kind of services as may be prescribed
Explanation: " Directly or Indirectly" shall include
i) Incase of auditor---> Himself, Relative or other connected
ii) InCase of auditor being a firm---> Itself, Partner or connected
Transition Period:
Comly sec 144 before the closure of the 1st FY after the date of such commencement.
Auditor to sign audit reports, etc [Sec 145 of CA, 2013}
i) In accordance with the provisions of sec 141(2)

ii) Which have any adverse effect on the functioning of the company---> read before the company in G
Auditors to attend GM { Sec 146 of the CA, 2013}
i) All notices and other communicatios relating to any GM---> To Auditors

ii) Unless exempted by the company---> Auditor shall attend by himself or through his authorised repr
iii) Right to be heard at such meeting on any part of the business which concerns him as the auditor
Punishment for contravention [Sec 147 of the CA, 2013]
Penaulty on Company [ Sec147(1)]
> Sec 139 to Sec 146----> If contravened----> Rs.25000 to Rs.5 Lakhs
Penaulty on officers [Sec 147(1)]
> Sec 139 To Sec 146, Contravened, Every officer who is in default shall be punishable with
1) Imprisonment upto 1 yr or
2) Fine Rs 10000 to Rs. 1 Lakh or
3) Both
Penaulty on Auditor [ Sec 147(2) & (3)]
a) If Conatravenes sec 139, 143, 144 or 145----> Fine Rs.25000 to Rs.5 Lakhs

b) contravention---> knowingly or willfully ---->with an intention to deceive the company or its share h

1) Imprisonment upto 1 yr and

2) Fine---> 1 Lakh to 25 Lakhs
c) If auditor convictedas above, he shall be liable to
1) Refund----> Remuneration received by him to the company and
2) Pay damages
CG---> will specify statutory body or authority or an officer for ensuring promt payment of damages--Payment of dmages[Sec 147(4)]
Liability of Audit Firm [ Sec 147(5)]
The liability for such act shall be of the partner or partners concerned of the audit firm and of the firm
CG to specify audit of items of Cost in respect of certain companies [ Sec 148 of the CA, 20
i) CG---> Companies engaged in the production of such goods or providing such services----> Utilisatio
Shall also include in the books of a/c's uner section 128
ii) CG, Before issuing such order---> Consult the regul;atory body constituted or established under suc
iii) If CG is of the opinion, That it is necessary to do so, May order---> Cost audit
iv) Cost audit----> CMA in practice---> Recommended by members
v) The Companies ( Audit and Auditors) Rules, 2014 provides that1) Companies which required to constitute Audit committee,
A) Board shall appoint individual CMAor Firm----> On recommendations of the Audit committee, Which
B) The Remuneration recommended by Audit committee---> Board will approve----> Sahare holders w
2) Companies which Not required to Constitute audit committee
> Board shall appont---> Remuneration fixed by board----> Share holder will ratify.
vi) No person appointed u/s 139----> Appointed as Cost auditor
vii) Cost auditor---> Comply cost auditing standards---> Cost aduting standards by ICWAI eith the app
viii) An audit u/s 148----> In Addition to audit u/s 143
ix) Qualifications, Disqualifications, Rights, Duties and obligations apllicable to auditors----> Apply to C
x) Report submitted by cost auditor to ---> BOD of the company
xi) Within 30 days company shall file with CG along with information & explanation on every reservati
xii) If CG need further information---> Company shall give
xiii) Contravention:
Fails to comply Sec 148-

a) Company & Office in default----> Punishment u/s 147(1)

b) Cost auditor---> Sec 147(2) to 147(4)

Prepared by Vijaya Kumar Poola Balija; email:poolavijayakumar@gmail.c

My Request to Readers: When ever you are studying, Please make short notes and share it for Publ
succeed in their exams. (SHARE NOTES, BE A PART

Chapter-3 Appointment and Qualifications

Company to have Baord of Directors ( Sec 149 of Companies Act, 2013)

Number of Directors:
a) A Minimum number of Directors
A) Public Company-3 Directors
B) Private company- 2 Directors
c) OPC-1 Director
b) A Max of 15 Directors
If Compant wants to appoint > 15 Directors---> By passing SR
c) Women director:
> Such class or classes of companies----> Shall have at least 1women director [Second proviso to Sec

> According to The Companies ( Appointment and Qualification of Directors) Rules, 2014---> The follo
1) Every Listed Company;
2) Every other public company havingA) Paid-Up share capital of Rs.100 crore or More; OR
B) Turnover of Rs.300 Crore or more

> Company incorporated under the Act and covered U/S 149(1), Shall comply with such provisions wi

> Any Intermittent Vacancy of a Women director shall be filled-up by the Board at the earliest but not
such Vacancy Which Ever is Later.
> For the purpose of this rule----> Paid up share capital or Turnover---> As on the last date of latest au
Transition Period:
> Sec 149(2) Provides----> 1 yr from the date of commencement---> To comply sec 149(1)
d) Resident Director:
> Every Company shall have at least 1 Director, Whose stay in India---> Not less than 182 Days in P

> The MCA General Circular No:25/2014 dated 26th June, 2014, has given clarification on applicability
year.----> Sec 149(3) applicable from 1-4-2014, so first year will be calender year 2014----> Proportion
incorporated companies, incorporated between 1-4-2014 To 30-09-2014 should have a resident Direct
incorporation.----> Companies incorporated after 30-09-2014 needs to have the resident director from

e) Independent Director:
> Every listed public company shall have at least 1/3 of the total no.of directors as independent
Transition Period: Sec 149(5) provides----> 1 yr from the date of commencement ---> To comply wit
> The CG may prescibe the min no.of Independent directors in case of any class or classes of public c
> Any Fraction of 1/3 shall be rounded off as one.
> According to the Companies ( Appointment and Qualification of Directors) Rules, 2014---> The follow
Independent Directors:
1) The Public Companies---> Having Paid up sha capital---> Rs. 10 Crore or More; OR

2) The Public Companies --> Having Turnover----> Rs. 100 Crore or more; OR
3) The Pyblic Companies---> in aggregate, O/S Loans, Debentures and Deposits, Exceeding Rs.50 Cror
However, Companies covered under above category----> is required to appoint a higher no.of indepe
number only applicable to it.

Eg: As Per sec 177(2) of CA, 2013, The Audit committeee shall consist of a min of 3 directors with inde
directors, But according to sec 177(2)--- Min 3, and forming a majority, Here Sec 177(2) will only be pr

> Any Intermittent Vacancy of an Independent director shall be filled-up by the Board at the earliest b
of such Vacancy Which Ever is Later.

> However, Where a company ceases to fulfill any of 3 conditions laid down above for 3 consecutive y
time as it meets any of such conditions.

> For the purpose of above assessment----> Paid up share capital or Turnover or o/s loans,debentures
into a/c.
> A company belonging to any class of companies for which a higher no.of Independent directors has
requirements specified in such law.
f) Who can become the Independent Director [Sec 149(6)]:

> In relation to a company, as independent director means a director other than a MD or a WTD or a n

1) Who, In the opinion of the Board---> A person of integrity and possesses relevant expertise and exp
2) A) Who is or was not a promoter of the company or it's HC,SC or Associate Company; B) Who Is not
company;

3) Who has or had no pecuniary relationship with the company, it's HC, SC or Associate company, or t
during the current FY;

4) None of whose ralatives has or had pecuniary relationship or transaction with the company, it's HC
% or more of ot's gross turnover or total income or Rs.50 Lakh or such higher amount as may be presc
during the Current FY;

5) Who, neither himself nor any of his relativesA) Hols or has held the position of key managerial personnel or is or has been employee of the compa
preceding the FY in which he is proposed to be appointed;
B) Is or has been an employee or proprietor or a partner, in any of the 3 FY's immediately preceding th
i) A firm of auditors or CS's in Practice or CMA of the company, It's HC, SC or Associate company; OR
ii) Any legal or a consulting firm that has or had any transaction with the company, It's HC, SC or Asso
firm;
iii) Holds together with his relatives 2% or more of the total voting power of the company; or

iv) Is a CE or Director, by whatever name called, of any non-profit organisation that receives 25% or m
HC, SC or Associate company or that holds 2% or more of the total voting power of the company; OR

6) Who passesses such other qualification as may be prescribed. ----> According to the Companies ( A
director shall possess appropriate skills, Experience an and knowledge in one or more fields of finance
Governance, Technical operations or other disciplines related to the companies business.
g) Declaration by Independent Director [ Sec 149(7)]:

Every Independent director shall 1) At 1st meeting of the Board in which he participates as a director;
Whenever ther is any change in the circumsatnces which may effect his status as an independent dire
provided in Sec 149(6).
h) Code for Independent Directors [Sec 149(8)]:

> Company and Independent Director---> shall comply provisions specified in schedule IV to the comp
i) Remuneration of Independent Directors [Sec 149(9)]:
> Notwithstanding anything contained in any other provision of this Act, But subject to the provisions
any stock option and may receive remuneration by way of
1) Fee provided U/S 197(5),
2) Reimbursement of expenses for participation in the board and other meetings and
3) Profit related commission as may be approved by the members.
j) Tenure [Sec 149(10) & (11)]:
> S.t sec 152, Upto 5 Cosecutive yr's.----> Eligible for reappointment on passing a SR and disclosure o

> Not more than 2 consecutive terms. However eligible for appointment after expiration of 3 yr's of ce

> Provided that during the said period of 3 yr's, such independent director shall not, be appointed in o
indirectly.

> For the purposes of sec 149(10) & 149(11)----> Any Tenure of an Independent director on the date o
sub section.
k) Liability (Sec 149(12)):
Notwithstanding anything contained in this Act, An Independent director or a non-executive director n
respect of

i) Such acts of ommission or commission by a company which had occurred with his knowledge, attrib

ii) With his consent or connivance or

iii) Where he had not acted diligently.
l) Retirement by rotation [ Sec 149(13)]:
> The provisions of retirement of directors by rotation covered U/S 152(6) and 152(7) shall not be app
> " Nominee Director" means a director nominated by any financial institution in pusuance of the prov
appointed by any govt, or any other person to represent it's interests.

The MCA Vide General Circular No.14/2014 dated 9th June,2014 has given clarifications ove
and independent directors which are as under:
i) Sec 149(6)(c) : "Pecuniary interest in certain transactions".
a) Transactions entered into by the ID with company at par with Member of general public---> No pecu
b) Receipt of remuneration as per provisions of the Act----> No pecuniary interest.
ii) ID's appointed prior to April 1, 2014
> Any tenure of an ID on the date of commencement of the Act shall not be counted for his appointme

> In view of the transitional period of 1 yr provided U/S 149(5), it is hereby clarified that it would be n
Such appointment shall be made expressly U/S 149(10)/(11) read with Schedule IV of the Act within 1
conditions.
iii) Sec149(10)/(11) - Appointment of ID's for less than 5 yr's:-

> The person completing 'Consecutive terms of less than 10 yr's' shall be eligible for appointment onl

iv) Appointment of ID's through letter of appointment:> Appointment of ID's under the new Act would need to be formalized through a letter of appointmen
ID'd).
Manner of selection of Independent directors and maintenance of databank of independen
i) Sec 150(1)----> ID may selected form a databank containing names, Addresses and qualificaitons o
contained in sec 149(5).

> Such data bank shall be maintained by any body, institute or association, as may be notified by the
and put on their website for the use by companies appointing such directors.

> Further, The responsibility of exercising due diligence before selecting a person as an ID from the da
appointment [Provisio to sec 150(1)].
ii) The appointment of ID shall be approved by the company in GM as provided in sec 152(2). [Sec 150

iii) The data bank referred to in sub section (1), shall create and maintain data of persons willing to ac

iv) The CG may prescibe the manner and procedure of selection of ID'd who fulfill the qualifications an
Creation and maintenance of databank of persons offering to become ID's :

i) Any body, Institute or association9 referred as " Athe agency", ---> Authorised by CG---> shall creat
as ID and such data bank shall be placed on the website of the MCA or on any other website as may b

ii) The data bank shall contain the particulars in respect of each person included in the data bank to b
in full, details of LLP's in which he is or was a designated partner, the list of companies in which he is

iii) Details regarding the procedure of creation and maintenance of databank of persons offering to be
Rules,2014.
Appointment of directors elected by small shareholders ( Sec 151 of the CA,2013)
> A listed company may have 1 director elected by such Small shareholders in such manner and on su
> "Small Shareholders" ---> who are holding shares of nominl value of not>Rs.20000 or such other su

> The Companies ( Appointment and Qualification of directors) Rules, 2014 provides for the procedure

i) A listed company, May upon notice of not less than

a) 1000 small shareholders; OR
b) 1/10 of the Total no.of such shareholders,
W.E.L, Have a Small shareholders director elected by the small shareholders.
However, A listed company ---> Opts to have small share holders---> Suo motu and in such a case the
such director.

ii) The Small shareholders intending to propose a person as a canditate for the post of Small shar hold
Under their signature---> Specifying the name, Address, Shares held and fortfolio number of person w

However , if the being proposed does not hold shares---> the details of shares held and folio number n

iii) The Notice shall be accompanied by a statement sihned by the person whose name is being propo

a) His DIN;
b) That he is not disqualified to become a director under the Act; and
c) His consent to act as a director of the company.
iv) Such director shall be considered as an independent director s.t, his being eligible U/S 149(6) and
of the Act.
v) The appointment shall be s.t sec 152 except thata) Shall not be liable to retire by rotation;
b) Such director's tenure----> Shall not Exceed 3 consecutive yr's; and
c) On the expiry of the tenure, Such director shall not be eligible for re-appointment.
Vi) A peson shall not be appointed as small shar holders,' director of a company, if he is not eligible fo
appointment of a director.
vii) A person appointed as small shar holers' director shall vacate the office if-

a) Incurs any of the disqualifications specified in sec 164;

b) The office of the director becomes vacant in pursuance of sec 167;

c) The director cease to meet the criteria of Independence as provided in sec 149(6)
viii) No person shall hold the position of small shareholders' director in more than 2 companies at the
However , the second company in which he has been so appointed shall not be in a business which is

ix) A Small Shareholders' director shall not, for a period of 3 yr's from the date on which he ceases to
or be associated with such company in any other capacity, either directly or indirectly.
Appointment of Directors ( Sec 152 of the CA, 2013)
Appointment of Directors:
I If no provision in Articles reg appointment of the director, The Subscribers to the memorandum deem
appointed. [Sec 152(1)]
> In case of a OPC---> An individual being member shall be deemed to be it's 1st director---> Untill di
Save as otherwise provided in this Act, every director shall be appointed by the company in GM. [Sec
No Person appointed as direcctor---> Unless he has DIN under sec 154 [ Sec 152(3)]
Every person proposed as director---> shall purnish DIN and a declaration that he is not disqualified to
A person appointed as director shall not act as director unless---> He gives his consent to hold the offi
within 30 dats of his appointment in Form DIR-12 along with the fee as prescribed [Sec1 52(5)]

The companies (Appointment and Qualification of Directors) Rules, 2014---> Every person who has be
appointment furnish to the company consent in writing to act as director in Form DIR-2. ---> The provi
explanatory statement for such appointment, annexed to the notice for the GM, shall include a statem
Act for such an appointment.

Retirement by Rotation [Sec 152(6)]

a) Unless the articles provide for the retirement of all directors at every AGM, Not less than 2/3 of the
A) Be persons whose period of office is liable to determination by retirement of directors by rotation; a
B) Save as otherwise expressly provided in this Act, be appointed by the company in GM.
b) The remaining directors in the case of any such company shall, in default of, and subject to any reg
in GM.

c) At 1st AGM after GM--> In which directors appointed, ----> 1/3 directors of directors who are liable t
the nearest.

d) The directors to retire by roatation---> Longest duration person 1st shall retire---> Became director
any agreement among themselves, be determined by lot.
e) At the AGM---> In which retires, The company may fill up the vacancy by appointing the retiring dir
> For the purposes of the above provisions "Total no.of directors" shall not include ID's , Whether appo
board of a company.
For E.g: Company is having 6 Directors.---->Directors liable to retiire by rotation: 6*2/3 i.e 4 No.of dir
Vacancy in case of retiring director [Sec 152(7)]
a) If the vacancy ----> nto filled and meeting the meeting has not expressly resolved not to fill the vac
the same time and place---> if that is holiday---> next succeding working day, at he same time and pl
b) In that meeting also appointment not done or resolution not passed, Retiring auditor deemed to be
A) At that meeting or at the previous meeting a resolution for the re-appointment of such director has
B) The retiring director has, by a notice in writing addressed to the company or it's BOD's, expressed h
c) He is not qualified or is disqualified for appointment;
D) A resolution, Whether SR or OR, is reqd for his appointment or reappointment by virtue of any prov
E) Sec 162 is applicanle to the case.

> For the purposes of sec 152, The " Retiring director" means a director retiring by rotation.
Application for allotment of DIN [ Sec 153 of the CA, 2013]
> Every Individual intending to be appointed as director of a company ---> Make application for allotm
fees as may oprescribed.

> The Companies ( Appointment and qualification of directors) Rules, 2014 Provides for the procedure
1) Every individual, who is to be appointed as director----> make an application electronically in Form
prescribed.

2) The CG shall provide an electronic system to facilitate submission of application for the allotment o

3) a) Tha applicant shall download Form DIR-3 from the portal, fill in the required particulars sought th
documents, Scan and file the entire set of documents electronicallyi) Photograph;
ii) Proof of Identity;
iii) Proof of residence;
iv) Verification by the apllicant for applying for allotment of DIN in Form DIR-4; and
v) Specimen signature duly verified.
b) Form DIR-3 shall be signed and submitted electronically by the applicant using his or her own DSC a
i) A CA in practice or a CS in practice or A cost Accountant in Practice; or
ii) A CS in full time employment of the copmany or by the MD or Director of the copmany in which the
> The MCA vide Notification No. S.O. 1354( E) dated 21st May,2014 delegates the powers and functio
Regional Director, Joint Director, Deputy Director or Assistant Director posted in the office of Regional
Allotment of DIN (Sec 154 of the CA, 2013)
> The CG shall, within 1 month from the receipt of the application U/S 153, Allot a DIN to the applican
> The Companies ( Appointment and qualification of directors) Rules, 2014 Provides for th
i) On the submission of the Form DIR-3 on the portal and payment of the requisite amount of fees thro
automatically which shall not be utilized till the DIN is confirmed by the CG.

ii) Afer generation of the Provisional DIN, The CG shall procee the applications received for allotment o
same to the applicant along with DIN alloted in case of approval by way of a letter by post or electroni
of such application.

iii) If the CG, on examinationfinds such applicaiotn to be defective or incomplete in any respect, it sha
website and by email to the applicant who has filed such application, directing the applicant to rectify
period of 15 days of such placing on the website and email.

iv) Provided that CG Shalla) Reject the apllication and direct the apllicant to file fresh application with complete and correct info
given is still found to be defective;
b) Treat and label such application as invalid in the electronic record in case the defects are not remov
c) Inform the applicant either by way of letter, by post or electronically or in any other mode.
v) In case of rejection or invalidation of application, the provisional DIN so allotted by the system shall
neither be refunded nor adjusted with any other application.

vi) All DIN allotted to individual(s) by the CG before the commencement of these rules shall be deeme

vii) The DIN so allotted under these rules is valid for the life-time of the applicant and shall not be allo
> The MCA vide Notification No. S.O. 1354( E) dated 21st May,2014 delegates the powers and functio
Regional Director, Joint Director, Deputy Director or Assistant Director posted in the office of Regional

Prohibition to obtain more than one DIN (Sec 155 of the CA, 2013)
> No Individual , who has already been allotted a DIN U/S 154, Shall apply for, obtain or possess anoth
Director to Intimate DIN [Sec 146 of the CA,2013]

> Every Existing Director shall, within 1 month of the receipt of DIN from the CG, intimate his DIN to th
Company to inform DIN to Registrar [Sec 157 of the CA, 2013]

i) Every company shall---> within 15 days of the receipt of intimation U/S 156, furnish the DIN of all it'
specified by the CG with such fee or addl fee as may be prescribed within the time limit specified U/S
as may be prescribed. [Sec 157(1)]

ii) If the company fails---> fine, not less than Rs.25000 but which may extend to Rs.1 Lakh and every
[Sec 157(2)]
Obligation to indicate DIN [Sec 158 of the CA, 2013]
> Every person or company, while furnishing any return, information or particulars as are required to
information or Particulars in case such return, information or particulars relate to the director or conta
Punishment for contravention [Sec 159 pf the CA, 2013]

> If any Individual or director of a company, contravenes any of the provisions of Sec 152, 155 and 15
Rs.50000 and where the contravention is a continuing one, with a further fine which may extend to Rs

Cancellation or Surrrender or Deactivation of DIN

1) The CG or Regional Director ( Northern Region), Noida or any officer authorised by the Regional Dire
documentary proof attached with the application received from any person, cancel or deactivate the D

a) The DIN is found to be duplicated in respect of the same person provided the data related to both t
b) The DIN was obtained in a wrongful manner or by fradulent means;

Provided that before cancellation or deactivation of DIN pursuant to the above clause (b), an oppurtun
For this purpose

i) The term "Wrongful manner" means if the DIN is obtained on the strenth of documents which are no
material information or on the basis of wrong certification or by making misleading or false informatio

ii) The term "Fraudulent means' means if the DIN is obtained with an intent to deceive any other perso
c) Of the death of the concerned individual;
d) Declared as a person of unsound mind by a competent court;
e) Has been adjudicated an insolvant.

f) ON an application made in Form DIR-5 by the DIN holder to surrender his or her DIN along with decla
the said DIN has never been used for filing of any document with any authority, The CG may deactiva
Provided that before deactivation of any DIN in such case, The CG shall verify e-records.
Intimation of changes in particulars specified in DIN application
The Companies (Appointment and Qualification of Directors) Rules, 2014 provides for the procedure fo
according to which

1) Any change in his particulars as stated in Form DIR-3, Intimate such change(s) to the CG within a pe
namely:-

i) Download Form DIR-6 from the portal and fill in the relevant changes, attach copy of the proof of the
scanned and submitted electronically;

ii) The form shall be digitally signed by a CA in practice or a CS in practice or a Cost Accountant in Pra
iii) The applicant shall submit the Form DIR-6;
2) The CG, upon being satisfied, afer verification----> Shall incorporate the said changes and inform th
confirming the effect of such changes in the electronic database maintained by the Ministry.

3) The DIN cell of the Ministry shall also intimate the change(s) in the particulars of the director submi
jurisdiction the registered office of the company(s) in which such individual is a director is situated.

4) The concerned individual shall also intimate the change(s) in his particulrs to the company or comp

Right of Persons other than retiring directors to stand for directorship (Sec 160 of the CA,

i) A peson who is not a retiring director in terms of sec 152 shall, subject to this Act, be eligible for app
intending to propose him as a director, has, not less than 14 days before the meeting, left at the regis
his canditature as a director or, as the case may be , the intention of such member to propose him as

ii) Deposit---> Rs.1 Lakh---> Refundable, If elected or gets 25% of the valid votes casted---> either on
iii) The Company---> Inform Members---> Candidature of a person for the office of director under sub
Notice of Candidature of a person for directorship:
The Companies (Appointment and Qualification of Directors) Rules, 2014 lays down the procedure for

i) The Company shall at least 7 days before the GM---> Inform it's members of the candidature of a pe
such person as a candidate for that office1) By serving individual notices, on the members through---> Electronic mode, who given email ID's a
2) By Placing notice of such candidature or intention on the website of the company, if any.

ii) However, It shall not be necessary for company to serve individual notices----> If the company adve
meeting at least once in a vernacular news paper in the principal vernacular language of the district in
in english language in an English newspaper circulating in that district.

Appointment of additional director, Alternate director and nominee director [Sec 161 of th
Additional Director [Sec 161(1)]
i) Articles may confer such power---> On it's BOD
ii) A person who fails to get appointed as a director in GM----> Cannot be appointed as an additional d
iii) Holds office---> Upto the date of the next AGM or The last date on which the AGM should have bee
Alternate Director [Sec 161(2)]
i) The BOD's may,---> If authorised by the Articles or Resolution passed by the company in GM---> App
during his absence for a period of not less than 3 months from India.
ii) A person who is holding any alternate directorship for any other director in the company cannot be
iii) No Peson shall be appointed as alternate director for an independent director unless he is qualified
Act.
iv) Holds office for a period permitted for original director and shall vacate the office if and when the o

v) The Provision for the automatic re-appointment of retiring directors in default of another appointme

Nominee Director [Sec161(3)]:

> The Board may appoint any person as a director nominated by any institution in pursuance of the p
by virtue of it's shareholding in a Govt company, s.t the Articles of a company.
Casual Vacancy [Sec 161(4)]
i) In the case of a Public Company--->The casual vacancy may, in default of and s.t any regulations in
Board.

ii) Hold only upto the date up to which the director in whose place he is appointed would have held offi
Appointment of Directors to be voted individually [Sec 162 of the CA, 2013]
i) Two or more directors of a company cannot be elected as directors by a single resolution.
ii) Thus, each director shall be appointed by a separate resolution unless the meeting 1st agreed that
cast against such agreement.
iii) A resolution moved in contravention of this provision shall be void, whether or not objection theret

iv) A motion for approving a person for appointment, or for nominating a person for appointment as a

Option to adopt principle of proportional representation for appointment of directors [Sec

i) Notwithstanding anything contained in the VA,2013, The articles of a company may provide for the
company in accordance with the principle of proportional representation.
ii) Such appointments may be made once in every 3 yr's whether by the single tranferable vote or by
Single transferable vote means, a candidate gets elected if he gets the required no.of votes fixed as q
representation of the minority interest.
iii) Casual vacancies of such directors shall be filled as provided in Sec 161(4).
Disqualifications for appointment of director [Sec 164 of the CA, 2013]
i) A person cannot be appointed as director of a company in any of the following cases:
a) He is of unsound mind and stands so declared by a competent court;
b) He is an Undischarged insolvant;
c) He has applied to be adjudicated as an insolvant and his application is pending;

d) Convicted by a court of any offence----> Imprisonment not less than 6 months---> and 5 yr's has no
convicted of any offence and imprisonment for a period of 7 yr's or more--> He shall not be eligible to

e) An order disqualifying him for appointment as a director has been passed by a court or tribunal and
f) Not paid any call in respect of any shares of the company held by him, Whether alone or jointly with
payment of the call;
g) He has been convicted of the offence of dealing with related party transactions U/S 188 at any time
h) He has not complied with Sec 152(3) which requires a director director to have a DIN U/S 154.
ii) No person who is or has been a director of a company whicha) Has not filed FS's or Annual Returns for any continuous period of 3 FY's; or
b) Has failed to mrepay the deposits or interest thereon or redeem any debentures on due date or inte
for 1 yr or more,

Shall be eligible to be re-appointed as a director of that company or apponted in other company for

iii) A Private company may by it's articles provide for any disqualifications for appointment as adirecto
above.
However, The disqualifications referred to in clauses (d),( e ) and (g) of sub section (i) shall not take eff
a) For 30 days from the date of conviction or order of disqualification;
b) Where an appeal or petition is prefered within 30 days as aforesaid against the conviction resulting
appeal or petition is disposed off; or
c) Where any further appeal or petition is preferred against order or sentence within 7 days, Untill suc
No.Of Directorship [Sec 165 of the CA, 2013]
i) No Person shall hold in more than 20 companies (Including Alterne Directorship) at the same time. [

Provided that---> Out of limit of 20---> Max public companies are 10, HC or Sc of Public companies are

ii) The Members of a company may, By SR, specify any lesser number of companies in which a directo

iii) Transition period for complying with Sec 165(1) in 1 yr and within this period, If any director is hold

a) Choose not more than the specified limit of companies, in which he wishes to continue to hold the o
b) Resign his office as director in the other remaining companies; and
c) Intimate the choice made by him under clause (a), to each of the companies in which he was holdin
having jurisdiction in respect of each such company. [Sec 163(3)]

iv) Any resignation made in pursuance of clause (b) of Sub-Sec (3) shall become effective immediately

v) After dispatching the resignation of his office as director on non- Executive director or after the com
shall act as director in more than specified no.of Companies.

vi) If a person accepts an appointment as a director in contravention of Sec 165(1),i.e Holding director
shall be punishable----> Fine Rs 5000 to Rs.25000 for every day after the 1st during which the contrav
Duties of Directors [Sec 166 of the CA, 2013]
i) Act according to Articles s.t the provisions of this Act.
ii) He shall act in good faith in order to promote the objects of the company for the benefit of it's mem
The shareholders, The community and for the protection of environment.
iii) He shall exercise his duties with due and reasonable care, Skill and diligence and shall exercise ind

iv) He shall not involve in a situation in which he may have a direct or indirect interest that conflicts, o

v) He shall not achieve or attempt to achieve any undue gain or advantage either to himself or to his
making any undue gain, he shall be liable to pay an amount equal to that gain to the company.
vi) He shall not assign his office and if any assignment so made, it shall be void.
vii) If director contravenes this sec---> Fine Rs.1 Lakh to Rs.5 Lakhs.
Vacation of office of Director [Sec 167 of the CA, 2013]
i) The office of a director shall become vacant in case [Sec 167(1)]a) He incurs any of the disqualifications specified in Sec 164;
b) He absents himself from all the meetings of the BOD held during a period of 12 months with or with
c) He acts in contravention of the provisions of Sec 184 relating to entering into contracts or arrangem

d) He fails to disclose his interest in any contract or arrangement in which he is directly or indirectly in
e) He becomes disqualified by an order of a court or the tribunal;

f) He is convicted by a court of any offence, Whether involving moral turpitude or otherwise and sente

> It is further provided that the office shall be vacated by the director even if he has filed an appeal a
g) He is removed in pursuance of the provisions of this Act;
h) He , having been appointed a director by vitue of his holding any office or other employment in the
employment in that company.

ii) If a person, functions as a director even when he knows that the office of director held by him has b
section(1),---> Punishment Imprisonment Upto 1 yr or with fine--> Rs.1 Lakh to Rs. 5 Lakh, or with bot

iii) Where all the directors of a company vacate their offices under any of the disqualifications specifie
required no.of directors who shall hold office till the directors are appointed by the company in the GM

iv) A Private Company may, by it's articles, Provide any other ground for the vacation of the office of a
Resignation of Director [Sec 168 of the CA, 2013]

i) A director may resign from his office by giving a notice in writing to the company.
ii) The board shall on receipt of such notice take note of the same.
iii) The Company shall within 30 days from the date of receipt of notice of resignation from a director,
website, if any.
iv) The company shall also place the fact of such resignation in the report of directors laid in the imme
v) Such director also---> Forward a copy of his resignation---> along with detailed reasons for the resig
Form DIR-11 along eith the prescribed fee.

vi) The resignation of a director shall take effect from the date on which the notice is received by the c
Whichever is later.
vii) Director---> who has resigned shall be liable even after his resignation for the offences which occu
viii) Where all the directors of a company resign from their offices, or vacate their offices U/S 167, The
directors who shall hold office till the directors are appointed by the company in the GM.
Removal Of directors [ Sec 169 of the CA, 2013] [ Except sub-sec (4)]
i) A company may, by OR, Remove a director otherthan a director appointed by the Tribunal U/S 242 o
reasonable oppurtunity of being heard. [Sec 169(1)]

ii) It is further provided that the directors appointed on the principle of proportional representation U/S

iii) A special notice shall be required of any resolution, to remove a director U/S 169 or to appoint som
removed. [Sec 169(2)]

iv) On receipt of this resolution, The company shall forthwith send a copy thereof to the director conce
be entitled to be heard on the resolution at the meeting. [Sec 169(3)]

v) The vacancy resulting from the aforesaid removal if he had been appointed by the company in GM
the same meeting at which the director is removed, Provided Special notice of the proposed appointm

vi) A director so appointed shall hold office for the remaining period for which the director whohas rem

vii) If the vacancy is not filled in the same meeting as above, Then it may be filled as a casual vacancy
who was so removed from office shall not be reappointed as a director. [Sec 169(7)]

viii) Nothing in this sec shall be taken to deprive a person removed under this sec of his rights to comp
termination of the directorship, or terms of his appointment as director or of any appointment termina

ix) Nothing in this sec shall be derogating from any power to remove a director under any other provis
Register of Directors and Key Managerial personnel and their shareholding [Sec 170 of the

i) Every Company shall keep at it's registered office a register containing such particulars of it's direct
include details of securities held by each of them in the company or it's HC, SC, Sc of it's HC's or assoc

ii) Sec 170(2) further provides that a return containg such particulars and documents as may be presc
the registrar
a) Within 30 days from the appointment of every director and key managerial personnel, as the case m
b) Within 30 days of any change taking place.
Members right to inspect [Sec 171 of the CA,2013]
i) The register of directors and key managerial personnel kept U/S 170(1) shall be open for inspection
extracts therefrom and copies thereof, on request and will be provided within 30 days free of cost. [Se

ii) Such register shall also be kept open for inspection at every AGM of the company and shall be mad

iii) If any inspection during business hr's is refused, or if any required as above is not sent within 30 da
application made to him order immediate inspection and supply of copies required there under. [Sec
Punishment [Sec 172 of the CA, 2013]
> If a company contravenes any of the provisions of the sections i.e from 149 to 171 and for which no
the company who is in default shall be punishable---> Fine Rs.50000 to Rs.5 Lakhs.

Prepared by Vijaya Kumar Poola Balija; email:poolavijay

y Request to Readers: When ever you are studying, Please make short notes and share it for Public
they will succeed in their exams. (SHARE NOTES, BE A

Chapter 4
Appointment and Remuneration of Manageria

Appointment of MD, WTD or Manager (Sec 196 of the Companies Act, 2013)
i) A Company shall not appoint or employ a MD and a Manager at the same time. [Sec 196(
ii) Tenure [Sec 196(2)]
a) No Company shall appoint or re-appoint for a period > 5 yr's at a time
b) No reapppointment shall be made earlier than 1 Year before the expiry of his term.
iii) Disqualification [Sec 196(3)]:
No company shall appoint or continue the emploument of any person as MD, WTD or Manager whoa) Is below age 17 Yr's or above 70 Yr's.
Provided that--> 70 Yr's person can be appointed---> SR, Explanatory statement, Justification.
b) Is an undischarged insolvant or has at any time been adjudged as an insolvant; or
c) Has at any time suspended payment to his creditors
d) Has at any time been convicted by a court of an offence and sentenced for a period of more than 6
Schedule V to the CA, 2013---> Has prescribed additional conditions

1) He had not been sentenced to imprisonment for any period, or to a fine exceeding Rs.1000, for the

2) He had not been datined for any period under the conservation of foreign exchange and prevention
Provided that CG may give approval for appointment
3) Where he is a managerial person in more than 1 company, he draws remuneration from 1 or more c
4) He is resident of India.
Here, resident in India includes--> Who resides in India for a continuous period of 12 months prior to a
i) For taking up employment in India; or
ii) For carrying on a business or vacation in India.
Procedure of Appointment [Sec 196(4)] :

i) s.t the provisions of sec 197 and schedule V--> Appointment , terms and conditions of such appointm

ii) approvals given by BOD--> s.t approval of shareholders bya resolution at the next GM of the compa
iii) In case such appointment is at variance to the conditions specified in the schedule V of the CA, 201
iv) The notice convening Board or GM for considering appointment---> Shall contain--> Terms and con
any.
v) A return in the prescribed form (Form No. MR.1) along with the prescribed fee shall be filed with the
Validity of acts [Sec 196(5)]:
> s.t the provisions of this Act, where an appointment of a MD, WTD or Manager is not approved by th
deemed to be valid.
Managing Director [Sec 2(54)]:

> Sec 2(54) of the CA, 2013 defines a "MD" as a director who is entrusted with substantial powers of m
i) Virtue of the articles of acompany or
ii) An agrrement with the company or
iii) a resolution passed in it's GM, or by it's BOD's,
and includes a director occupying the position of the MD, by whatever name called.
> Explanation: Substantial powers of the mgt ---> shall not be deemed to include--> when so authoris
i) The power to affix the common seal of the company to any document or
ii) to draw and endorse any cheque on the a/c of the company in any bank or
iii) to draw and endorse any negotiable instrument or
iv) to sign any certificate of share or
v) to direct registration of transfer of any share
Whole Time Director [Sec 2(94)]:
> "WTD" includes a director in the whole-time employment of the company.
Manager [Sec 2(53)]:

> " Manager" means an individual who, s.t the superintendence, control and direction of the BOD's, ha
company, and includes a director or any other person occupying the position of a manager, by whatev

Overall maximum managerial remuneration and managerial remuneration in case of absen

i) Overall maximum managerial remuneration [Sec 197(1)]
a) The overall managerial remuneration to the directors including MD, WTD and Manager is summaris
S.No.
Person entitled for remuneration
Maximum remuneration in any FY
(b)
(a)
(b)
i)
Directors incl MD,WTD and Mgr of
11% of the net profits of the
Public companies
Company for that FY
ii)

1 MD/WTD/Mgr

iii)

More than one MD/ WTD/Mgr

5% of the net profits of the

company for that year
10% of the net profits

iv)

Direcots who are neither MD nor

1 % of the net profits of the company
A
WTD
if there is a MD or WTD
v)
Directors who are neither MD nor
3 % of the net profits of the company
A
WTD
if there is no MD or WTD
b) Sec 197(8) further provides that the net profits shall be computed in the manner laid down in sec 1
the gross profits.
ii) Remuneration rendered in any other capacity [Sec 197(4)]
a) The remuneration payable to the directors of a company, including any MD or WTD or Manager, sha
either
i) by the articles of the company, or
ii) by a resolution or,
iii) if the articles so require, by a SR, passed by the company in GM, and

b) The remuneration payable to a director determined aforesaid shall be inclusive of the remuneration

c) Any remuneration for services rendered by any such director in other capacity shall not be so includ

1) the services rendered are of a professional nature; and

2) in the opinion of the nomination and remuneration committee, if the company is covered under sub
requisite qualification for the practice of the profession.
iii) Sitting fees to directors [Sec 197(5)]
a) A director may receive remuneration by way of fee for attending meetings of the Board or committe
Board.

b)Sitting fee---> Shall not > Rs. 1 Lakh per meeting of the board or committee thereof.(As per the com
2014]
However, for independent directors and women directors, the sitting fee shall not be less than the sitt
c) The %ages U?S 197(1) shall be exclusive of any sitting fees payable to directors for attending meet
as may be decided by the Board.
d) Different fees for different classes of companies and fees in respect to independent directors may b
iv) Mode of remuneration [Sec 197(3) & (11)]
> A director or manager may be paid remuneration either by way of a monthly payment or at a specifi
by the other.
v) No profits or profits are inadequate [Sec 197(3) & (11)]
a) If in any FY, a company has no profits or it's profits are inadequate---->The company shall not pay-accordance with the provisions of schedule V.
b) If the company is not able to comply wuth such provisions of schedule V in the above case, Then pr

c) In cases where Schedule V is applicable on grounds of no profits or inadequate profits, any provision
has the effect of increasing the amount thereof, shall not have any effect unless such increase is in ac
conditions are not being conplied, the approval of the CG had been obtained.

vi) Remuneration of Independent director [Sec 197(7)]

> Not withstanding anything contained in any other provision of this Act but s.t the provisions of this s
and may receive remuneration by way of
1) Sitting fees in terms of sec 197(5).
2) Reimbursement of expenses for participation in the board and other meetings; and
3) Profit ralated commission as may be approved by the members.
vii) Refund of excess [Sec 197(9)]

> If any director draws or receives, directly or indirectly, by way of remuneration any such sums in ex
the CG, where it is reqd, he shall refund such sums to the company and until such sum is refunded, ho
> The company shall not waive the recovery of any sum refundable to it U/S 197(9) unless permitted
(viii) Disclosure by listed company [Sec 197(12)]:

a) Every listed company shall disclose in the board's report, the ratio of the remuneration of each dire
be prescribed. The details are prescribed under the companies (Appointment and Remuneration of Ma

b) The board's report shall include a statement showing the name of every employee of the company
i) If employed throughout the FY, was in receipt of remuneration for that year which, in the aggregate

ii) If employed for a part of the FY, was in receipt of remuneration for any part of that year, at a rate w

iii) If employed throughout the FY or part thereof, was in receipt of remuneration in that year which, in
in excess of thet drawn by the MD or WTD or Manager and holds by himself or along with his spouse a
company.

c) The statement referred to in above para (b) shall also indicate some particulars of the above emplo
qualification and experience, date of commencement of employment, age, last employment held by s
by the employee in the company within the meaning of clause (iii) of para (b) above, and whether any
and if so, name of such director or manager.
(ix) Insurance for Indemnification [Sec 197(13)]:

a) Where any insurance is taken by a company on behalf of it's MD, WTD, Manager, CEO, CFO or CS fo
negligence, default, misfeasance, breach of duty or brrach of trust for which they may be guilty in rela
treated as part of the remuneration payable to any such personnel.

b) Provided that, if such person is proved to be guilty, the premium paid on such insurance shall be tr
x) Receiving Commission [Sec 197(14)]:

> s.t the provisions of this section, any director who is in receipt of any commission from the company
receiving any remuneration or commission from any HC or SC of such company s.t it's disclosure by th

xi) Contravention [Sec 197(15)]

> If any person contravenes the provisions of section 197, he shall be punishable with fine of Rs.1 lak
Calculation of Profits (Sec 198 of the companies Act, 2013)
Profit for the pupose of managerial remuneration shall be calculated as follows:
> Profit as per P & L account for the year ended 31st March, 20---

i) Add: Sums specified in section 198(2)

ii) Less: Sums specified in section 198(3) ( If credited to the P&L A/C for arriving at PBT
iii)
Sums specified in sec 198(4) shall be deducted
iv)
Sums specified in sec 198(5) shall not be deducted
i) Sums specified in section 198(2)
> Bounties and subsidies received from any Govt, or any public authority constituted or authorised in
directs.
ii) Sums specified in section 198(3)
a) Profits, by way of premium on shares or debentures of the company, which are issued or sold by the
b) Profits on sales by the company of forfeited shares;
c) Profits of a capital nature including profits from the sale of the undertaking or any of the undertakin
d) Profits from the sale of any immovable property of fixed assets of a capital nature comprised in the
business of the company consists, whether wholly or partly, of buying and selling any such property o

Provided that where the amount for which any fixed asset is sold exceeds the written-down value ther
difference between the original cost of that fixed asset and it's written-down value;

e) Any change in carrying amount of an asset or of liability recognised in equity reserves including sur
fair value.
iii)
Sums specified in sec 198(4)
a) all the usual working charges;
b) directors' remuneration;
c) bonus or commission paid or payable to any member of the company's staff, or to any engineer, te
whole-time or on a part-time basis;
d) any tax notified by the CG as being in the nature of a tax on excess or abnormal profits;
e) any tax business profits imposed for special reasons or in special circumstances and notified by the
f) interest on debentures issued by the company;
g) interest on mortgages executed by the company and on loans and advances secured by a charge o
h) interest on unsecured loans and advances;

i) expences on repairs, whether to immovable or to movable property, provided the repairs are not of
j) outgoings inclusive of contributions made U/S 181;
k) depreciation to the extent specified in sec 123;

l) the excess of expenditure over income, which had arisen in computing the net profits in accordance
Act, in so far as such excess has not been deducted in any subsequent year preceding the year in resp

m) any compensation or damages to be paid in virtu of any legal liability including a liability arising fr
n) any sum paid by way of insurance against the risk of meeting any liability such as is referred to in c
o) debts considered bad and written off or adjusted during the year of account.
iv)
Sums specified in sec 198(5)

a) income-tax and super-tax payable by the company under the income-tax Act, 1961, or any other ta

b) any compensation, damages or payments made voluntarilu, that is to say, otherwise than in the na
198;

c) Loss of a capital nature including loss on sale of the undertaking or any of the undertaking or any o
excess of the written-down value of any asset which is sold, discarded, demolished or destroyed over

d) any change in carrying amount of an asset or of a liability recognises in equity reserves including su
at fair value.
Recovery of managerial remuneration in certain cases [Sec 199 of the CA, 2013]

> Without prejudice to any liability incurred under the provisions of this Act or any other law for the tim
statements due to fraud or non-compliance with any requirement under this Act and the rules made th
or Manager or CEO (by whatever name called) who, during the period for which the financial statemen
option) in excess of what would have been payable to him as per restatement of FS's.

Central Govt or Company to fix linit with regard to remuneration [Sec 200 of the CA, 2013)

> According to Sec 200 of the CA, 2013, not withstanding anything contained in this chapter, the CG o
appointment or to any remuneration U/S 197 in respect of cases where the company has inadequate o
such amount or %age of profits of the company, as it may deem fit and while fixing such remuneratio

a) the finacial position of the company;

b) the remuneration or commission drawn by the individual concerned in any other capacity;
c) the remuneration or commission drawn by him from any other company;
d) profession qualifications and experience of the individual concerned;
e) any other matters as may be prescribed
According to the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, fo
to the following matters, namely:1) the financial and operating performance of the company during the 3 preceing FY's.
2) the ralationship between remuneration and performance.
3) the principle of proportionality of remuneration within the company, ideally by a rating methodolog
on the board and employees or executives of the company.
4) whether remuneration policy for directors differs from remuneration policy for other employees and
5) the securities held by the director, including options and details of the shares pledged as at the end
Forms of, and procedure in ralation to certain applications [Sec 201 of the CA, 2013]
According to sec 201 f the CA, 2013:

i) Every application made to the CG under this chapter shall be in Form No. MR.2 and shall be accom
ii) Before any application is made by a company to the CG under any of the sections aforesaid, there s
members thereof, indicating the nature of the application proposed to be made.

iii) Such notice shall be published at least once in a newspaper in the principal language of the district
that district , and at least once in English in an English newspaper circulating in that district.
iv) The copies of the notices, together with a certificate by the company as to the due publication ther

v) The Companies(Appointment and Remuneration of Managerial personnel) Rules, 2014, prescribes t

company may without Cg approval pay remuneration to it's managerial personnel, in the event of no p
Scedule V, s.t complying with the following conditions namely:-

a) Payment of remuneration is approved by a resolution passed by the Board and, in the case of a com
committess, if any.while doing so, the clear reason and justification for payment of remuneration beyo

b) The company has not made any default in repayment of any of it's debts (including public deposits
on preference shares for a continuous period of 30 days in the preceding FY before the date of payme

c) The approval of shareholders by way of a SR at a GM of the company for payment of remuneration

d) a statement along-with a notice calling the GM referred to above point( C ), shall contain the inform
Part-II of Schedule V of the Act including reasons and justification for payment of remuneration beyond
e) The company has filed BS and Annual Return which are due to be filed with the Registrar of compan
f) Every such application seeking approval shall be made to the CG within a period of 90 from the date
Compensation for loss of office of MD or WTD or Manager [Sec 202 of the CA, 2013)
i) A company may mke payment to a MD or WTD or Manager, but not to any other director, by way of
office or in connection with such loss or retirement.
ii) No payment of compensation shall be made in the following cases:

a) Where the director resigns from his office as a result of the reconstruction of the company, or of its
appointed as the MD or WTD, Manager or other officer of the reconstituted company or of the body co

b) Where the director resigns from his office otherwise than on the reconstruction of the company or i
c) Where the office of the director is vacated U/S 167(1);

d) Where the company is being wound up, whether by an order of the Tribunal or voluntarily, provided

e) Where the director has been guilty or breach of trust in relation to, or of gross negligence in or gros
or HC thereof; and
f) Where the director has instigated, or has taken part directly or indirectly in bringing about, the term

iii) The compensation payable to such MD or WTD or Manager shall not exceed the remuneration he w
term or 3 yrs, whichever is shorter, calculated on the basis of the avg remuneration earned by him du
to hold such office, or where he held the office of less than 3 Yrs, then for such shorter period.

iv) No such payment however can be made at all if winding up of the company is commenced whethe
office, if the assets on winding up(after deducting expenses on winding up) are not sufficient to repay
them.

v) Nothing in this section shall be deemed to prohibit the payment to a MD or WTD, or Manager, of an
capacity.
Appointment of Key Managerial Personnel [Sec 203 of the CA, 2013]
i) Who is KMP [Sec 203(1)]: Every company belonging to such class or classes of companie
managerial personnel:-

a) MD, or CEO or Manager and in their absence, a WTD;

b) CS; and
c) CFO.
> According to Rule 8 of Companies (Appointment and Remuneration of Managerial Personnel) Rules,
up share capital of Rs. 10 crore or more shall have whole-time key managerial personnel.

> Further, as per the Companies (Appointment and Remuneration of Managerial Personnel) Amendme
above, which has a paid up share capital of Rs. 5 Crore or more shall have a whole-time CS.

> With the insertion of Rule 8 A to the above rules, it is now mandatory of every other company to ha

ii) Prohibition on individual to be appointed as chairperson as well as MD or CEO at the sam

> After the commencement of this Act, an individual shall not be appointed or reappointed as the cha
well as the MD or CEO of the company at the same time unless,a) the articles of such a company provide otherwise; or
b) the company does not carry multiple businesses.[First proviso to sec 203(1)]
Provided that the above mentioned prohibition shall not apply to such class of companies engaged in
such business as may be notified by the CG.[Second proviso to section 203(1)]

> The MCA vide notification No.S.O. 1913 dated 25th July, 2014 notifies that public companies havin
1000 or more which are engaged in multiple businesses and have appointed CEO for each such busine
sub-section(1) of section 203 of the said Act.
the purpose of this notification, the paid-up share capital and the annual turnover shall be decided on

iii) Conditions for appointment:

a) Every whole-time key managerial personnel of a company shall be appointed by means of a resolut
including the remuneration. [Sec 203(2)]

b) A Whole-time key managerial personnel shall not hold office in more than 1 company at the same t
> Provided that nothing in the above sub section shall disentitle a key managerial personnel from bein

iv) Transitional Period:

If the whole-time KMP is holding office in more than 1 company at the same time on the commenceme
commencement, choose 1 company, in which he wishes to continue to hold the office of KMP.
v) MD or Manager in more than 1 company [3rd Proviso to section 203(3)]:
a) A company may appoint or employ a person as it's MD, if he is the MD or Manager of 1, and of not m
b) Such appointment or employment is made or approved by a resolution passed at a meeting of the

c) It is further provided that specific notice of such meeting, and of the resolution to be moved thereat
vi) Casual Vacancy [Sec 203(4)]:
If the office of any whole-time KMP is vacated, the resulting vacancy shall be filled-up by the Board at
vacancy.
vii) Penalty for contravention [Sec 203(5)]:
a) On Company: If a company contravenes the provisions of this section, the company shall be punis

b) On director and KMP: Every director and KMP of the company who is in default shall be punishab
one, with a further fine which may extend to Rs. 1000 for every day after the first during which the co
Secretarial audit for bigger companies [Section 204 of the CA, 2013]
i) Companies that are required to conduct secretarial audit:

> U/S 204(1), every listed company and a company belonging to other class of companies as may be
a secretarial audit report, given by a CS in practice, in such form as may be prescribed.

The Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 pro
companies shall be as under:
a) Every company having a paid up share capital of Rs. 50 crore or more; or
b) Every public company having a turnover of Rs. 250 crore or more.
The format of the Secretarial audit report shall be in Form No.MR 3.
ii) Duty of the company:

a) It shall be the duty of the company to give all assistance and facilities to the CS in practice, for aud

b) The BOD's, in their report prepared U/S 134(3) shall explain in full any qualification or observation o

iii) Contravention [Sec 204(4)]:

If a company or any officer of the company or the CS in practice, contravenes the provisions of this se
a) The company; or
b) every officer of the company; or
c) the CS in practice,
Who is in default, shall be punishable with fine Rs. 1 Lakh to Rs. 5 Lakhs.
Functions of CS [Sec 205 of the CA, 2013]
i) Functions of the CS:

According to Sec 205(1) read with the companies ( Appointment and Remuneration of Managerial Pers
a) to report to the Board about compliance with the provisions of this Act, the rules made thereunder
b) to ensure that the company complies with the applicable secretarial standards;

c) to provide to the directors of the company collectively and individually, such guidance as they may

d) to facilitate the convening of meetings and attend Board, Committee and general meetings and ma
e) to obtain approvals from the board, GM, the govt and such other authorities as required under the p
f) to represent before various regulators, and other authorities under the Act in connection with discha
g) to assist the Board in the conduct of the affairs of the company;

h) to assist and advise the Board in ensuring good corporate governance and in complying with the co
i) to discharge such other duties as have been specified under the Act or rules; and
j) Such other duties as may be assigned by the Board from time to time.

Here, the expression " Secretarial standards" means secretarial standards issued by the ICSI constitut

ii) According to sec 205(2) the provisions contained in sec 204 and sec 205 shall not effect the duties
this Act, or any other law for the time being in force.
Managerial Remuneration as per Part II, Part III, Part IV of Schedule V
Part II
i) Remuneration payable by companies having profits:
s.t the provisions of sec 197, a company having profits ina FY may pay remuneration to a managerial

ii) Section II- Remuneration payable by companies having no profit or inadequate profit wi

Where in any FY during the period of tenure of a managerial person, a company has no profits or it's p
managerial person not exceeding the higher of the limits under (A) and (B) given below:(A)
(1)
(2)
Where the effective capital is
Limit of yearly remuneration payable shall not
(i)
Negative or less than 5 crores
30 Lakhs
(ii)
5 Crores to 100 Crores.
42 Lakhs
(iii)
100 to 250 Crores
60 Lakhs
(iv)
250 Crores and above
60 Lakhs plus 0.01% of the effective cap
> Provided that the above limits shall be doubled if the resolution passed by the shareholders is a SR.
Explanation- It is hearby clarified that for a period less than 1 year, the limits shall be pro-rated.
(B)

In the case of a managerial person who was not a i) security holder holding securities of the compan
director of the company OR iv) not related to any director or promoter at any time during the two yea
current relevant profit:
> Provided that if the resolution passed by the shareholders is a SR, this limit shall be doubled:

Provided further that the limits specified under this section shall apply, ifi) payment of remuneration is approved by a resolution passed by the Board and, in the case of a com
committee;

ii) The company has not made any default in repayment of any of it's debts (including public deposits)
days in the preceding FY before the date of appointment of such managerial person;
iii) a SR has been passed at the GM of the company for payment of remuneration for a period not exc
iv) a statement along with a notice calling the GM referred to in clause (iii) is given to the shareholder
I) General Information:
1) Nature of industry
2) Date or expected date of commencement of commercial production
3) In case of new companies, expected date of commencement of activities as per project approved b
4) Financial performance based on given indicators
5) Foreign investments or collaborations, if any.
II) Information about the appointee:
1) Background details
2) Past remuneration
3) Recognition or awards
4) Job profile and his suitability
5) Remuneration proposed
6) Comparative remuneration profile with respect to industry, size of the company, profile of the posit
respect to the country of his origin)
7) Pecuniary relationship directly or indirectly with the company, or relationship with the managerial p
III) Other information:
1) Reasons of loss or inadequate profits
2) Steps taken or proposed to be taken for improvement
3) Expected increase in productivity and profits in measurable terms.
IV) Disclosures:
The following disclosures shall be mentioned in the BOD's report under the heading "Corporate Gover

i) all elements of remuneration package such as salary, benefits, bonuses, stock options, pension, etc
ii) details of fixed component and performance linked incentives along with the performance criteria;
iii) Sevice contracts, notice period, severance fees;

iv) Stock option details, if any, and whether the same has been issued at a discount as well as the per

Section III- Remuneration payable by companies having no profit or inadequate profit with

In the following circumstances a company may, without the CG approval, pay remuneration to a mana

a) Where the remuneration in excess of the limits specified in Sec I or II is paid by any other company
approval of it's shareholders in GM to make such payment, and treats this amount as managerial remu
payable by such other company to it's managerial persons including such amount or amounts is with

b) Where the companyi) is a newly incorporated company, for a period of 7 Yrs from the date of it's incorporation, or
ii) is a sick company, for whom a scheme of revival or rehabilitation has been ordered by the Board fo
Tribunal(NCLT), for a period of 5 Yrs from the date of sanction of scheme of revival,
it may pay remuneration upto 2 times the amount permissible under section II.
c) Where remuneration of a managerial person exceeds the limits in section II but the remuneration h
NCLT:

provided that the limits under this section shall be applicable s.t meeting all the conditions specified u

i) except as provided in para(a) of this section, the managerial person is not receiving remuneration fr

ii) the auditor or CS of the company or where the company has not appointed a Secretary, a secretary
have stated in writing that they have no objection for the appointment of the managerial person as w
the return as prescribed U/S 196(4).

iii) the auditor ar CS or where the company has not appointed a secretary, a secretary in whole-time p
all dues to deposit holders are being settled on time.

d) a company in a SEZ as notified by Department of commerce from time to time which has not raised
made any default in india in repayment of any of it's debts (including public deposits) or debentures o
may pay remuneration upto Rs.2 crore 40 lakhs per annum.

Section IV- Perquisites not included in managerial remuneration:

1. A managerial person shall be eligible for the following perquisites which shall not be included in the
section III:-

a)contribution to PF, Superannuation fund or annuity fund to the extent these either singly or put toge

b) grtuity payable at a rate not exceeding half a month's salary for which completed year of service; a
c) encashment of leave at the end of the tenure.
2. In addition to the perquites specified in paragraph 1 of this section, an expatriate managerial perso
perquisites which shall not be included in the computation of the ceiling on remuneration specified in
a) Children's education allowance:
Incase of children studying in or outside India, an allowance limited to a maximum of Rs. 12000 per m
allowance is admissible upto a maximum of 2 children.
b) Holiday passage for children studying outside India or family staying abroad:

Return holiday passage once in a yr by economy class or once in 2 yrs by first class to children and to
India if they are not residing in India, with the managerial person.
c) Leave travel concession:
`

Explanation I - For the purposes of section II of this part, "effective capital" means i) the aggregate o
against shares); ii) amount, if any, for the time being standing to the credit of share premium a/c; iii) R
deposits repayable after 1 year(excluding working capital loans, Over drafts, interest due on loans unl
reduced by the aggregate of any investments (except in case of investment by an investment compan
other securities), accumulated losses and preliminary expenses not written off.

Explanation IIa) Where the appointment of the managerial person is made in the year in which company has been i
appointment;

b) In any other case the effective capital shall be calculated as on the last date of the FY preceding th

Explanation III- For the purposes of this schedule, "family" means the spouse, dependent children an
Explanation IVThe Nomination and Remuneration committee while approving the remuneration under section II or Se
a) take into a/c, financial position of the company, trend in the industry,

b) be in a position to bring about objectivity in determining the remuneration package while striking a

Explanation VFor the puposes of this schedule, "negative effective capital' means the effective capital which is calcu
part is less than zero.
Explanation VI- For the puposes of this schedule:-

A) "Current relevant profit" means the profit as calculated U/S 198 but without deducting the excess o

B) "Remuneration" means remuneration as defined in clause (78) of section 2 and includes reimburse
Section V - Remuneration payable to a managerial person in two companies:
s.t to the provisions of sections I to IV, a managerial person shall draw remuneration from 1 or both co
does not exceed the higher maximum limit admissible from any one of the companies of which he is a
Part III- Provisions applicable to Parts I and II of this schedule
1. The appointment and remuneration referred to in part I and Part II of this schedule shall be s.t appro

2. The auditor or the secretary of the company or where the company is not required to appointed a s
requirement of this schedule have been complied with and such certificate shall be incorporated in th

Part IV- Exemption by the CG

The CG may, by notification, exempt any class or classes of companies from any of the requirements c

Chapter 5

Meetings of Boards and its Pow

Introduction
> 2 main organs, the shareholders in GMs and the directors acting as a Board conduct the affairs of a

> The modern practice is to confer upon the directors the right to exercise all company's powers exce
company in GM.
Meetings of Board [Sec 173 of the CA, 2013]
Frequency of Board Meetings [Sec 173(1)]:
a) 1st Board meeting: Within 30 days of its incorporation.
b) Subsequent Board meetings: Minimum 4 meetings every year---> Gap shall not be more than 1
However, the CG may by notification, direct that these provisions will not apply in relation to any class
exceptions, modifications or conditions as may be specified in the notification.
Participation in Board meeting [Sec 173(2)]:
a) Sec 173(2) allows directors to attend Board meetings,
1) In person, or,
2) through video conferencing, or
3) other audio visual means as may be prescribed.
b) Such audio visual means should be capable of recording and recognising the participation of the di
along with date and time.

c) However, the CG may by notification specify such matters which shall not be dealt with in a meetin

"Video conferencing or other audio visual means" means audio-visual electronic communication facilit
communicate concurrently with each other without an intermediary and to participate effectively in th

d) Some of the key points related to meetings of Board that are held through conferencing or other au
Powers) Rules, 2014 are as under:
1) Every company shall make necessary arrangements to avoid failure of video or audio visual connec
2) The chairperson of the meeting and the CS, if any, shall take due and reasonable careA) to safeguard the integrity of the meeting by ensuring sufficient security and identification procedur
B) to ensure availability of proper video conferencing or other audio visual equipment or facilities for p
the directors and other authorised participants at the Board meeting;
C) to record proceedings and prepare the minutes of the meeting;
D) to store for safekeeping and making the tape recording(s) or other electronic recording mechanism
completion of audit of that particular year.

E) to ensure that no person other than the concerned director are attending or have access to the pro
visual means;

F) to ensure that participants attending the meeting through audio visual means are able to hear and

However, the differently abled persons may make a request to the Board to allow a person to accomp
3) (A) The notices of the meeting shall be sent to all the directors in accordance with the provisions o
(B) The notice of the meeting shall inform the directors regarding the options available to them to
alongwith all other information to enable the directors to participate through such mode;

( C ) A director intending to participate through video conferencing mode or other audio visual me
company.

(D) If a director intends to participate through video conferencing or other audio visual means, he
arrangements in this behalf.

( E) The director, who desires, to perticipate may intimate his intention of participation through th
declaration shall be valid for one calender year.

4) Process of a roll call at the Board Meeting: A director participating in a meeting through video
of quorum, unless he is to be excluded for any items of business under any provisions of the Act or the

5) The scheduled venue of the meeting as mentioned in the notice convening the meeting, shall be d
conferencing or other audio visual means authorized under these rules and all recordings at such mee

6) The draft minutes of the meeting shall be circulated among all the directors within 15 days of the m
Board.

Matters not to be dealt with in a meeting through video conferencing or other audio visua
powers) Rules, 2014 are as under:
1) the approval of the annual financial statements;
2) the approval of the Board's report;
3) the approval of the prospectus;
4) the Audit Committee Meetings for consideration of financial statement including consolidated finan
section 134 of the Act; and
5) the approval of the matter relating to amalgamation, merger, demerger, acquisition and takeover.
Notice of the Board meeting [Sec 173(3)]:
a) at least 7 days notice in writing to all the directors at their registered address (whether in India or
electronic means.

b) Provided that a meeting of the BODs may be called on a shorter notice (than 7 days) in order to tra
director, if any, shall be present at the meeting. If no independent director is present at such a meetin
circulated to all the directors and shall be final only on a ratification thereof by at least 1 independent
c) The Companies (Meetings of Board and its poers) Rules, 2014 further provides that the notice of th
to participate through video conferencing mode or other audio visual means, and shall provide all the
conferencing mode or other audio visual means.

d) on receiving such a notice, a director intending to participate through video conferencing or audio
of the company. He shall give prior intimation to that effect sufficiently in advance so that the compan

e) if the director does not give any intimation of his intention to partipate that he wants to participate
attend the meeting in person.
Penalty for failure to give notice:
Sec 173(3) --> Prescribed a penalty of Rs. 25000 on every officer of the company whose duty is to giv
Exceptions [Sec 173(5)]:
a) A OPC, small company and dormant company shall be deemed to have complied with the provision
half of a calender year and the gap between the 2 meetings is not less than 90 days.

b) Provided that, a OPC in which there is only 1 director on its BOD's shall not be required to hold at le
following the provisions of section 173(5).
Quorum for meetings of Board (Sec 174 of the CA, 2013)
i) 1/3 of its total strenth or 2 directors, w.e.h.
ii) The directors who paticipate by video conferencing or by other audio visual means shall also be co

Further, the explanation as given in the Companies (Meetings of Board and its powers) Rules, 2014 p
conferencing or by other audio visual means shall also be counted for quorum, unless he is to be exclu

iii) The continuing directors may notwithstanding any vacancy in the Board; but, if and so long as the
the board, the continuing directors or director may act for the purpose of increasing the no.of director
for no other purpose.

iv) Where at any time the no.of interested directors exceeds or equal to 2/3's of the total strength of t
meeting and not interested directors and are not be less than 2.
"Interested director" means--> a director within the meaning of sec 184(2).
v) Meeting could not be held for want of quorum:
>> Unless the articles of the company otherwise provide, the meeting shall automatically stand adjou
that day is a national holiday, till the next suceeding day which is not a national holiday, at the same
Notes:
1) The provisions of sec 174 are not applicable on OPC in which there is only 1 director on its BOD's.
2) For the purposes of calculating quorum, any fraction of a number shall be rounded off as one.
3) "Total Streanth" shall not include directors whose places are vacant.
Passing of resolution by circulation [Sec 175 of the CA, 2013]
i) The Act allows the BOD's to pass resolutions by circulation also. No resolution shall be deemed to ha
unless:

a) The resolution has been circulated in draft, together with the necessary papers, if any, to all the dir

b) at their addresses registered with the company in India,

c) by hand delivery or by post or by courier, or through such electronic means as may be prescribed, a
d) has been approved by majority of the directors or members, who are entitled to vote on the resolut
The companies (Meetings of Board and its powers ) Rules, 2014 provides that a resolution in draft form
seeking their approval, by electronic means which may include E-mail or fax.

ii) If at least 1/3rd of the total no.of directors of the company for the time being require that any resol
put the resolution to be decided at a meeting of the Board (Instead of being decided by circulation).

iii) A resolution that has been passed by circulation shall have to be necessarily be noted in the next m
minutes of such meeting.
Defects in appointment of directors not to invalidate actions taken [Sec 176 of the CA, 201
i) No act done by a person as a director shall be deemed tp be invalid, notwithstanding that it was sub
or disqualification or had terminated by virtue of any provision contained in this Act or in the articles o

ii) Nothing in this sec shall be deemed to give validity to any act done by the director after his appoint
terminated.
Audit Committee [Sec 177 of the CA, 2013]
Formation of an Audit Committee:
An audit committee shall be constituted by the BOD's of:
a) Every listed company, and
b) Such other class or classes of companies as may be prescribed.

The companies (Meetings of Board and its powers ) Rules, 2014 have prescribed the follow

a) all public companies with a paid up capital of 10 crore rupees or more;

b) all public companies having turnover of 100 crore rupees or more;
c) all public companies, having in aggregate, o/s loans or borrowings or debentures or deposits 50 cro

Explanation- paidup share capital, turnover, o/s loans or borrowings or debentures or deposits---> as e

"Provided that public companies covered under this rule which were not required to constitute Audit c
within 1 yr from the commencement of these rules or appointment of independent directors by them,

Provided further that public companies covered under this rule shall constitute their Nomination and R
or appointment of independent directors by them, whichever is earlier":

Composition of an Audit Committee:

>> According to Sec 177(2), the audit committee shall consist of a minimum of 3 directors with indep

>> Provide that the majority of members of audit committee including its chairperson shall be person

>> Disclosure of composition of audit committee: The composition of the Audit Committee shal
Transition period:
>> Within 1 year from commencement
Responsibilities of an audit Committee:

>> According to sec 177(4), every Audit Committee shall act in accordance with the terms of referenc

a) the recommendation for appointment, remuneration and terms of appointment of auditors of the co
b) review and monitor the auditor's independence and performance, and effectiveness of audit proces
c) Examination of the FS's and the auditors report thereon;
d) approval or any subsequent modification of transactions of the company with related parties;
e) scrutiny of inter-corporate loans and investments;
f) Valuation of undertakings or assets of the company, wherever it is necessary;
g) evaluation of internal financial controls and risk mgt systems;
h) monitoring the end use of funds raised through public offers and related matters.
Investigation by Audit Committee:

>> According to Sec 177(6), the audit committee shall have authorit to investigate into any matter in
and for this purpose shall have power to obtain professional advice from external sources and have fu
Disclosure in Baord's report:
a) The composition of the audit committee shall be disclosed in the board's report U/S 134(3).

b) Where the Board had not accepted any recommendation of the Audit Committee, the same shall be

Role of auditor in Audit Committee:

a) According to sec 177(5), the the audit committee is empowered to:
1) call for the comments of the auditors about:
A) Internal control systems,
B) the scope of audit, including the observations of the auditors,
C) review of FS before their submission to the Board,
b) Right to be heard in the meeting of audit committee: According to sec 177(7), the auditors o
heard in the meetings of the Audit Committee when it considers the auditor's report but shall not have
Penalty for contravention[Sec 178(8)]
>> Company---> 1 Lakh to 5 Lakh, and
>> Every officer of the company who is in defalt---> Imprisonment---> upto 1 yr OR fine Rs. 25000 to
Visil mechanism
Formation of vigil mechnism:
>> According to sec 177(9), a vigil mechanism shall be formed in:
a) Every listed company, and
b) such other prescribed classes of companies.
The companies (Meetings of Board and its powers) Rules, 2014 has prescribed the following classes of
1) the companies which accept deposits from the public;
2) the companies which have borrowed money from banks and public financial Institutions in excess o

Objective of formation of vigil mechanism:

a) A vigile mechanism shall be formed for directors and employees to report genuine concerns in such

b) The vigil mechanism shall provide for adequate safeguards against victimisation of persons who us
of the audit committee in appropriate or exceptional cases. It is imperative for the company to disclos
company and in Board's report.
According to the Companies (Meetings of Board and its Powers) Rules, 2014:
1) "Persons who use such mechnism" means employees and directors who avail the vigil mechanism.

2) The companies which are required to constitute an audit committee shall oversee the vigil mechan
have a conflict of interest in a given case, they should recuse themselves and the others on the comm

3) In case of other companies, the BOD's shall nominate a director to play the role of audit committee
may report their concerns.

4) The employees and directors who avail of vigil mechanism may have direct access to the chairpers
audit committee, as the case may be, in exceptional cases.

5) In case of repeated frivolous complaints being filed by a director or an employee, the audit commit
suitable action against the concerned director or employee including reprimand.
Penalty for contravention [Sec 178(8)]:
>> Company---> 1 Lakh to 5 Lakh, and
>> Every officer of the company who is in defalt---> Imprisonment---> upto 1 yr OR fine Rs. 25000 to
Nomination and Remuneration Committee and stakeholders Relationship Committee 9Sec
Sections 178(1) to (4) lay down the provisions in respect of the Nomination and Remunera
Nomination and Remuneration Committee
Formation of nomination and Remuneration Committee:
A nomination and Remuneration Committee shall be constituted by the BOD's of:
a) Every listed company, and
b) Such other class or classes of companies as may be prescribed.
The companies (Meetings of Board and its powers) Rules, 2014 has prescribed the following classes of
of the Board:
1) all public companies with a paid up capital of 10 Crore Rs. Or More;
2) all public companies having tutnover of 100 Crore Rs. Or more;
3) all public companies, having in aggregate, o/s loans or borrowings or debentures or deposits excee
Explanation:- The paid up share capital or tunover or o/s loans, or borrowings or debentures or dep
be taken into a/c for the purposes of this rule.

"Provided that public companies covered under this rule which were not required to constitute Audit c
within 1 yr from the commencement of these rules or appointment of independent directors by them,

Provided further that public companies covered under this rule shall constitute their Nomination and R
or appointment of independent directors by them, whichever is earlier":
Composition of nomination and remuneration committee:
a) This committee shall consist of 3 or more non-executive directors out of which not less than 1/2 sha

b) The chairman (Whether excutive or non-executive) of the company shall not chair such a committe

c) The chairperson or in his absence, any other member of the committee authorised by him in this be
Constitution of the committee [Sec 178(2)]

>> The nomination and remuneration committee shall ---> identify persons who are qualified to beco
the criteria laid down. ----> Recommend to the Board their appointment and removal of directors and

The nomination remuneration committee shall formulate the criteria for determing qualifications; posi
a policy, relating to the remuneration for the directors, Key managerial personnel and other employee
According to sec 178(4), the nomination and remuneration committee shall, while formulating the pol

a) the level and composition of remuneration is reasonable and sufficient to attract, retain and motiva

b) relationship of remuneration to performance is clear and meets appropriate performance benchmar

c) Remuneration to directors, key managerial personnel and senior mgt involves a balance between fi
objectives appropriate to the working of the company and its goals.
It is imperative to disclose such a policy in Board's Report.
Penalty for contravention: (Sec 178(8))
>> Company---> 1 Lakh to 5 Lakh, and
>> Every officer of the company who is in defalt---> Imprisonment---> upto 1 yr OR fine Rs. 25000 to

Sections 178(5) to (6) lay down the provisions relating to the formation, constitution and f

Formation and constitution of stakeholder's relationship committee:

The BOD's of a company which consists of more than 1000 shareholders, debenture-holders, deposit-h
constitute a stakeholders Relationship Committee.
Objective of the committee:
The stakeholders relationship committee shall consider and resolve the grivances of security holders o
holders, not merely the equity investors.
Chairperson of stakeholder's relationship committee:
It shall be headed by a chairperson who shall be a non-executive director and consist of such other me

Sec 178(7) Provides that The chairperson or in his absence, any other member of the committee aut

Sec 178(8) Provides for the penalty for contravention of any of the provisions of either sec 177 or 17

> Provided that the non-consideration of a resolution of any grievance by the stkeholders Relationship

Here, for the purposes of sec 178, the expression "Senior mgt" means personnel of the company who
of mgt 1 level below the executive directors, including the functional heads.
Penalty for contravention:
>> Company---> 1 Lakh to 5 Lakh, and
>> Every officer of the company who is in defalt---> Imprisonment---> upto 1 yr OR fine Rs. 25000 to
Powers of Board [Sec 179 of the CA, 2013]
The BOD's of a company shall be entitled to exercise all such powers, and to do all such acts and thing
> However, while excercising such power or doing such act or thing, the Board shall be s.t the provisio
or in any regulations not inconsistent therewith and duly made thereunder, including regulations mad

The Board shall not exercise any power or do any act or thing which is directed or required, whether u
to be excercised or done by the company in GM.
No regulation made by the company in GM shall invalidate any prior act of the Board which would hav
Powers of the Board to be excercised by the Board by means of the resolution passed at a duly conven
a) to make calls on shareholders in respect of money unpaid on their shares;
b) to authorise buy-back of securities U/S 68;

c) to issue securities, including debentures, whether in or outside India;

d) to borrow monies;
e) to invest the funds of the money;
f) to grant loans or give guarantee or provide security in respect of loans;
g) to approve FS and the Board's report;
h) to diversify the business of the company;
i) to approve amalgamation, merger or reconstruction;
j) to take over a company or acquire a controlling or substantial stakw in another company;
k) any other matter which may be prescribed
> Additionally, The companies (Meetings of Board and its Powers) Rules, 2014 has prescribed certain
resolutions passed at meetings of the Board:
1) to make political contributions;
2) to appoint or remove KMP
3) to take note of appointment(s) or removal(s) of one level below the Key Mgt Personnel;
4) to appoint internal auditors and secretarial auditor;
5) to take note of the disclosure of director's interest and shareholding;

6) to buy, sell investments held by the company (other than trade investments), constituting 5 % or m

7) to invest or accept or renew public deposits and related matters;

8) to reviw or change the terms and conditions of public deposit;
9) to approve quarterly, half yearly and annual FS's or financial results as the case may be.
Power to delegate certain powers of the Board:
The Board may, by a resolution passed at a meeting, delegate the powers specified in points (d) to (f)
1) any committee of directors,
2) the MD,
3) the Manager or any other principal Officer of the company, or
4) the principal officer of the branch office (in the case of a branch office of the company).

>> However, the acceptance by a banking company in the ordinary cource of its business of deposits
withdrawable by cheque; draft, order or otherwise, or the placing of monies on deposit by a banking c
may prescribe, shall not be deemed to be a borrowing of monies or, as the case may be, a making of

>> Explanation I: Nothing in point (d) above (i.e d) to borrow monies;)) shall apply to borrowings by
or any other banks established by or under any Act.

>> Explanation II: In respect of dealings between a company and its bankers, the exercise by the co
arrangement made by the company with its bankers for the borrowing of money by way of Over draft(
operation on OD, CC or other a/c's by means of which the arrangement so made is actually availed of.

Nothing in this section shall however be deemed to effect the right of the company in the GM, to impo
powers specifies in this section above.
Restrictions on powers of Board [Sec 180 of the CA, 2013]
The BOD's of a company shall exercise the following powers only with the consent of the c
a) To sell, lease or otherwise dispose of the whole or substantially the whole of the undertaking of the
whole or substantially the whole of any of such undertakings.

"Undertaking" shall mean an undertaking in which the investment of the company exceeds 20% of i
which generates 20% of the total income of the company during the previous FY;

The expression "Substantially the whole of the undertaking" in any FY shall mean 20 % or more

b) To invest otherwise in Trust securities the amount of compensation received by it as a result of any
c) to borrow money, where the money to be borrowed, together with the money already borrowed by
regerves, apart from temporary loans obtained from the company's bankers in the ordinary cource of

>> The acceptance by a banking company, in the ordinary cource of its business, of deposits of mone
cheque, draft, order or otherwise, shall not be deemed to be a borrowing of monies by the banking co

"Tempary loans" means loans repayable on demand or within 6 months from the date of the loan such
issue of other short term loans of a seasonal character, but does not include loans raised for the purpo

d) To remit, or give time for the repayment of, any debt due from a director.
Every SR passed by the company in GM in relation to the exercise of the powers referred to in point(
borrowed by the BOD's.
Nothing contained in above point (a) shall effect1) the title of a buyer or other person who buys or takes on lease any property, investment or underta
2) The sale or lease of any property of the company where the ordinary business of the company cons
Any SR passed by the company consenting to the transaction as is referred to in above point (a) may
conitions regarding the use, disposal or investment of the sale proceeds which may result from the tra

>> Provided that, this sub section shall not be deemed to authorise the company to effect any reduct
Act.

No debt incurred by the company in excess of the limit imposed by above point (c ) shall be valid of
and without knowledge that limit imposed by that clause had been exceeded.
Company to contribute to bona fide and charitable funds, etc. [Sec 181 of the CA, 2013]
i) The BOD's of a company may contribute to bonafide charitable and other funds.
ii) Prior permission of the company in GM shall be required for such contribution in case any amount t
immediately preceding Fys.
Prohibitions and restrictions regarding political contributions [Sec 182 of the CA, 2013]
i) Notwithstanding anything contained in any other provision of this Act, a company may contribute an
the Representation of the people Act, 1951.
ii) The following companies are not allowed to contribute to any political party:
a) a govt company; and
b) a company which has been in existence for less than 3 Fys.

iii) The aggregate of the amount which may be so contributed by the company in any FY shall not exc

iv) No such contribution shall be made by a company unless a resolution authorising the making of su
shall be deemed to be justification in law for the making and acceptance of the contribution authorise
v) Without prejudice to the generality of the above said provisions i.e from (i) to (iv),

a) a donation or subsrciption or payment caused to be given by a company on its behalf or on its a/c
time at which such donation or subscription or payment was given or made, can reasonably be regard
deemed to be contribution of the amount of such donation, subscription or payment to such person fo

b) The amount of expenditure incurred, directly or indirectly, by a company on an advertisement in an

tract, pamphlet or the like, shall be deemed, to be a contribution of such amount to such political part
1) Where such publication is by or on behalf of a political party

2) Where such publication is not by or on behalf of, but for the advantage of a political party
vi) Every company shall disclose in its P&L a/c any amount or amounts contributed by it to any politic
total amount contributed and the name of the party to which such amount has been contributed. [sec

vii) If a company makes any contribution in contravention of the provisions of this section, the compa
officer of the company who is in default---> Puniishment-> Imprisonment -- upto 6 months and fine up

>>> The MCA vide General circular 19/2013 dated 10th dec 2013, issued a clarification on disclos
political contributions' of the CA, 2013.
circular says that, with the coming into force of the scheme relating to 'Electrocal Trust Companies' un
No.S.O.309(E) dated 31st January, 2013, it will be expedient to explain the requirements of disclosure
political parties U/S 182(3) of the CA, 2013.
that:
contributing any amount or amounts to an 'Electoral Trust Company' for contributing to a political part
CA, 2013. It will be sufficient, if the Accounts of the company disclose the amount released to an Elect
amounts directly to a political party or parties will be required to make the disclosures laid down in se

to disclose all amounts received by them from other companies/sources in their books of a/cs and also
parties as required by sec 182(3) of CA, 2013.

Power of Board and other persons to make contributions to national defence fund, etc. [Se

i) The BOD's of any company or any person or authority excercing the powers of the BOD's of a compa
sections 180, 181 & Sec 182 or any other provision of this Act or in the memorandum, articles or any
thinks fit to the National Defence Fund or any other Fund approved by the CG for the purpose of natio

ii) Every company shall disclose in its P & L a/c the total amount or amounts contributed by it to the Fu
amount relates.
Disclosure of interest by director [Sec 184 of the CA,2013]
Sec 184 is applicable on all directors of the company and all types of companies.
When to disclose:
Every director shall:
a) At the 1st meeting of the Board in which he participates as a director, and
b) Thereafter, at the 1st meeting of the Board in every FY, or
c) Whenever there is any change in the disclosures already made, then at the 1st Board meeting held
What to disclose:
Every director shall disclose his concern or interest in any company or companies or bodies corporate
shareholding, in such manner as may be prescribed.

The Companies (Meetings of Board and its powers) Rules, 2014 has prescribed that the directors shall
Circumstances in which disclosure is necessary:

>> Whenever any director of a company who is in any way, whether directly or indirectly, concerned
arrangement entered into or to be entered into shall disclose the nature of his concern or interest at t
and shall not participate in such meeting. Following are the circumstances where disclosure is neces

Whenever any director of the company, who is in any way, whether directly or indirectly, concerne
arrangement entered into or to be entered into-

a) with a bdy corporate in which such director or such director in association with any other director, h
manager, CEO of that body corporate; or

b) with a firm or other entity in which, such director is a partner, owner or member, as the case may b

However, Where any director who is not so concerned or interested at the time of entering into such
after the contract or arrangement, he shall, if he becomes concerned or interested after the contract o
when he becomes concerned or interested or at the 1st meeting of the Board held after he becomes s

Consequences of non disclosure:

a) Voidable at the option of the company:
A contract or arrangement entered into by the company without disclosing or with participation by a d
the contract or arrangement, shall be voidable at the option of the company.
b) Penalty:

If a director of the company contravenes the provisions of sec 184(1) or Sec 184(2)---> Punishment-->

No restriction on directors:
Nothing in Sec 184 shall be taken to prejudice the operation of any rule of law restricting a director of
arrangement with the company.
Exception:
Sec 184 shall not apply to any contract or arrangement entered into or to be entered into between 2 c
them together holds or hold not more than 2% of the paid-up share capital in the other company.
Loan to directors, ect. [Sec 185 of the CA, 2013]
No company shall, directly or indirectly, advance any loan, including any loan represented by a book d
interested or give any guarantee or provide any security in connection with any loan taken by him or s
Exceptions:
The above restriction does not apply In the following circumstances:
a) the giving of any loan to a MD or WTD1) as part of the conditions of service extended by the company to all its employees; or
2) pursuant to any scheme approved by the members by a SR; or
b) a company which in in the ordinary cource of its business provides loans or gives guarantees or sec
interest is charged at a rate not less than the bank rate declared by the RBI.
The expression "to any other person in whom director is interested" meansa) any director of the lending company, or of a company which is its HC or any partner or relative of a
b) any firm in which any such director or relative is a partner;
c) any pvt company of which any such director is a director or member;
d) any body corporate at a GM of which not less than 25% of the total voting power may be excercised
together; or

e) any body corporate, the BOD's, MD or Manager, whereof is accustomed to act in accordance with th
the lending company.
Penalty for contravention:
If any loan is advanced or a guarantee is given or provided in contravention of the provisions of sec 18
a) On Company: Rs. 5 Lakh to Rs. 25 Lakhs.
b) On defaulting director and the other person to whom any loan is advanced or guarantee or security
person:
Imprisonment- Upto 6 months, or
Fine- Rs. 5 Lakhs to Rs. 25 Lakhs, or
Both

Thus, penalty is leveiable only on the company or director or person to whom the loan is given or gua
knowingly a party to default has been kept outside the ambit of penalty clause of sec 185.

The Companies (Meetings of Board and its Powers) Rules, 2014 has exempted the following from the a
company for its principle business activities.

1) Any loan made by HC to its wholly owned SC or any guarantee given or security provided by a HC i
requirements under this sec; and
2) Any guarantee given or security provided by a HC in respect of loan made by any bank or financial

Loan and Investment by Company [Sec 186 of the CA, 2013]

This section is applicable on both public as well as private company.
According to sec 186(1), without prejudice to the provisions contained in this Act, a company shall unl
of investment companies:
However, the provisions of sub-section (1) shall not affect,a) a company from acquiring any other company incorporated in a country outside India if such other
such country;

b) a SC from from having any investment subsidiary for the purposes of meeting the requirements und
time being in force.
According to sec 186(2) of the CA, 2013, no company shall directly or indirectlya) give any loan to any person or other body corporate;
b) give any guarantee or provide security in connection with a loan to a any other body corporate or p
c) acquire by way of subscription, purchase or otherwise, the securities of any other body corporate,
exceeding i) 60% of its paid-up share capital, free reserves and securities premium a/c or ii) 100% of

Prior approval for exceeding limit [Sec 186 (3)]:

Prior approval by means of a SR passed at a GM shall be necessary where the giving of any loan or gu
specified above.

>> According to the companies (Meetings of the Board and its Powers) Rules, 2014, where a loan or g
its wholly owned SC or a joint venture company, or acquisition is made by a HC, by way of subscriptio
requirement of Sec 186(3) shall not apply:

> Provided that the company shall disclose the details of such loans or guarantee or security or acqui
The Companies (Meetings of Board and its Powers) Rules, 2014, also provides that:

a) where the aggregate of the loans and investment so far made, the amount for which guarantee or
investment, loan, guarantee or security proposed to be made or given by the Board, exceed the limits
be given or security shall be provided unless previously authorises by a SR passed in a GM.
Explanation- For the purpose of this rule, it is clarified that it would sufficient compliance if such SR is

b) A resolution passed at a GM in terms of Sec 186(3) to give any loan or guarantee or investment or
total amount upto which the BOD's are authorises to give such loan or guarantee, to provide such sec

> Provided, that the company shall disclose to the members in the FS the full particulars in accordanc
Disclosure to members [Sec 186(4)]:
It is necessary for the company to disclose to the members in the FS the full particulars of:
a) Loan given,
b) investment made or guarantee given or security provided,
c) the purpose for which the loan or guarantee or security is proposed to be utilized by the recipient o

Unanimous resolution [Sec 18695)]:

Any investment shall be made or loan or guarantee or security given by the company only after when
consent of all the directors present at the meeting. The prior approval of the public financial institution

> However, prior approval of a PFI shall not be required whrere the aggregate of the loans and investm
provided to or in all other bodies corporate, along with the investments, loana, quarantee or security p
186(2) and ther is no default in repayment of loan instalments or payment of interest thereon as per t

Further, no company, which is registered U/S 12 of the SEBI, 1992 and covered under such class or cla
deposits exceeding the prescribed limit and such company shall furnish in its FS the details of the loan

>> According to the companies (Meetings of the Board and its Powers) Rules, 2014, no company regis
classes of companies which may be notified by the CG in consultation with the SEBI, shall take any int
regulations apllicable to such company, pursuant to which it has obtained certificate of registration fro

Rate of interest on loan:

A loan under this sec shall not be given at a rate of interest lower than the prevailing yield of 1 year, 3
[Sec 186(7)]
No loan till default is subsisting:

No company which is in default in the repayment of any deposits accepted before or after the comme
give any guarantee or provide any security or make an acquisition till such default is subsisting. [Sec

Maintenance of register: Every company giving loan or giving a guarantee or providing security or
contain such particulars and shall be maintained in such manner as may be prescribed. [sec 186(9)]
According to the Companies (Meetings of Board and its Powers) Rules, 2014:

a) Every company company giving loan or giving guarantee or providing security or making an acquis
register in Form MBP 2 and enter therin seperately, the particulars of loans and guarantees given, se
b) The entries in the register shall be made chronologically in respect of each such transaction within
making acquisition.

c) The entries in the register shall be kept at the registered office of the company and the register sha
the company or any other person authorised by the Board for the purpose.

d) The entries in the register (either manual or electronic) shall be authenticated by the CS of the com

e) The register can be maintained either manually or in electronic mode.

f) The extracts from such register maintained may be furnished to any member of the company on pa
which shall not exceed 10 Rs. For each page.

>> The MCA vide General Circular No. 15/2014 dated 9th june, 2014 has clarified that registers maint
per requirements and the new format vide Form MBP 2 shall be used for particulars entered in such re

Register to be kept at Registered office:

a) It shall be open to inspection at such office and extracts may be taken therfrom by any member, an
payment of such fees as may be prescribed.[Sec 186(10)]
Nothing contained in section 186, except sec 186(1), shall applya) to a loan made, guarantee given or security provided by a banking company or an insurance comp
a company engaged in the business of financing of companies or of providing infrastructural facilities;

>> According to the Companies (Meetings of Board and its powers) Rules, 2014, the expression "busin
registered with the RBI, "business of giving of any loan to a person or providing any guaranty or secur
cource of its business".

b) to any acuisition1) made bya NBFC registered under chapter IIIB of the RBI Act, 1934 and whose principal business is a
> Provided that exemption to NBFC shall be in respect of its investment and lending activities;
2) made by a company whose principal business is the acquisition of securities;
3) of shares alloted in pursuance of sec 62(1)(a) [Sec 186(11)]
Power of CG to make Rules:
The CG may make rules for the purposes of this section. [Sec 186(12)]
Penalty:

If a company contravenes the provisions of section 186, the company shall be punishable--> Rs.25000
punishment-> Imprisionment -- upto 2 year and fine Rs.25000 to Rs. 100000. [Sec 186(13)]
For the purposes of sec 186,

a) the expression "investment company" means a company whose primcipal business is the acquisitio
b) the expression "infrastructure facilities" means the facilities specified in schedule VI.
Investments of company to be held in its own name [Sec 187 of the CA, 2013]
All investments made or held by a company in any property, security or other asset shall be made and
However, the company may hold any shares in its SC in the name of any nominee or nominees of the
the SC is not reduced below the statutory limit.
Nothing in this section shall be deemed to prevent a companya) from depositing with a bank, being the bankers of the company, shares or securities for the collecti
b) from depositing with, or transferring to, or holding in the name of, the SBI or a scheduled bank, bei
the transfer of therof:

>> Provided that if within a period of 6 months from the date on which the shares or securities are tra
of, the SBI or a scheduled bank as aforesaid, no transfer of such shares or securities takes place, the c
the shares or securities re-transferred to it from the SBI or the scheduled bank or, as the case may be

C) from depositing with, or transferring to, any person any shares or securities, by way of security for
any obligation undertaken by it;
d) from holding investments in the name of a depository when such investments are in the form of se

Where in pursuance of clause (d) of sub-section (ii), any shares or securities in which investments hav
company shall maintain a register which shall contain such particulars as may be prescribed and such
the company without any charge during business hrs s.t such reasonable restrictions as the company

If company contravenes the provisions of this section, the company---> Punishment--Rs.25000 to Rs.2
Punishment---Imprisonment--upto 6 months or fine-- Rs.25000 to Rs.1 Lakh, or with both.
>> According to the Companies (Meetings of Board and its Powers) Rules, 2014,

a) Every company shall, from the date of its registration, maintain a register in Form MBP3 and enter
securities beneficially held by the company but which are not held in its own name and the the compa
name and the relationship or contract under which the investment is held in the name of any other pe

b) The company shall also record whether such investments are held in a 3rd party's name for the tim

c) The register shall be maintained at the registered office of the company. The register shall be prese
company or if there is no CS, any director or any other officer authorised by the Board for the purpose
d) The entries in the register shall be authenticated by the CS of the company or by any person autho
Related Party Transaction[Sec 188 of the CA, 2013]
Contracts with related parties which are covered U/S 188 [Sec 188(1)]:
Except with the consent of the BOD's given by a resolution at a meeting of the Board and s.t such con
arrangement with a related party with r.ta) sale, purchase or supply of any goods or materials;
b) selling or otherwise disposing of, or buying, property of any kind;
c) leasing of property of any kind;
d) availing or rendering of any services;
e) appointment of any agent for purchase or sale of goods, materials, services or property;
f) such related part's appointment to any office or place of profit in the company, its SC or associate c
g) Underwriting the subscription of any securities or derivatives thereof, of the company:
However, no contract or arrangement, in the case of a company having a paid-up share capital of no
be prescribed, shall be entered into except with the prior approval of the company by a SR. [First pro

>>> According to the Companies (Meetings of Board and its Powers) Rules, 2014 except with the prio
transaction or transactions, where the transaction or transactions to be entered into,1) as contracts or arrangements with r.t clauses (a) to ( e) of Sec 188(1), with criteria as mentioned be
A) sale, purchase or supply of any goods or materials, directly or through appointment of agent, excee
mentioned in clause (a) and clause (e ) respectively of Sec 188(1);

B) selling or otherwise disposing of, or buying, property of any kind, directly or through appointment o
as mentioned in clause (b) and clause ( e) respectively of Sec 188(1);

C) leasing of property of any kind exceeding 10% of the net worth of the company or 10% of the turno
Sec 188(1);

D) availing or rendering of any services, directly or through appointment of agent, exceeding 10% of t
(d) and clase ( e) respectively of Sec 188(1);

Explanation- It is hereby clarified that the limits specified in sub-clauses (i) to (iv) shall apply for tran
together with the previous transactions during a FY.
2) is for appointment to any office or place of profit in the company, its SC or associate company at a
of Sec 188(1); or

3) is for remuneration for undertaking the subscription of any securities or derivatives thereof, of the
188(1).
>> Explanationi) The turnover or networth referred in the above sub-rule shall be computed on the basis of the Audit
ii) In case of a wholly owned subsidiary, the SR passed by the HC shall be sufficient for the purpose of
the HC.
4) The explanatory statement to be annexed to the notice of a GM convened pursuent to sec 101 sha
a) name of the related party;
b) name of the director or KMP who is related, if any;
c) nature of relationship;
d) nature, material terms, monetary value and particulars of the contract or arrangement;
e) any other information relevant or important for the members to take a decision on the proposed res
> No voting by related member: Further no member of the company shall vote on such SR, to approve
if such member is a related party. [Second proviso to sec 188(1)]

>>> The MCA vide General Circular No. 30/2014 dated 17th July, 2014 has clarified the scope of se
no member of the company shall vote on a SR to approve the contract or arrangement(referred to in t
'related party' referred to in the second proviso has to be construed with reference only to the contrac
'ralated party' in the abive context refers only to such related party as may be a related party in the c
passed.

>>> According to the Companies (Meetings of Board and its Powers) Rules, 2014, where any director
director shall not be present at the meeting during discussions on the subject matter of the resolution

Transaction to be at arm's lenth prices:

Nothing as provided above shall apply to any transactions entered into by the company in its ordinary
basis.
Explanationa) the expression "office or place of profit" means any office or place1) Where such office or place is held by a director, if the director holding it receives from the company
which he is entitled as director, by way of salry, fee, commission, perquisites, any rent-free accommod

2) Where such office or place is held by an individual other than a director or by any firm, pvt compan
corporate holding it receives from the company anything by way of remuneration, salary, fee, commis

b) the expession "arm's length transaction" means a transaction between 2 related parties that is con

Related party transaction to be mentioned in board's report [Sec 188(2)]:

Every contract or arrangement entered into under sub section (i) above, shall be referred to in the con
for entering into such contract or arrangement.
Related party transaction can be voidable at the option of the board [Sec 188(3)]:
A contract or arrangemet shall be viadable at the option os the Board:
a) Where any contract or arrangement is entered into by a director or any other employee, without ob
U/S 186(1), and

b) if it is not ratified by the Bord or, as the case may be, by the shareholders at a meeting within 3 mo
into.

Furher, if the contract or arrangement is with a related party to any director, or is authorised by any o
any loss incurred by it.

Sec 188(4) provides that without prejudice to anything contained in sec 188(3), it shall be open to the
enterd into such contract or arrangement in contravention of the provisions of this section for recover
Penalty for contravention[Sec 188(5)]:

Any director or any other employee of a company, who had entered into or authorised the contract or

a) in case of listed company,--Punishment-- Imprisonment upto 1 yr or fine--Rs.25000 to Rs. 5 Lakhs, o

b) in case of any other company,--> Punishment--- fine Rs.25000 to Rs.5 Lakhs.
Related Party- with reference to a company, meansi) a director or his relative;
ii) a KMP or his relative;
iii) a firm, in which a director, Manager or his relative is a partner;
iv) a pvt company in which a director or manager or his relative is a member or director;

v) a public company in which a director or manager is a director and holds along with his relatives, mo

vi) any body corporate whose BOD's, MD or Manager is accustomed to act in accordance with the adv

vii) any person on whose advice, directions or instructions a director or manager is accustomed to act
>Provided that nothing in sub-clauses (ci) and (vii) shall apply to the advice, directions or instructions
viii) any company which isA) a holding, subsidiary or an associate company of such company; or
B) a subsidiary of a HC to which it is also a subsidiary;
ix) such other person as may be prescribed.
>> Rule 3 of the companies (specification of definitions details) Rules, 2014 provides that for the purp
than an independent director or KMP of the HC or his relative with reference to a company, shall be de

>>> Applicability of sec 188 to corporate restructuring, amalgamations etc; the MCA vide General Cir
arising out of compromises, arrangements and amalgamations dealt with under specific provisions of
CA, 2013.
>>> Requirement of fresh approvals for fast contracts U/S 188:

The MCA vide General Circular No. 30/2014 dated 17th July, 2014 has clarified that contracts entered
1956, which already came into effect before the commencement of sec 188 of the CA, 2013, will not r
term of such contracts. Thus, if any modificatiob in such contract is made on or after 1st Apri, 2014, th

Register of contracts or arrangements in which directors are interested [Sec 189 of the CA
Maintenance of register of contracts or arrangements [Sec 189(1)]:

Sec 189 of the CA, 2013 makes it mandatory for all companies to keep one or more registers giving se

a) Sec 184(2) [interested director] or

b) sec 188 [related party].
Registers to be signed [Sec 189(1)]:
The register shall be prepared in such manner and containing such particulars as may be prescribed a
registers shall be placed before the next meeting of the Board and signed by all the directors present
Such register shall be prepared in such manner and contain such particulars as may be prescribed. [S

According to the Companies (Meetings of Board and its Powers) Rules, 2014, such company shall, from
the particulars sof loans and guarantees given, securities provided and acuisitions made. Further the e
transaction within 7 days of making such loan or giving guarantee or providing security or making acu
Disclosure to be made by director or KMP [Sec 189(2)]:

Every director or KMP shall, within a period of 30 days of his appointment, or relinguishment of his offi
sec 184(1) relating to his concern or interest in the other associations which are required to be include
himself as may be prescribed.

Register to be kept at registered office [Sec 189(3)]:

The register shall be kept at the registered office of the company and it shall be open for inspection at
Extracts from register [Sec 189(3)]:
Extracts may be taken from the register, and copies thereof as may be required by any member of the
manner, and on payment of such fees as may be prescribed.

>> According to the Companies (Meetings of Board and its Powers) Rules, 2014, such fee will be as pr
page.
Register to be produced at AGM [sec 189(4)]:

The register shall also be produced at the commencement of every AGM of the company and shall rem
person having the right to attend the meeting. Thus, even a proxy has the right to inspect the register
Exceptions [Sec 189(5)]:

Nothing contained in sec 189(1) shall apply to any contract or arrangementa) for the sale, purchase or supply of any goods, materials or services if the value of such goods and m
aggregate in any year; or
b) by a banking company for the collection of bills in the ordinary cource of its business.
Penalty [Sec 189(6)]:
Every director who fails to comply with the provisions of this sec and the rules made thereunder shall
Contract of employment with MD or WTD's [Sec 190 of the CA, 2013]
Every company shall keep at its registered office.a) Where a contract of service with a MD or WTD is in writing, a copy of the contract; or
b) Where such a contract is not in writing, a written memorandum setting out its terms.
The copies of the contract or the memorandum shall be open to inspection by any member of the com
Penalty for default:

The company shall be liable to a penalty of Rs.25000 and every officer of the company who is in defau

The provisions of this sec shall not apply to a pvt company.

Payment to director for loss of office, etc., in connection with transfer of undertaking, prop

Sec 191 lays down elaborate provisions for regulating payment of compensation to directors for loss o

These provisions apply to all companies.

According to sub-sec (1), no director of a company shall, in connection with
a) the transfer of the whole or any part of any undertaking or property of the company; or
b) the transfer to any person of all or any of the shares in a company being a transfer resulting from1) an offer made to the general body of shareholders.
2) an offer made by or on behalf of some other body corporate eith a view to a company becoming a
3) an offer made by or on behalf an individual with a view to his obtaining the right to exercise, or con
of the company; or

4) any other offer which is conditional on acceptance to a given extent, receive any payment by way
office, or in connection with such loss or retirement from such company or from the transferee of such
person, not being such company, unless perticulars as may be prescribed with respect to the paymen
thereof, have been disclosed to the members of the company and the proposal has been approved by

>> However, nothing in sub sec (1) shall effect any payment made by a company to a MD or WTD or
consideration for retirement from office or in connection with such loss or retirement s.t limits or prior
If the above payment is not approved for want of quorum either in ameeting or an adjorned meeting,

Where a director of acompany receives payment of any amount in contravention of sub-sec (1) or the
amount so received by the director shall be deemed to have been received by him in trust for the com
If a director of the company contravenes the provisions of this sec---> Punishment--fine Rs. 25000 to 1
Nothing in this sec shall be taken to prejudice the operation of any law requiring disclosure to be mad
payments made to a director.

According to the Companies (Meetings of Board and its Poers) Rules, 2014,
1) No director of a company shall receive any payment by way of compensation in connection with an
are disclosed to the members of the company and they pass a resolution at a GM approving the paym
a) name of the director;
b) amount proposed to be paid;
c) event due to which compensation become payable;
d) date of Board meeting recommending such payment;
e) basis for the amount determined;
f) reason or justification for the payment;
g) manner of payment-whether payable in cash or otherwise and how;
h) sources of payment; and
i) any other relevant particulars as the Board may think fit.
2) Any payment made by a company by way of compensation for the loss of office or as a considerati
to a MD or WTD or Manager of the company shall not exceed the limit as set out U/S 202.

3) No payment shall be made to the MD or WTD or Manager of the company by way of compensation
than notice pay and statutary payments in accordance with the terms of appointment of such director

a) the company is in default in repayment of public deposits or payment of interest thereon;

b) the company is in default in redemption of debentures or payment of interest thereon;
c) the company is in default in repayment of any liability, secured or unsecured, payable to any bank,
d) the company is in default in payment of any dues towards Income tax, VAT, excise duty, ST or any
statutory authority or local authority(Other than on cases where the company has disputed the liabilit

e) there are o/s statutory dues to the employees or workmen of the company which have not been pa
the liability to pay such dues); and
f) the company has not paid dividend on preference shares or not redeemed preference shares on due

>> Explanation: Pending notification of Sec 247(1) of the Act and finalisation of qualifications and ex
Will be conducted by an independent merchant banker who is registered with the SEBI or an independ

Restriction on non-cash transactions involving directors [Sec 192 of the CA, 2013]
No company shall enter into an arrangement by whicha) a director of the company or its HC, SC or Associate company or a person connected with him acqu
company; or

b) the ecompany acquires or is to acquire assets for consideration other than cash, from such director
accorded by a resolution of the company in GM and if the director or connected person is a director of
resolution in GM of the HC.

The notice for approval of the resolution by the company or HC in GM shall include the particulars of t
arrangemrnt duly calculated by a registered valuer.

Any arrangement entered into by a company or its HC in contravention of the provisions of this sec sh

a) the restitution of any money or other consideration which is the subject-matter of the arrangement
person for any loss or damage caused to it; or
b) any rights are acquired bona fide for value and without notice of the contravention of the provision
Contracts by OPC [Sec 193 of the CA, 2013]

Where OPC limited by shares or by guarantee enters into a contract with the sole member of the com
contract is in writing, ensure that the terms of the contract or offer are contained in a memorandum o
after entering into contract. However, if contracts are entered into by the company in the ordinary cou

The company shall inform the Registrar about every such contract entered into by the company and re
days of the date of approval by the BOD's.
Prohibition on forward dealings in securities of company by director or KMP [Sec 194 of th
No director of a company or any of its KMP shall buy in the company, or in its HC, SC or Associate com
a) aright to call for delivery or a right to make delivery at a specified price and within a specified time
debentures; or

b) a right, as he may elect, to call for delivery or to make delivery at a specified price and within a spe
relevant debentures.

If a director or any KMP of the company contravenes the above provisions, such director or KMP shall b
Rs.5 Lakh, or with both.

Where a director or other KMP acuires any securities in contravention, he shall along with fine and imp
company and the company shall nor register the securities so acuired in his name in the register, and
record such aquisition and such securities, in both the cases, shall continue to remain in the names of

"Relevant shares" and "relevant debentures" mean shares and debentures of the company in which th
of its HC and SC's.
Prohibition on insider trading of securities [Sec 195 of the CA, 2013]
No person including any director or KMP of a company shall enter into insider trading. But if any comm
employment or under any , then the above prohibition does not apply.
"Insider Trading" means-

a) an act of subscribing, buying, selling, dealinh or agreeing to subscribe, buy, sell or deal in any secu
principal or agent if such director or KMP or any other officer of the company is reasonably expected t
securities of company; or

b) An act of councilling about procuring or communicating directly or indirectly any non public price-s
"Price-sensitive information" means any information which relates, directly or indirectly, to a company
the company.

If any person contravenes the provisions of this sec, he shall be punishable---> Imprisonment-- upto 5
made out of insider trading, w.eh, or with both.

Chapter 6
Inspection, Inquiry and Investigati

Power to call for information, inspect books and conduct inquiries (Sec 206 of CA, 2013)
Power of the Registrar to call for information, explanation or documents(Sec 206(1)):
>> Scrutiny of documents filed by the company or information received by him---> Registrar is opinio
further documents relating to the company is necessary----> He may by written notice requirethe com
a) to furnish in writing such information or explanation; or b) to produce such documents, within such
Duty of the Company and its officers(Sec 206(2)):
On receipt of notice u/s: 206(1)---> Duty of the company and its officers concerned to furnish such inf
and power and to produce the documents to the registrar within the time specified or extended by the
Duty of past officers of the company(Proviso to Sec 206(2)):

Such information or explanation relates to any fast period, the officers who had been in the employme

by the registrar---> Through a notice served on them in writing, shall also furnish such information or
Additional written notice by the registrar[Sec 206(3)]:
The registrar may---> by another written notice ---> Call on the company to produce for his inspection
explanationsas he may require at such place and such time as he may specify in the notice:
a) if no information or explanation is furnished to the registrar within the time specified U/S 206(1); or
b) If the registrar on an examination of the documents furnished is of the opinion that the information
c) If the registar is satisfied on a scrutiny of the documents furnished that an unsatisfactory state of aff
documents do not disclose a full and fair statement of the information required.
Provided that, before any notice is served under this sub section, the registrar shall record his reasons
Inquiry by the registrar [Sec 206(4)]:
a) As he deems fit---> after providing the company a reasonable oppurtunity of being heard, if the reg
1) On the basis of information available with or furnished to him; or
2) On a representation made to him by any person that the business of a company is being carried on
with the provisions of the Act; or
3) The grievances of the investors are not being addressed,
b) Before doing as mentioned an a) above---> The registrar has to inform the company of the allegati
c) The Central Govt may, if it is satisfied that the circumstances so warrant, direct the registrar or an i
inquiry under this sub-section
d) It is further provided that where business of a company has been or being carried on for a fradulen
who is in default shall be punishable for fraud in the manner as provided in sec 447.
Inspection by Central Government [Sec 206(5)]:

Without prejudice to the foregoing provisions---> The CG may---> If it is satisfied that the circumstanc

of a company by an inspector appointed by it for the purpose

Sec [Sec 206(6)]: The CG may ---> having regard to the circumstances by general or special order, a
inspection of books of account of a company or class of companies
Failure to furnish information: [Sec 206(7]:
The company and every officer of the company who is in default shall be punishable with a fine which
during which the failure continues
Conduct of Inspection and Inquiry: (Sec 207 of CA, 2013):
Duty of director, Officer or employee [Sec 207(1)]
Where a registrar or inspector calls for the books of account and other books and papers U/S 206, It sh
Other employee of the company:
a) to produce all such documents to the registrar or inspector; and
b) to furnish him with such statements, information or explanations in such form as the registrar or in
c) to render all assistance to the Registrar or inspector in connection with such inspection.
Powers of Registrar or Inspector [Sec 207 (2) & (3)]:
a) During the cource of Inspection or Inquiry U/S 206, as the case may be,1) make or cause to be made copies of books of accout and other books and papers; or
2) Place or cause to be placed any marks of identification in such books in token of the inspection hav
b) Notwithstanding any thing contained in any law for the time being in force or in any contract to the
inspection or inquiry shall have all the powers as are vested in a civil court under the code of civil proc
following matters, namely:1) the discovery and production of books of account and other documents, at such place and time as m
making the inspection or inquiry;

2) summoning and enforcing the attendance of persons and examining them on oath; and
3) inspection of any books, registers and other documents of the company at any place.
Penaulty for Contravention [Sec 207(4)]:
The Director or the officer shall be punishable with imprisonment whichmay extend to 1 year and with
The Director or the officer shall, on and from the date on which he is so convicted, be deemed to have
office, shall be disqualified from holding an office in any company.
Report on Inspection made U/S 206 & 207 [Sec 208 of the CA, 2013]
The registrar or Inspector---> Submit a report in writing to the CG along with such documents, if any a
recommendation that further investigation into the affairs of the company is necessary giving his reas
Search and Seizure [Sec 209 of the CA, 2013]:
Circumstances for seisure [Sec 209(1)]:
Where, upon information in his possession or otherwise, the registrar or inspector has reasonable grou
a) a company, or relating to
b) The kay managerial personnel or
c) any director
or
d) auditor or
e) CS in practice if the company has not appointed a CS, are likely to be destroyed, mutilated, altered
an order from the special court for the seizure of such books and papers. 1) enter, with such assistance as may be required, and search, the place or place or places where suc
2) seize such books and papers as he considers necessary after allowing the company to take copies o
Period of seizure [Sec 209(2)]:
>> As soon as may be, and in any case not later than 180th day after such seizure, to the company fr
were seized.
>> Further period of seizure: the books and papers may be called for by the Registrar or inspector for
if they are needed again.
Taking of copies, placing identification marks [Second proviso to Sec 209(2)]
The registrar or inspector may, before returning such papers or books as aforesaid, take copies of, or e
on them or any part thereof or deal with the same in such other manner as he considers necessary.
Applicability of the provisions of the code of Criminal Preocedure, 1973 [Sec 209(3)]:
The provisions of the code of criminal procedure, 1973 relating to searches or seizures shall apply, mu
under this section.
Investigation into affairs of company [Sec 210 of CA, 2013]:
Investigation in the opinion of Central Govt:[Sec 210(1]
Where the CG is of the opinion, that it is necessary to investigate into the affaors of a compay,a) on the receipt of a report of the registrar or inspector U/S 208;
b) on intimation of a special resolution passedby a company that the affairs of the company ought to
c) in public interest,
it may order an investigation into the affairs of the company
Investigation on the order by a court or the tribunal:[Sec 210(2)]
Where an order is passed by a court or the Tribunal inany proceedings before it that the affairs of a co
shall order an investigation into the affairs of that company
Appointment of Inspectors: [Sec 210(3)]:
For thepurposes of thos sec, the CG may appoint one or more persons as inspectors to investigate into
in such manner as the CG may direct.
>> According to the Companies (Inspection, Investigation and inquiry) Rules, 2014:
i) The CG may before appointing an inspector U/S 210(3), require the applicant to give a security not
expenses of investigation as per the criteria given in the said rule.

ii) Further, the above reffered security shall be refunded to the applicant if the investigation results in
Establishment of serious Fraud Investigation Office [Sec 211 of CA, 2013]:
Setting up of serious Fraud Investigation Office (SFIO) [Sec 211(1)]:
The CG shall, by notification, establish an office tobe called the SFIO to investigate frauds relating to a
continuation of earlier SFIO:
Until the SFIO as mentioned above is established, the The SFIO setup by the CG in terms of the Gover
dated 2nd July, 2003 shall be deemed to be the SFIOfor the purpose of this Sec.
Composition of SFIO [Sec 211(2)]: The CFIO shall be:
a) Headed by a director, and
b) consist of such no.of experts from the following fields to be appointed by the CG from amongst per
1) Banking;
2) Corporate affairs;
3) Taxation;
4) forensic audit;
5) Capital
7) Law; or
8) such other field as may be prescribed.
Sec 211(3): The CG shall, by notification, appoint a Director in the SFIO, who shall be an officer not b
having knowledge and experience in dealing with matters relating to corporate affirs.
Sec 211(4):The CG may appoint such experts and other officers and employees in the SFIO as it cons
its functions under this Act.
According to the Companies (Inspection, Investigation and inquiry) Rules, 2014, The CG may appoint p
cyber forencis, financial accounting, management accounting, Cost accounting and any other fields as
SFIO functions under the Act.
Terms and conditions of service: [Sec 211(5)]:
>> The terms and conditions of service of Director, experts, and other officers and employees of the S
>> The terms and conditions of service of the above mentioned officers have been laid down in the C
Rules, 2014.
Investigation into affairs of company by SFIO (Sec 212 of CA, 2013) [except references of Sec
Sec 212(6) and also 212(8) to (10)]
According to Sec 212(1), without prejudice to to the provisions of sec 210, where the CGa) on receipt of a report of the Registrar or inspector U/S 208;
b) On intimation of a SR passed by a company that its affairs are required to be investigated;
c) in the public interest; or
d) on request from any department of the CG or a SG,
is of the opinion that it is necessary to investigate into the affairs of a company by the SFIO, The CG m
affairs of the said company to the SFIO.
On receipt of such order, the Director, SFIO may digignate such no.of inspectors, as he may consider n
Sec 212(2) : >>> Where any case has been assigned by the CG to the SFIO for investigation under t
CG or SG shall proceed with investigation in such case in respect of any offence under this Act.
>>> In case any such investigation has already been initiated, it shall not be proceeded further with a
relevant documents and records in respect of such offences under this Act to SFIO.
Sec 212(3): Where the investigation into the affairs of a company have been assigned by the CG to S
in the manner and follow the procedure provided in this chapter (Chapter XIV- Inspection, Inquiry and
within such period as may be specified in the order.
Sec 212(4): The director, SFIO shall cause the affairs of the company to be investigated by an investi
who shall have the power of the inspector U/S 217.
Sec 212(5): The company and its officers and employees, who are or have been in employment of th
explanation, documents and assistance to the investigating officer as he may require for conduct of th
As per Sec 212(6), not withstanding any thing contained in the code of Criminal Procedure, 1973, the

Sec 38(1), Sec 46(5), Sec 56(7), Sec 66(10), Seec 140(5), Sec 206(4), Sec 213, Sec 229, Sec 251(1), S
provided in sec 447 of this Act shall be cognizable and no person accused of any offence under those

Unlessa) the public prosecutor has been given an oppurtunity to oppose the application for such release; an
b) Where the public prosecutor opposes the application, the court is satisfied that there are reasonabl
offence and that he is not likely to commit any offence while on bail.
>>> However, a person, who, is under the age of sixteen years or is a woman or is sick or infirm, may
>>> Provided further that the special court shall not take cognizance of any offence referred in point
a) the Director, SFIO; or
b) any officer of the CG authorised, by a general or special order in writing in this behalf by that gove
Sec 212(7) : The limitation on granting of bail specified in Sec 212(6) above is in addition to the limit
any other law for the time being in force on granting of bail
Sec 212(11): The SFIO shall submit an interim report to the CG, if the CG so directs
Sec 212(12): The SFIO shall submit the investigation report to the CG on completion of the investiga
Sec 212(13): Not withstanding anything contained in this Act or in any other law for the time being in
may be obtained by any person concerned by making an application in this regard to the court
Sec 212(14): On receipt of the investigation report, the CG may, after examination of the report (and
direct the SFIO to initiate prosecution against the company and its officers or employees, who are or h
any other person directly or indirectly connected with the affairs of the company.
Sec 212(15): not withstanding anything contained in this Act or in any other law for the time being in
with the special court for framing of charges shall be deemed to be a report filed by a police officer U/
Sec 212(16): not withstanding anything contained in this Act, any investigation or other action taken
CA, 1956 shall continue to be proceeded with under that Act had not been passed.
Sec 212(17)(a): In case SFIO has been investigating any offence under this Act, any other investigat
having any information or documents in respect of such offence shall provide all such information or d
Sec 212(17)(b): The SFIO shall share any information ordocuments available with it, with any investi
authorities, which may be relevant or useful for such investgating agency, SG, Police authority or Inco
matter being investigated or examined by it under any other law.
Security for payment of costs and expenses of investigation(Sec 214 of the CA, 2013)
>> Where an investigattion is ordered by the CG in pursuance of clause (b) of Sec 210(1), or in pursu
The CG may before appointing an inspector under Sec 210(3) or Clause (b) of Sec 213, require the app
as may be prescribed, as it may think fit, for payment of the costs and expenses of the investigation.
>> Such security shall be refunded to the applicant if the investigation results in prosecution.
Firm, body corporate or association not to be appointed as inspector.(Sec 215 of CA, 2013)
Investigation of ownership of Company (Sec 216 of the CA, 2013)
As per Sec 216(1), where it appears to the CG that there is a reason so to do, it may appoint one or m
relating to the company, and its membership for the purpose of determining the true persons.a) Who are or have been financially interested in the success or failure, whether real or apperent,of th
b) Who are or have been able to control or tomaterilly influence the policy of the company.
Sec 216(3): While appointing inspector U/S 216(1), the CG may define the scope of the investigation
the period to which it is to extend or otherwise, and in particular, may limit the investigation to matte
Sec 216(4): subject to the terms of appointment of inspector, his power shall extend to the investiga
existence of any arrangement or understanding which, though not legally binding, is or was observed
relevant for the purpose of his investigation.

Procedure, Power, etc., of inspectors (Sec 217 of CA, 2013)

As per Sec 217(1), it shall be the duty of all officers and other employees and agents including the fo
which is under investigation in accordance with the provisions contained in this chapter, and where th
are investigated U/S 219, of all officers and other employees and agents including former officers, em
such body corporate or a persona) to preserve and to produce to an inspector or any person authorised by him in this behalf all books
as the case may be, relating to the other body corporate or the person, which are in their custody or p
b) Otherwise to give to the inspector all assistance in connection with the investigation which they are
Sec 217(2): The inspector may require any body corporate, other than a body corporate referred in p
produce such books and papers before him or any person authorised by him in this behalf as he may
such information or the production of such books and papers is relevant or necessary for the purpose
Sec 217(3): The inspector shall not keep in his custody any books and papers produced under point (
return the same to the company, body corporate, firm or individual by whom or on whose behalf the b
>> However, the books and papers may be called for by the inspector if they are needed again for a f
As per Sec 217(4), an inspector may examine on oatha) any of the persons reffered to in point (i); and
b) any other person with the prior approval of the CG,
in relation to the affairs of the company, or other body corporate or person, as the case may be, and f
to appear before him personally.
However, in case of an investigation U/S 212, the prior approval or Director, SFIO shall be sufficient un
As per Sec 217(5), not withstanding anything contained in any law for the time being in force or in an
officer of the CG making an investigation under this chapter, shall have all the powers as are vested in
while trying a suit in respect of the following matters, namely:a) the discovery and production of books of account and other documents, at such place and time as
b) Summoning and enforcing the attendance of persons and examining them on oath; and
c) Inspection of any books, registers and other documents of the company at any place.
Sec 217(6)(i): If any director or officer of the company disobeys the direction issued by the Registrar
the officer shall be punishable with imprisonment which may extend to 1 year and with fine which sha
Sec 217(6)(ii): If a director or an officer of the company has been convicted of an offence under this
the date on which he is so convicted, be deemed to have vacated his office as such and on such vaca
an office in any company
Sec 217(7): The notes of any examination under Sec 217(4) above, shall be taken down in writing an
the person examined, and may thereafter be used in evidence against him.
As per Sec 217(8), if any person fails without reasonable cause or refusesa) to produce to an inspector or any person authorised by him in this behalf any books or paper which
b) to furnish any information which is his duty under point (ii) to furnish;
c) to appear before the inspector personally when required to do so under point (iv) or to answer any
in pursuance of that point; or
d) to sign the notes of any examination referred to in Sec 217(7) above.
He shall be punishable with imprisonment for a term which may extend to 6 moths and with fine whic
extend to Rs.1 Lakh, and also with a further fine which may extend to Rs.2000 for every day after the
Sec 217(9): The officers of the CG, SG, Police or statutory authority shall provide assistance to the in
inspection, inquiry or investigation, which the inpector may, with the prior approval of the CG, require
Sec 217(10): The CG may enter into an agreement with the Govt of a foreign state for reciprocal arra
inquiry or investigation under this Act or under the corresponding law in force in that state and may, b

this chapter inrelation to a foreign state with which reciprocal arrangements have been made subject
and qualifications as may be deemed expedient for implementing the agreement with the state.
Sec 217(11): Notwithstanding anything contained in this Act or in the code of Criminal Procedure,197
the affairs of the company, an application is made to the competent court in India by the inspector st
available in a country or place outside India, such court may issue a letter of request to a court or an a
deal with such request, to examine orally, or otherwise, any person, supposed to be acquinted with th
statement made in the course of such examination and also to require such person or any other pers
be in his possession pertaining to the case, and to forward all the evidence so taken or collected or th
collected to the court in India which had issued such letter of request.
>>> Provided that, the letter of request shall be transmitted in such manner as the CG may specify in
>>> provided further that every statement recorded or document or thing received under this sub-se
during the course of investigation.
>>> According to the Companies (inspection, Investigation and inquiry) Rules, 2014, 'the letter of req
manner as specified by the Ministry of Corporate Affairs.
Sec 218(12): Upon receipt of a letter of request from a court or an authority in a country or place out
that country or place for the examination of any person or production of any document or thing in rela
in that country or place, the CG may, if it thinks fit, forward such letter of request to the court concern
before it and record his statement or cause any document or thing to be produced, or send the letter
who shall thereupon investigate into the affairs of company in the same manner as the affairs of a com
the inspector shall submit the report to such court within 30 days or such extended time as the court
>>> Provided that, the evidence taken or collected as above or authenticated copies thereof or the th
to the CG for transmission, in such manner as the CG may deem fit, to the court or the authority in co
letter of request.
power of inspector to conduct investigation into affairs of related companies, etc. (Sec 219
Investigation into affairs of related companies:
a) any other body corporate which is, or has at any relevant time been the company's subsidiary com
of its holding company;
b) any other body corporate which is, or has at any relevant time been managed by any person as MD
the MD or the manager of the company;
c) any other body corporate whose BOD's comprises niminees of the company or is accustomed to ac
of the company or any of its directors; or
d) any person who is or has at any relevant time been the company's MD or manager or employee.
Report of Inspector:

The inspector shall, subject to the prior approval of the CG, investigate into and report on the affairs o

in so far as he considers that the results of his investigation are relevant to the investigation of the aff
Seizure of documents by inspector (Sec 220 of the CA, 2013)
Seizure of books and papers [Sec 220 (1)]:
>> Where in the course of investigation under this chapter, the inspector has reasonable grounds to b
any company or other body corporate or MD or manager of such company are likely to be destroyed, m
inspector maya) enter, with such assistance as may be required, the place or places ehere the such books and pape
b) seize books and papers as he considers necessary after allowing the company to take copies of, or
the purposes of his investment.
Time period for keeping books and papers [Sec 220 (2)]:

>> The inspector shall keep in his custody the books and papers seized under this section for such a

as he considers necessary and thereafter shall return the same to the company or the other body corp
the manager or any other person from whose custody or power they were seized.
Extracts of books and papers:
>> The inspector may, before returning such books and papers as aforesaid, take copies of, or extrac
or any part thereof or deal with the same in such manner as he considers necessary.
The provisions of the Code of criminal procedure, 1973 relating to searches or seizures shall apply, mu
made under this section.
Inspector's report (Sec 223 of the CA, 2013)
Submission of interim report and final report [Sec 223(1)]:
>> An inspector apointed under this chapter (Chapter XIV- Inspection, Inquiry and Investigation) may
reports to that governmen, on the conclusion of the investigation, shall submit a final report to the CG
Report to be written or printed [Sec 223(2)]:
>> Every report made under sub section (1) above, shall be in writing or printed as the CG may direct
Obtaining copy or report [Sec 223(3)]:
>> A copy of the above report may be obtained by making an application in this regard to the CG.
Authentication of report [Sec 223 (4)]:
>> The report of any inspector appointed under this chapter shall be authenticated eithera) by the seal of the company whose affairs have been investgated; or
b) by a certificate of a public officer having the custody of the report, as provided U/S 76 of the Indian
and such report shall be admissible in any legal proceeding as evidence in relation to any matter cont
Exceptions [Sub section (5)]:
>> Nothing in this section shall apply to the report referred to in Sec 212 of the CA, 2013.
Actions to be taken in pursuance of inspector's report [Sec 224 of the CA, 2013]
Sec 224(1): If, from an inspector's report , made U/S 223, it appears to the CG that any person has, in
body corporate or other person whose affairs have been investigated under this chapter been guilty o
CG may prosecute such person for the offence and it shall be the duty of all officers and other employ
the CG the necessary assistance in connection with the prosecution.
As per Sec 224(3), if from any such report as aforesaid, it appears to the CG that proceedings ought,
or any body corporate whose affairs have been investigated under this chaptera) For the recovery of damages in respect of any fraud, misfeasance or other misconduct in connectio
the management of the affairs, of such company or body corporate; or
b) for the recovery of any property of such company or body corporate which has been misapplied or
the CG may itself bring proceedings for winding up in the name of such company or body corporate.
Sec 224(4): The CG, shall be indemnified by such company or body corporate against any costs or ex
any proceedings brought by virtue of Sec 224(3)
Expenses of investigation (Section 225 of the CA, 2013)
As per Sec 225(1), the expenses of, and incidental to, an investigation by an inspector appointed by
Inquiry and investigation) other than expenses of inspection U/S 214(Security for payment of costs an
in the first instant by the CG, but shall be reimbursed by the following persons to the extent mentione
a) any person who is convicted on a prosecution instituted, or who is ordered to pay damages or resto
to the extent that he may in the same proceedings be ordered to pay the said expenses as may be sp
ordering him to pay such damages or restore such property, as the case may be;
b) any company or body corporate in whose name proceedings are brought as aforesaid, to the exten

recovered by it as a result of such proceedings;

c) unless, as a result of the investigation, a prosecution is instituted U/S 224,1) A company, body corporate, MD or manager dealt with by the report of the inspector; and
2) the applicants for the investigation, where the inspector was appointed U/S 213,
to such extent as the CG may direct.
Sec 225(2): Any amount for which a company or body corporate is liable under clause (b) above shal
property mentioned in that clause.
Investigation etc of foreign companies ( Sec 228 of the CA, 2013):
>> The provisions of this chapter(chapter XIV-Inspection, Inquiry and Investigation) shall apply mutat
in relation to foreign companies.
Penaulty for furnishing false statement, mutilation, destruction of documents(Sec 229 of t
>> Where a person who is required to provide an explanation or make a statement during the course
or other body corporate which is also under investigation,a) destroys, mutilates or falsifies, or conceals or tampers or unauthorisedly removes, or is a party to t
concealment or tampering or unauthorised removal of documents relating to the property, assets or a
b) makes, or is a party to the making of, a false entry in any document concerning the company or bo
c) Provides an explanation which is false or which he knows to be false, he shall be punishable for frau

Relevant sections of the CA, 1956 applicable for examinations

Investigation of company's affairs in other cases (Sec 237 of the CA, 1956)
Without prejudice to its powers U/S 235, the CGShall appoint 1 or more competent persons as inspectors to investigate the affairs of a company and t
may direct, ifi) 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 CG
may do so if, in its opinion or in the opinion of the Company law Board, there are circumstances sugge
i) that the business of the company is being conducted with intend to defraud its creditors, members
for a fradulent or unlawful purpose or in a manner oppressive of any of its members, or that the comp
purpose;
ii) that persons concerned in the formation of the company or the management of its affairs have in c
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 affair
information relating to the calculation of the commission payable to a managing or other director, or t
Investigation of ownership of company [Sec 247 (1A) of the CA, 1956].
>> According to Sec 247(1A), the CG shall appoint 1 or more inspectors under section 247(1), if the c
before it, declares by an order that the affairs of the company ought to be investigated as regards the
relating to the company, for the purpose of determing the true personsa) Who are or have been financially interested in the success or failure, whether real or apparent, of t
b) Who are or have been able to control or materially to influence the policy of the company.
Imposition of restrictions upon shares and debentures and prohibition of transfer of share
>> Where it appears to the CLB, whether on a reference made to it by the CG in connection with any
any person in this behalf, that there is good reason to find out the relevant facts about any shares(Wh
opinion that such facts cannot be found out unless the restrictions specified in sec 250(2) are imposed
be subject to the restrictions. Such restrictions shall be for such period not exceeding 3 years as may

Restrictions that may be iposed under sec 250(2) are as follows:

a) any transfer of those shares shall be void;
b) where those shares are to be issued, they shall not be issued; and any issue thereof or any transfer
c) no voting right shall be excercisable in respect of those shares;
d) no further shares shall be issued in respect of those shares;
e) except in a liquidation, no payment shall be made of any sums due from the company on those sha
As per Sec 250(3), Where a transfer of shares in a company has taken place and as a result thereof a
of the company is likely to take place and the CLB is of the opinion that any such change would be pre
direct thata) the voting rights in respect of those shares shall not be excercisable for such period not exceeding
b) no resolution passed or action taken to effect a change in the composition of the BOD's before the
by the CLB.
>> The CLB may, by order at any time, vary or rescind any order made by it. Any order made by the C
within 14 days of making the order.
>> Any person who excercises or purports to exercise any right to shares issued or to be issued or vo
shares or transfers any shares, which are subject to CLB's order, he shall be punishable with imprisonm
with fine upto Rs.50,000 or with both.
>> A failure by any holder of shares which are subject to restrictions as above to give notice to a pers
shares without having knowledge of the restrictions is also expected to the same punishment.
>> Where shares in any company are issued in contravention of such of the restrictions as may be ap
and every officer of the company who is in default, shall be punishable with fine which may extend to
>> A prosecution shall not be instituted under this section except by, or with the consent of, the CG.
>> This section shall apply in relation to debentures as it applies in relation to shares.
Voluntary winding up of company, etc., not to stop investigation proceedings [Sec 250A]
An investigation may be initiated U/S 235, 237, 239 or 247 notwithstanding thata) an application has been made for an order U/S 397 or Sec 398; or
b) the company has passed a special resolution for voluntary winding up,
and no investigation so initiated shall be stopped or suspended by reason only of the fact that an app
a special resolution referred to in clause (b) has been passed.

Chapter 7
Compromises, Arrangements and Amalga

Compromise and Arrangement

>> Though Companies Act defines "Arrangement, it does not define "Compromise".These terms have
>> 'Compromise' means an amicable agreement between parties to a controversy to settle their diffe
>> Adjudication on the basis of an exact ascertainment of the opposing rights.
>> In a compromise, " the parties agree to try to settle it between themselves by a give-and-take arra
>> For the purpose of a compromise, it has been held that it is but essential that each party thereto s
concessions.
>> Thus, Compromise envisages the existence of a dispute, e.g. one relating to rights. But the word "
should not be limited to something analogous to a compromise.
>> Section 390(b) provides that the expression 'arrangement' includes a reorganisation of the share c
shares into shares of different classes or by both these methods.
>> An arrangement may also involve debenture holders being given an extension of time for paymen
exchanging their debentures for the claims and the balance in shares or debentures of the company;
Preference shareholders giving up their rights to arrears of dividends, further agreeing to accept a red

Reconstruction
>> Reorganisation or arrangement is said to have taken place only when 1 company is involved.
>> Amalgamation, on the other hand, is of 2 or more companies
>> The term " Reconstruction" includes reorganisation, arrangement, amalgamation etc., and thus is
>> A reconstruction is commonly said to have taken place when a company resolves to wind up its bu
with only the old shareholders as its members to take over its undertaking, the rights of shareholders
alloted shares in the new company.
>> In that case, the old company ceases to exist in point of law, and its assets are transferred to the n
>> It would be, nonetheless, a reconstruction even if all the assets might not pass to the company, or
might not pass to the company, or all the shareholders of the transferor company might not be shareh
liabilities of the transferor company might not be taken over by the transferee company.
>> A reconstruction, in such a case, would imply that substantially the same persons would carry on t
Why Reconstruction?
>> A reconstruction may be necessary for the following purposes:
1) To extend the operations of the company:
>> If the shares are fully paid up and further capital is desired to be raised, the shareholders in the ol
in the new company so that by calling up the uncalled amount the company would have the funds it w
2) As a method for altering the Memorandum of Association:
>> When such an alteration cannot be undertaken U/S 17 i.e., in a case where the new company desi
and above those in the old company.
3) For purpose of Reorganisation:
>> The term "reorganisation" is usually applied to an arrangement to alter or modify the rights of sha
4) In order to amalgamate with one or more companies:
>> Amalgamation is the blending of 2 or more companies into a single undertaking, the shareholders
shareholders in the new company which is to carry on the blended undertaking.
>> To achieve this objective, either a new company may be formed to take over the business of the e
existing companies be taken over by one of the existing companies.
5) Reconstruction or Arrangement undertaken for bringing the capital structure of companies into line
>> The Act requires that the capital of a company must consist only of equity and preference shares.
>> Companies having deferred or other forms of capital, therefore, are obliged to conform to the lega
scheme of reconstruction.
How Reconstruction is effected?
Reconstruction may be carried out:
a) by sale of the company under the powers contained in its Memorandum of Association;
b) by a scheme of arrangement U/S 391;
c) by acquiring all or a majority of the shares in another company U/S 395
d) by a compulsory amalgamation of companies in the public interest by an order of the CG U/S 396;
e) by a sale U/S 494(Members Voluntarily winding up); or U/S 507(Creditors Voluntarily winding up); in
latter case the sanction either of the court or of the committee of inspection is necessary.
f) by a scheme of arrangement with creditors only; U/S 517 (Voluntary winding up both by members a
3/4 ths in value of creditors are necessary.

Key Points
What is Compromise?
>> Amicable agreement between parties to a controversy to settle their differences.

What Reconstruction includes?

>> Reorganisation, Arrangements and Amalgamation
Reasons for Reconstuction
i) To extend the operations of the company
ii) For altering MOA
iii) For the purpose of Reorganisation
iv) in order to amalgamate with 1 or more companies
v) For bringing capital structure in accordance with the Act
Methods of Reconstruction
i) By sale of the company
ii) By a scheme of arrangement U/S 391
iii) By acquiring all or a majority of shares in another company U/S 395
iv) By compulsory amalgamation in Public interest by CG.
v) By sale U/S 494
vi) By a scheme of arrangement with creditor

Sale powers in the Memorandum:

>> Where a company has power in the objects clause of memorandum, it may dispose of the whole o
>> After the sale, the company will be wound up and the shares in the new company will be distribute
holdings in the old company.
>> When a company is not in a position to raise further capital and it cannot otherwise carry on its bu
considered not necessary, the company may resort to such a course.
Reconstruction U/S 391:
>> In order to facilitate a reconstruction or amalgamation, it is frequently desirable or necessary for t
arrangement with its creditors or any class of them or/and members or any class of them.
>> Section 391 lays down the procedure by which the court's assistance may be invoked in this respe
>> According to section 391(1) of the Act, when a compromise or arrangement between parties afo
to the court:
i) the company;
ii) any creditor;
iii) any member; or
iv) in the case of company which is being wound up, the liquidator.
>> On such application, the court may order a meeting of the creditors or class of creditors or the me
called, held and conducted in such manner as the court directs.
>> Further as per Sec 391(2), if at the meeting, a majority in number representing 3/4 in the value o
as the case may be, present and voting either in person or by proxy, where proxies are allowed (unde
compromise or arrangement, it is, if sanctioned by the court,binding on all the creditors or class of cre
the case may be.
>> The compromise or arrangement is also binding on the company or, if the company is being woun
>> But, before according the aforesaid sanction, the court must satisfy itself that the company or any
application, has disclosed to the court by an affidavit or otherwise all the material facts relating to the
company, the latest auditor's report on the accounts of the company, the pendency of any investigati
to Sec251, etc.[Proviso to Sec 391(2)]
>> You have observed above that if the requisite 3/4ths majority is obtained in favour of a scheme of
members, liquidators and contributories " If sanctioned by the court".

>> This implies that the court may not sanction, i.e. its power is discretionery and not obligatory.
>> Moreover, under proviso to sec 391(2), the court is under an obligation not to sanction any compro
material facts relating to the company have been made.
>> This proviso is designed as a safeguard against any compromise placed by consideration of the sh
>> Therefore, the claim of minority, on proof that directors had failed to disclose material facts regard
and the court would not accept the contention if there be any, that the scheme has been duly approve
disclosure of all material facts had not been made at the meeting convened by the court U/S 391(1).
>> Sec 391(3): An order of the court, made as aforesaid shall not be effective until a certified copy o
>> Sec 391(4) & (5): copy of the order is also required to be annexed to every copy of the memor
of the company issued after the certified copy of the order has been filed with Registrar; in default the
shall be punished with fine which may extend to Rs.100 for each copy in respect of which default is m
>> Sec 391(6): The court may, at any time after an application has been made to it under this sectio
or proceeding against the company on such terms as the court thinks fit, until the application is finally
>> Section 391(7): An appeal shall lie from any order made by a court excercising original jurisdictio
appeals from the decisions of that court, or if more than 1 court is so empowered, to the coourt of infe
>> Before giving its sanction, the court must be satisfied that the statutory provisions have been com
have been fairly represented by those who attended, and that the statutory majority in approving the
class if professes to represent.
>> The arrangement must also be such as a man of business would reasonably approve, as fair and r
>> The court cannot sanction any scheme, which involves the doing of an act, which is ultra vires the
>> But the memorandum can be changed if members consent.
>> It should be noted that a scheme, not certified by the Regerve Bank, cannot be sanctioned by the
the Banking Regulation Act, 1949).
Powers of Courts: Apart from the power of sanctioning a compromise or arrangement the court has
i) to stay, while apllication U/S 391 is pending the commencement or continuation or any suit or proce
ii) to supervise the carrying out of the compromise or arrangement [Sec 392(1)(a)]. Only the high co
a district court has no such power.
iii) to modify the compromise or arrangement for the proper working thereof [Sec 391(1)]; and
iv) to order winding up of the company, if it is satisfied that the compromise or arrangement is unwor
It may be noted that only High courts have powers (iii) and (iv).
a) Circulation of information to creditors or members:
>> Sec 393 provides for the circulation of a statement, which must explain the obejcts of the propose
>> The statement should accompany the notice of the meeting to be called to consider the scheme.
>> The statement should accompany the notice of the compromise or arrangement and explain its eff
>> In particular, the statement must state any material interest of the directors, MD or manager of th
as members or creditors and the effect on those interests of the compromise or arrangement, if and in
thereof on the like interests of other persons.
>> If the notice calling the meeting is given by an advertisement, a statement must be furnished to s
application being made in the manner indicated in the notice.
>> in the event of a default, the compan and the officers responsible thereof would be punishable wit
>> It is the duty of every director, MD, manager and trustee for debentureholders to serve notice on t
may be necessary for the purpose of the section; a default is punishable with a fine which may extend
b) Facilitating Reconstruction and amalgamation:
>> In order to facilitate a reconstruction or amalgamation when application is made to the court U/S 3
the transfer of the whole or part of the property of one company (Called "Transferor company") to ano

the court may make an order U/S 394 dealing with the following matters:
i) the transfer to the transferee company of the whole or any part of the undertaking, property or liabi
ii) the allotment or appropriation by the transferee company of any shares or debentures, policies, etc
iii) the continuation by or against the transferee company of any legal proceedings pending by or aga
iv) the dissolution, without windingup, of any transferor company;
v) The provision to be made for persons who dissent from the scheme, and
vi) any other incidental matter.
>> The first proviso, to sec 394(1) restraints the court from accepting a compromise or arrangeme
before receiving a report from the Company Law Board or the Registrar that the affairs of the transfero
prejudicial to the interest of its members or to public interest.
>> Further under second proviso, the order for the dissolution of the transferor company cannot be m
the books and papers, has reported to the court that the affairs of the company had not been conduct
to public interest.
Note: A transferor company includes any body corporate whether or not a company under the Compa
only a company within the meaning of this Act. This distinction is presumablydesigned to facilitate tra
by schemes of reconstruction or amalgamation.
>> Where, an order is made U/S 394, every company in relation to which the order is made must file
registration with 30 days after the order is made.
Section 319:
>> In the event of the whole or any part of the undertaking of the company being transferred, the dir
any compensation for loss of the office or by way of consideration for retirement.
They may, however, receive such compensation from the transferee company or from any other perso
the payment proposed, have been disclosed to the members of the company and have been approved

>> An order U/S 394 does not transfer automatically a contract of personal services, which are in thei
( Previously existing between an individual and the transferor company) to the transferee company.
>> Sec 394A make it obligatory on the part of the court to serve notice of every application made to i
consideration the representations, if any, made to it by the Government before passing any order und
>> The objective is to "enable the government to study the proposal and to raise such objections the
information available with it and also to place the court in possession of certain fatcs which might not
it so that the interests of the investing public at large may be fully taken into account by the court bef
>> The MCA vide General circular No. 53/2011 dated 26th July, 2011 has issued guidelines for the Reg
streamline the procedure in the matter of scheme of arrangement / amalgamation U/S 391-394 of the
guidelines on the matter.
>> It may be noted that section 394A, which provides for notice to the CG does not apply to proceedi

Key Points

Who may apply to court

>> i) Company
ii) Creditor
iii) Member
iv) The liquidator, if company is being wound
After filing application
>> meeting to be called, held and conducted by the order of the court.
During the meeting
i)Majority in number representing 3/4 agree to any compromise or arrangement and if sanctioned by t
ii) Person making the application has disclosed to the court by an affidavit or otherwise all the meteria
Order by Court
i) Certified copy of it shall be filed with Registrar

ii) Copy of order to be annexed to every copy of MOA or any other document as the case may be

Acquisition or amalgamation by shares purchase:

>> Of the various methods of amalgamation, this is the simplest method.
>> A company may acquire business and control of another company not by amalgamation but by ac
>> The consideration for acquisition may be paid either in cash or shares or both.
>> Sec 395 provides a means for the compulsory acquisition of the shares of the dissenting minority
unreasonably high price for its shares.
>> under the section 395, a scheme of contract involving the transfer of shares or any class of shares
of the holders of such shares by the company seeking to acquire the shares.
>> The scheme or contract must then be approved by the holders of not less than 90% in value of the
of the offer (by the transferee company).
>> Where, however, such shares which are to be transferred are already held by the offeror (i.e tranf
value greater than 10% of the aggregate of values of all the shares of the transferor company, the ter
all other shares and the scheme or contract must not only be approved by 9/10th in value of such hold
>> When these conditions have been satisfied, the transferee company may give notice in the prescr
expressing its desire to aquire his shares.
>> This notice, if decided to be given, must be served within 2 months after the expiry of the period o
>> If such notice is given, the transferee company is entitled and bound to acquire these shares on th
dissenting shareholder applies to the court within 1 month from the date of the notice, and the Court
Sec 395(3):
>> But, if the transferee company has served the aforesaid notice upon the dissenting shareholders a
application has been made, but the Court has not ordered to the contrary, the transferee company mu
notice to the transferor together with an instrument of transfer executed by the transferee company a
appointed by the transferee company.
>> The transferee company must pay or transfer to the transferor company and on behalf of the shar
company.
>> The transferee company must pay or transfer to the transferor company the amount or other cons
shares, which the transferee company is entitled to acquire.
>> The transferor company must thereupon register the transferee company as the holder of those sh
registration, inform the dissenting shareholders of the fact of such registration and of the receipt of th
price payable to them by the transferee company.
Sec 395(4):
>> All sums of money and any other consideration received by the transferor company from the trans
persons entitled to the shares inrespect of which they have been received and until disbursed, these a
>> These are to be paid to the shareholders against the deposit of relevant share certificates.

>> In relation to every offer of a scheme or contract involving the transfer of shares or any class of sh
company, the following provisions are applicable:
1) Every such offer of every circular containing such offer or every recommendation to the member of
offer must be accompanied by such information as may be prescribed.
2) Every offer must contain a statement by or on behalf of the transferee company, disclosing the ste
be available.
3) every circular containing or recomending acceptance of such an offer should be first presented to t
circularised until it has been registered.

4) The registrar may refuse to register any such circular which does not contain the information requir
sets out such information in a manner likely to give a false impression.
5) Against as order of the Registrar refusing to register any such circular, an appeal lies to the Court.
6) Whosoever issues a circular mentioned in paragraph (3) above, which has not been registered, sha
>> Further, to safeguard the interest of dissenting shareholders, Sec 395(3) imposes an obligation on
whose shares have been taken over, as to the price payable to them within 1 month of the date of reg
company and of the receipt of the amount or other consideration representing the price.
>> When all the shares of the company have been agreed to be transferred, the directors, qualificatio
properly qualified to act as directors, have been appointed.

Key Points:

Amalgamation by shares purchase

By acquiring majority of shares in another company
Scheme of contract involving transfer of shares
First to be offered to holders of such shares
Scheme of contract must be approved by
Holders of not less than 90% in value of shares concerned within 4 months from the date of offer.
After satisfying the conditions
Transferee company may give notice to the dissenting shareholder expressing its desire to acquire his
When to send notice?
Within 2 months after the expiry of above 4 months
If dissenting shares doesn't apply to Court within 1 month from the date of notice
Transferee company is entitled and bound to acquire these shares on the terms approved by the majo
Payment for consideration
Transferee company must pay the amount of consideration representing price payable for the shares
Registration of Shares
The transferor company must register the transferee company as holders of these shares and inform t
registration.

Power of the CG to provide for amalgamation of companies in the public interest:

>> Sec 396(1) provides that where in the "public" interest it appears to the CG that amalgamation o
in the official gazette, provide for the amalgamation of the 2 companies into a single company with su
authorities and privileges and with such liabilities, duties and obligations as may be specified in the no
>> U/S 396(2), the order aforesaid may provide for the constitution by or against the transferee com
any transferor company and may also contain such incidental, consequential and supplemental provis
Section 396(3)
>> Every member or creditor (including a debenture holder) of each of the companies before the ama
interests in or rights against the amalgamated company as he has in the company of which he was or
>> If his interests in or rights against the amalgamated company are less than his original interests e
receive compensation from the amalgamated company to the extent these have been reduced.

>> The prescribed authority would assess the amount of compensation receivable.
>> Sec 396(3A): Any person aggrieved by any assessment of compensation made by the prescribed
date of publication of such assessment in the official gazette, prefer an appeal to the CLB and thereup
made by the CLB.
>> Further, as per Sec 396(4), the CG would not make such an order for amalgamation unless:

a) the draft copy of the proposed order has been sent to each of the companies concerned.
b) the time for preferring an appeal U/S 396(3A) has expired, or where any such appeal has been pref
c) the CG has considered the suggestion, objection or modification to the same made by the said com
creditor or class of creditors thereof, within a period fixed by the CG.
>> The expression "Public interest" has not been defined either by this Act, or by the General clauses
>> It is a very wide expression and comprehends inter alia, i) economic welfare of the community; ii)
>> Without prejudice to the generality of Sec 396, The MCA vide General Circular No. 16/2011 dated
cases, simpler procedures shall be adopted for the amalgamation of Government companies U/S 396
1) a) Every CG company which is applying to the CG for amalgamation with any other Government co
prescribed in this circular, shall obtain approval of the cabinet i.e. Union council of Ministers to the effe
the 'public interest'.
b) In the case of SG companies, the approval of the state council of ministers would be required.
c) Where both Central and SG companies are involved, approval of both state cabinet(s) and Centr
2) a) A Government company may, by a resolution passed at its general meeting decide to amalgama
to such transfer by a resolution passed at its general meeting ;
b) Any 2 or more Government Companies may, by a resolution passed at any general meetings of
Government company.
3) Every resolution of a Government company under this section shall be passed at its general meetin
such resolution shall contain all particulars of the assets and liabilities of amalgamating government c
4) Before passing a resolution under this section, the Government company shall give notice thereof o
copy of the proposed resolution to all the members and creditors.
5) A resolution passed by a Government Company under this section shall not take effect until
i) the assent of all creditors has been obtained, or
ii) the assent of 90% of the creditors by value has been received and the company certifies that there
6) The resolutions passed by the transferor and transferee companies along with written confirmation
then be submitted to the CG which shall, if it is satisfied that all the requirements of section 396 anf o
notification in the Gazette that the said amalgamation shall take effect.
7) The order of the CG shall provide:a) for the transfer to the transferee company of the whole or any part of the undertaking, property
b) that the amalgamation of companies under the foregoing sub-sections shall not in any manner
obligations and any legal proceedings that might have been continued or commenced by or agains
may be continued or commenced by, or against, the concerned resulting company, or transferee c
c) for such incidental, consequential and supplemental matters as are necessary to secure that the am
8) The cabinet decision referred to in para (1) above may precede or follow the passing of the resoluti
9) When an order has been passed by the CG under this section, it shall be a sufficient conveyance to
10) Where 1 government company is amalgamated with another government company, under those
company i.e. transferor company, shall stand cancelled and that company shall be deemed to have be
corporate body.
11) Where 2 or more Government companies are amalgamated into a new government company in a
company so formed is duly registered by the Registrar, the registration of each of the amalgamating c
corporate body.
12) the amalgamation of companies under the foregoing sub-sections shall not in any manner whatso
any legal proceedings that might have been continued or commenced by or against any erstwhile com
commenced by, or against, the concerned resulting company, or transferee company, as the case ma
13) The registrar shall strike off the names of every Government Company deemed to have been diss

Key Points

Amalgamation of 2 companies is essential in Public interest

The CG may through Notification in official Gazette provide for the amalgamation of two companies in
Interest or rights of members or creditors in amalgamated company are less than his origi
Entitled to receive compensation from the amalgamated company to the extent their rights or interes
Amount of compensation
Assessed by prescribed Authority
Person aggrieved by assessment of compensation
i) prefer an appeal to CLB within 30 days from the date of publication of such assessment in the officia
ii) Thereupon, the compensation shall be assessed by CLB.

Reconstruction U/S 494:

>> The section gives complete power of a special type for sale of business in winding up.
>> A company which is proposed to be, or in the course of being wound up, voluntarily, may sell its b
received, whether in the form of shares, policies or other like interest in the transferee company, may
company that is being wound up, or the members of the transferor company may receive any other b
>> To give effect to it the following condition must exist:
i) the transferor company should be in process of being wound up as a members' voluntary winding up
ii) there should be a proposal to transfer or sell the whole or part of its business or property to anothe
iii) the transferor company should approve, by a special resolution, the proposal to confer authority, w
put the above scheme or arrangement into effect.
>> The liquidator usually gives notice to the shareholders of the transferor company as regards the n
amount payable by them thereon and the time within which they must apply for the shares.
>> The sale or arrangement under this provision is binding on all the members whether they agree to
>> If any member does not vote in favour of the special resolution, he may address to the liquidator h
passing of the special resolution and require him:
a) to abstain from carrying the resolution into effect; or
b) to purchase his interest at a price to be determined by agreement or arbitration in the manner prov
>> The liquidator has the right to exercise either of the above options.
>> Should he elect to purchase, he must raise the money in such a manner as determined by the com
>> it must be paid to the company being dissolved.
>> It is common practice to make a provision in the scheme, enabling the liquidator to sell the shares
prescribed time and to distribute the sale proceeds among them.
>> The transferor company may pass such a special resolution either before or concurrently with the
appointment of a liquidator.
>> After an order for winding up of the company by or subject to the supervision of the court has bee
not be valid unless sanctioned by the Court.
>> The Arbitration Act, 1940, will govern arbitration, under this section for determining the purchase
>> Section 494 makes no provision as regards the rights of creditors who felt that they have been a
>> As such the only remedy available to them is to present a petition either for compulsory winding u
court within a year of the making of the order.
>> The impact of Sec 494 on the sale of the whole or part of the business or property is that a sale u
company.
>> U/S 507, it is provided that the procedure U/S 494 would apply to a creditors, voluntary winding up

>> The liquidator in the former case will have to exercise the power only with the sanction of the cou
>> At times an existing company may require further capital to make up the deficiency caused by los
capital may not be available to it.
>> In such a case, it may resort to reconstruction U/S 494 by constituting a new company to take ove
>> The members of the existing company will be allotted partly paid shares in the new company in lie
>> Fresh capital after wards will be raised by calling the unpaid amount of the shares.
>> The shareholders of the existing company however will not be bound to take the partly paid share
they may call for the purchase of their interest or for giving up the scheme.
>> The shareholders concurring in the scheme, however, shall have to pay whenever tha call is made

Key Points

Selling of a business
By a company (co.) which is being wound up voluntarily
Compensation in lieu of it
i) In the form of shares, policies or other like interest in transferee co.
ii) Mau be distributed among the shareholders of the transferor co.
Conditions
i) Co. being Wound up Voluntarily
ii) Proposal to transfer or sell the whole or part of its business
iii) Approval of proposal by special resolution (SR) by transferor co. to put the above scheme or arrang
Sale or Arrangement
Shall be binding on all the members of the transferor co.
If member does not vote in favour of SR
May express his dissent in writing to the liquidator within 7 days after passing SR and may require:
i) to abstain from carrying the resolution into effect
ii) To purchase his interest
If liquidator elects to purchase the member's interest
Purchase money shall be paid before the co. is dissolved and be raised by the Liquidator in manner pr
If order is made within a year for winding up the co. by the Court
SR shall not be valid unless it is sanctioned by the Court.

Reconstruction U/S 517:

>> It is another form reconstruction pursuant to an arrangement with the creditors when the compan
>> Under this section, any arrangement entered into between a company about to be wound up or in
on the company and its creditors provided it has been:
a) approved by a SR of the company; and
b) agreed to by 3/4ths in number and value of the creditors.
>> Any creditor or contributory may, however, within 3 weeks from the completion of arrangement, a
confirm or set aside the arrangement.
Note: Reconstuction U/S 517 is not commonly resorted to in as much as it might be difficult to secure
referred to in paragraph (b) above.
Conditions prohibiting reconstruction or amalgamation of company:
>> According to Sec 376 of the Act, where any provision in the memorandum or articles of a company
or by the BOD's of, the company, or in an agreement between the company and any other person, wh
Act, prohibits the reconstruction of the companyor its amalgamation with any body corporate or bodie

condition that the MD or manager of the company is appointed or reappointed as MD or manager of th

from amalgamation, as the case may be shall become void with effect from the commencement of thi

Preservation of books and papers of amalgamated company [Sec 396A]:

>> The books and papers of a company which has been amalgamated with or whose shares have bee
of part VI cannot be disposed of without the prior permission of the CG which may appoint a person to
whether they contain any evidence of commission of an offence in connection with promotion or form
first-mentioned company or its amalgamation or the acquisition of its shares.
>> It is a measure introduced to prevent accounts and records of a company being disposed of follow
incriminating evidence.

Amalgamation of Two Companies-Steps to be taken by both

Procedure for amalgamation of the companies: Proceedings for an amalgamation by the transferor an
simultaneously. These are as follows:
In the Transferee Company
In the
1
To chek up whether the memorandum contains the
The same as in
power of amalgamation; if not, then to carry out the
proceedings for its alteration and to obtain CLB's
Confirmation.
2
To prepare the draft scheme including exchange ratio
The same as in
and get it approved by the Board's meeting.
3
To apply to the Court for directions to convene the
The same as in
General meeting by way of Judge's summons [Rule 67
of the companies (Court) Rules, 1959]; such directions
would be in respect of matters set out in Rule 69.
4 >> To send notice for general meeting to every member
along with a statement setting forth the terms of the
Compromise or arrangement and explaining its effect
and particularly stating any material interests of the
directors, MD or manager, whether in their capacity as
The same a
such or as members or creditorsm or otherwise and the
the effect on those interests on the amalgamation
and insofar as it is different from the effect on the like
interests, of other persons [Sec 393(1)(a)]. In case of the
said notice being given through advertisement, to either
include the aforesaid statement or to notify the place for
Obtaining the copies of such statement (Sec 393(1)(b));
these can be obtained free of charge on making an application
therefore in the manner indicated in the notice [Sec 393(3)]
>> In case of debenture holder's rights being effected by amalgamation,
The said statement to give like information and explanation regarding
the trustees under the deed [Sec 393(2)]
>> [ Rules 69 to 76 of the Companies (Court) Rules to be noted in this connection.]
5 To hold the general meeting and pass the resolution approving the
The sam
draft scheme of amalgamation subject to the confirmation of the

High Court, resolution to be passed by a majority in number

representing 3/4ths in value of the members as required by sec 391.
To move the High Court for approval of the scheme, and for the purpose
to supply it with material facts as required by the proviso to sec 391(2).

On receipt of the Court's order, to file the certified copy thereof

with the registrar within 30 days after the making of the order
[Sec 393(3)]; otherwise it would not be effective.
A copy of the Court's order also to be annexed to every copy of the
memorandum or instrument, which defines the constitution of the company,
issued after the certified copy of the order has been filed with the
Registrar. [Sec 391(4)]
To proceed to effect the scheme of amalgamation as per the scheme
approved and the directions given by the High Court by issuing suitable
notice to shareholders and persons concerned and to allot shares and take
over the business as per the scheme.

To move the H
Also to supp
Fu
th
in
in
t

The same a

The same as

To do the sam
of allotmen
question of t

Note: in this chapter, wherever the word 'Act' is used, it refers to Companies Act, 1956.