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Introduction

The word 'Company' is an amalgamation of the Latin word 'Com' meaning "with or together"
and 'Pains' meaning "bread". Originally, it referred to a group of persons who took their
meals together. A company is nothing but a group of persons who have come together or
who have contributed money for some common person and who have incorporated
themselves into a distinct legal entity in the form of a company for that purpose. Under
Halsbury’s Laws of England, the term "company" has been defined as a collection of many
individuals united into one body under special domination, having perpetual succession
under an artificial form and vested by the policies of law with the capacity of acting in
several respect as an individual, particularly for taking and granting of property, for
contracting obligation and for suing and being sued, for enjoying privileges and immunities
in common and exercising a variety of political rights, more or less extensive, according to
the design of its institution or the powers upon it, either at the time of its creation or at any
subsequent period of its existence. However, the Supreme Court of India has held in the
case of State Trading Corporation of India v/s CTO that a company cannot have the status of
a citizen under the Constitution of India.

A company as an entity has several distinct features which together make it a unique
organization. The following are the defining characteristics of a company :-

Separate Legal Entity :


On incorporation under law, a company becomes a separate legal entity as compared to its
members. The company is different and distinct from its members in law. It has its own
name and its own seal, its assets and liabilities are separate and distinct from those of its
members. It is capable of owning property, incurring debt, borrowing money, having a bank
account, employing people, entering into contracts and suing and being sued separately.

Limited Liability :
The liability of the members of the company is limited to contribution to the assets of the
company upto the face value of shares held by him. A member is liable to pay only the
uncalled money due on shares held by him when called upon to pay and nothing more, even
if liabilities of the company far exceeds its assets. On the other hand, partners of a
partnership firm have unlimited liability i.e. if the assets of the firm are not adequate to pay
the liabilities of the firm, the creditors can force the partners to make good the deficit from
their personal assets. This cannot be done in case of a company once the members have
paid all their dues towards the shares held by them in the company.

Perpetual Succession:
A company does not die or cease to exist unless it is specifically wound up or the task for
which it was formed has been completed. Membership of a company may keep on changing
from time to time but that does not affect life of the company. Death or insolvency of
member does not affect the existence of the company.

Separate Property:
A company is a distinct legal entity. The company’s property is its own. A member cannot
claim to be owner of the company's property during the existence of the company.

Transferability of Shares:
Shares in a company are freely transferable, subject to certain conditions, such that no
share-holder is permanently or necessarily wedded to a company. When a member transfers
his shares to another person, the transferee steps into the shoes of the transferor and
acquires all the rights of the transferor in respect of those shares.
Common Seal:
A company is a artificial person and does not have a physical presence. Therefore, it acts
through its Board of Directors for carrying out its activities and entering into various
agreements. Such contracts must be under the seal of the company. The common seal is
the official signature of the company. The name of the company must be engraved on the
common seal. Any document not bearing the seal of the company may not be accepted as
authentic and may not have any legal force.

Capacity to sue and being sued:


A company can sue or be sued in its own name as distinct from its members.

Separate Management:
A company is administered and managed by its managerial personnel i.e. the Board of
Directors. The shareholders are simply the holders of the shares in the company and need
not be necessarily the managers of the company.

One Share-One Vote:


The principle of voting in a company is one share-one vote. I.e. if a person has 10 shares, he
has 10 votes in the company. This is in direct contrast to the voting principle of a co-
operative society where the "One Member - One Vote" principle applies i.e. irrespective of
the number of shares held, one member has only one vote.

Distinction between Company and Partnership

1. A Partnership firm is sum total of persons who have come together to share the
profits of the business carried on by them or any of them. It does not have a separate
legal entity. A Company is association of persons who have come together for a
specific purpose. The company has a separate legal entity as soon as it is
incorporated under law.
2. Liability of the partners is unlimited. However, the liability of shareholders of a limited
company is limited to the extent of unpaid share or to the tune of the unpaid amount
guaranteed by the shareholder.
3. Property of the firm belongs to the partners and they are collectively entitled to it. In
case of a company, the property belongs to the company and not to its members.
4. A partner cannot transfer his shares in the partnership firm without the consent of all
other partners. In case of a company, shares may be transferred without the
permission of the other members, in absence of provision to contrary in articles of
association of the company.
5. In case of partnership, the number of members must not exceed 20 in case of
banking business and 10 in other businesses. A Public company may have as many
members as it desires subject to a minimum of 7 members. A Private company
cannot have more than 50 members.
6. There must be at least 2 members in order to form a partnership firm. The minimum
number of members necessary for a public limited company is seven and two for a
private limited company.
7. In case of a partnership, 100 % consensus is required for any decision. In case of a
company, decision of the majority prevails.
8. On the death of any partner, the partnership is dissolved unless there is provision to
the contrary. On the death of the shareholder the company' existence does not get
terminated.

Illegal Association:
Under the Companies Act, 1956, not more than 10 persons can come together for carrying
on any banking business and not more than 20 persons can come together for carrying on
any other of business, unless the association is registered under the Companies Act or any
other Indian law. Any association which does not comply with the above norms is an illegal
association. Therefore, a partnership of more 10 or 20 members, as the case may be, is an
illegal association unless the registered under the Companies Act or any other Indian law.

However, this provision does not apply in the following cases :-

1. A Joint Hindu Family business comprising of family members only. But where two or
more Joint Hindu families come together for business through partnership, the total
number of members cannot exceed 10 or 20 as the case may be, but in computing
the number of persons, minor members of such family will be excluded.
2. Any association of charitable, religious, scientific trust or organisation which is not
formed with a profit motive
3. Foreign companies.

When the number of members exceed the prescribed maximum, members must register it
under Companies Act or any other Indian law.

Consequences of non-registration:
An illegal association is not recognised by law. An illegal association cannot enter into any
contract, cannot sue any members or any outsider, cannot be sued by any members or
outsiders for any of its debts. The members of the illegal association are personally for the
obligations of the illegal association. A member may be liable to a fine of Rs. 1000. Any
member of an illegal association cannot sue another member in respect of any matter
connected with the association.

Minimum number of members


A public company must have at least 7 members whereas a private company may have only
2 members. If the number of members fall below the statutory minimum and the company
carries on its business beyond a period of six months after the number has so fallen, the
reduction of number of members below the legal minimum is a ground for the winding up of
the company.

Types of Companies
1.Public Company means a company which not a private company.

2.Private Company means a company which by its articles of association :-

a. Restricts the right of members to transfer its shares


b. Limits the number of its members to fifty. In determining this number of 50,
employee-members and ex-employee members are not to be considered.
c. Prohibits an invitation to the public to subscribe to any shares in or the
debentures of the company.

If a private company contravenes any of the aforesaid three provisions, it ceases to be


private company and loses all the exemptions and privileges which a private company is
entitled.

Following are some of the privileges and exemptions of a private limited company:-

1. Mimimum number is members is 2 (7 in case of public companies)


2. Prohibition of allotment of the shares or debentures in certain cases unless statement
in lieu of prospectus has been delivered to the Registrar of Companies does not
apply.
3. Restriction contained in Section 81 related to the rights issues of share capital does
not apply. A special resolution to issue shares to non-members is not required in case
of a private company.
4. Restriction contained in Section 149 on commencement of business by a company
does not apply. A private company does not need a separate certificate of
commencement of business.
5. Provisions of Section 165 relating to statutory meeting and submission of statutory
report does not apply.
6. One (if 7 or less members are present) or two members (if more than 7 members are
present ) present in person at a meeting of the company can demand a poll.
7. In case of a private company which not a subsidiary of a public limited company or in
the case of a private company of which the entire paid up share capital is held by the
one or more body corporates incorporated outside India, no person other than the
member of the company concerned shall be entiled to inspect or obtain the copies of
profit and loss account of that company.
8. Minimum number of directors is only two. (3 in case of a public company)

The Company Law Board on being satisfied that the infringement of the aforesaid 3
conditions was accidental or due to inadvertence or that on other grounds, it just an
equitable to grant relief, may grant relief to the company from the consequences of such
infringement. The infringement of the aforesaid 3 conditions does not automatically convert
a private company into a public company. It continues to remain a private company; it
merely ceases to be entitled to the privileges and exemptions available to a private
company.

3.Companies deemed to be public limited company:


A private company will be treated as a deemed public limited company in any of the
following circumstances :-

1. Where at least 25% of the paid up share capital of a private company is held by one
or more bodies corporate, the private company shall automatically become the public
company on and from the date on which the aforesaid percentage is so held.
2. Where the annual average turnover of the private company during the period of
three consecutive financial years is not less than Rs 25 crores, the private company
shall be, irrespective of its paid up share capital, become a deemed public company.
3. Where not less than 25% of the paid up capital of a public company limited is held by
the private company, then the private company shall become a public company on
and from the date on which the aforesaid percentage is so held.
4. Where a private company accepts deposits after the invitation is made by
advertisement or renews deposits from the public (other than from its members or
directors or their relatives), such companies shall become public company on and
from date such acceptance or renewal is first made.

4.Limited and Unlimited companies:


Companies may be limited or unlimited companies. Company may be limited by shares or
limited by guarantee.

a. Company limited by shares In this case, the liability of members is limited to the
amount of uncalled share capital. No member of company limited by the shares can
be called upon to pay more than the face value of shares or so much of it as is
remaining unpaid. Members have no liability in case of fully paid up shares.
b. Company limited by the guarantee A company limited by guarantee is a registered
company having the liability of its members limited by its memorandum of
association to such amount as the members may respectively thereby undertake to
pay if necessary on liquidation of the company. The liability of the members to pay
the guaranteed amount arises only when the company has gone into liquidation and
not when it is a going concern. A guarantee company may be a company with share
capital or without share capital.

Unlimited Company: The liability of members of an unlimited company is unlimited.


Therefore their liability is similar to that of the liability of the partners of a partnership firm.

5.Section 25 Companies: Under the Companies Act, 1956, the name of a public limited
company must end with the word 'Limited' and the name of a private limited company must
end with the word 'Private Limited'. However, under Section 25, the Central Government
may allow comapnies to remove the word "Limited / Private Limited" from the name if the
following conditions are satisfied :-

1. The company is formed for promoting commerce, science, art, religion, charity or
other socially useful objects
2. The company does not intend to pay dividend to its members but apply its profits
and other income in promotion of its objects.

6.Holding and Subsidiary companies


A company shall be deemed to be subsidiary of another company if :-

1. That other company controls the composition of its board of directors ; or


2. That other company holds more than half in face value of its equity share capital
3. Where the first mentioned company is subsidiary company of any company which
that other's subsidiary. eg Company B is subsidiary of the Company A and Company
C is subsidiary of Company B, therefore Company C is subsidiary of Company A.

The control of the composition of the Board of Directors of the company means that the
holding company has the power at its discretion to appoint or remove all or majority of
directors of the subsidiary company without consent or concurrence of any other person.

7.Government Companies
Means any company in which not less than 51% of the paid up share capital is held by the
Central Government or any State Government or partly by the Central Government and
partly by the one or more State Governments and includes a company which is a subsidiary
of a government company. Government Companies are also governed by the provisions of
the Companies Act. However, the Central Government may direct that certain provisions of
the Companies Act shall not apply or shall apply only with such exceptions, modifications
and adaptions as may be specified to such government companies.

8. Foreign Companies
Means a company incorporated in a country outside India under the law of that other
country and has established the I. Promotion :
Refers to the entire process by which a company is brought into existence. It starts with the
conceptualisation of the birth a a company and determination of the purpose for which it is
to be formed. The persons who conceive the company and invest the initial funds are known
as the promoters of the company. The promoters enter into preliminary contracts with
vendors and make arrangements for the preparation, advertisement and the circulation of
prospectus and placement of capital. However, a person who merely acts in his professional
capacity on behalf of the promoter (eg lawyer, CA, etc) for drawing up the agreement or
other documents or prepares the figures on behalf of the promoter and who is paid by the
promoter is not a promoter.

The promoters have certain basic duties towards the company formed :-

1. He must not make any secret profit out of the promotion of the company. Secret
profit is made by entering into a transaction on his own behalf and then sell to
concerned property to the company at a profit without making disclosure of the profit
to the company or its members. The promoter can make profits in his dealings with
the company provided he discloses these profits to the company and its members.
What is not permitted is making secret profits i.e. making profits without disclosing
them to the company and its members.
2. He must make full disclosure to the company of all relevant facts including to any
profit made by him in transaction with the company.

In case of default on the part of the promoter in fulfilling the above duties, the company may
:-

1. Rescind or cancel the contract made and if he has made profit on any related
transaction, that profit also may be recovered
2. Retain the property paying no more for it then what the promoter has paid for it
depriving him of the secret profit.
3. If these are not appropriate (eg cases where the property has altered in such a
manner that it is not possible to cancel the contract or where the promoter has
already received his secret profit), the company can sue him to for breach of trust.
Damages upto the difference between the market value of the property and the
contract price can be recovered from him.

A promoter may be rewarded by the company for efforts undertaken by him in forming the
company in several ways. The more common ones are :-

1. The company may to pay some remuneration for the services rendered.
2. The promoter may make profits on transactions entered by him with the company
after making full disclosure to the company and its members.
3. The promoter may sell his property for fully paid shares in the company after making
full disclosures.
4. The promoter may be given an option to buy further shares in the company.
5. The promoter may be given commission on shares sold.
6. The articles of the Company may provide for fixed sum to be paid by the company to
him. However, such provision has no legal effect and the promoter cannot sue to
enforce it but if the company makes such payment, it cannot recover it back.

If the promoter fails to disclose the profit made by him in course of promotion or knowingly
makes a false statement in the prospectus whereby the person relying on that statement
makes a loss, he will be liable to make good the loss suffered by that other person. The
promoter is liable for untrue statements made in the prospectus. A person who subscribes
for any shares or debenture in the company on the faith of the untrue statement contained
in the prospectus can sue the promoter for the loss or damages sustained by him as the
result of such untrue statement.
II.Incorporation by Registration :
The promoters must make a decision regarding the type of company i.e a pulic company or
a private company or an unlimited company, etc and accordingly prepare the documents for
incorporation of the company. In this connection the Memorandum and Articles of
Association (MA & AA) are crucial documents to be prepared.

Memorandum of Association of a company :


Is the constitution or charter of the company and contains the powers of the company. No
company can be registered under the Companies Act, 1956 without the memorandum of
association. Under Section 2(28) of the Companies Act, 1956 the memorandum means the
memorandum of association of the company as originally framed or as altered from time to
time in pursuance with any of the previous companies law or the Companies Act, 1956.

The memorandum of association should be in any of the one form specified in the tables
B,C,D and E of Schedule 1 to the Companies Act, 1956. Form in Table B is applicable in case
of companies limited by the shares , form in Table C is applicable to the companies limited
by guarantee and not having share capital, form in Table D is applicable to company limited
by guarantee and having a share capital whereas form in table E is applicable to unlimited
companies.

Contents of Memorandum :
The memorandum of association of every company must contain the following clauses :-

Name clause
The name of the company is mentioned in the name clause. A public limited company must
end with the word 'Limited' and a private limited company must end with the words 'Private
Limited'. The company cannot have a name which in the opinion of the Central Government
is undesirable. A name which is identical with or the nearly resembles the name of another
company in existence will not be allowed. A company cannot use a name which is prohibited
under the Names and Emblems (Prevntion of Misuse Act, 1950 or use a name suggestive of
connection to government or State patronage.

Domicile clause
The state in which the registered office of company is to be situated is mentioned in this
clause. If it is not possible to state the exact location of the registered office, the company
must state it provide the exact address either on the day on which commences to carry on
its business or within 30 days from the date of incorporation of the company, whichever is
earlier. Notice in form no 18 must be given to the Registrar of Comapnies within 30 days of
the date of incorporation of the company. Similarly, any change in the registered office must
also be intimated in form no 18 to the Registrar of Companies within 30 days. The registered
office of the company is the official address of the company where the statutory books and
records must be normally be kept. Every company must affix or paint its name and address
of its registered office on the outside of the every office or place at which its activities are
carried on in. The name must be written in one of the local languages and in English.

Objects clause
This clause is the most important clause of the company. It specifies the activities which a
company can carry on and which activities it cannot carry on. The company cannot carry on
any activity which is not authorised by its MA. This clause must specify :-

i. Main objects of the company to be pursued by the company on its incorporation


ii. Objects incidental or ancillary to the attainment of the main objects
iii. Other objects of the company not included in (i) and (ii) above.
In case of the companies other than trading corporations whose objects are not confined to
one state, the states to whose territories the objects of the company extend must be
specified.

Doctrine of the ultra-vires Any transaction which is outside the scope of the powers
specified in the objects clause of the MA and are not reasonable incidentally or necessary to
the attainment of objects is ultra-vires the company and therefore void. No rights and
liabilities on the part of the company arise out of such transactions and it is a nullity even if
every member agrees to it.

Consequences of an ultravires transaction :-

1. The company cannot sue any person for enforcement of any of its rights.
2. No person can sue the company for enforcement of its rights.
3. The directors of the company may be held personally liable to outsiders for an ultra
vires

However, the doctrine of ultra-vires does not apply in the following cases :-

1. If an act is ultra-vires of powers the directors but intra-vires of company, the


company is liable.
2. If an act is ultra-vires the articles of the company but it is intra-vires of the
memorandum, the articles can be altered to rectify the error.
3. If an act is within the powers of the company but is irregualarly done, consent of the
shareholders will validate it.
4. Where there is ultra-vires borrowing by the company or it obtains deliver of the
property under an ultra-vires contract, then the third party has no claim against the
company on the basis of the loan but he has right to follow his money or property if it
exist as it is and obtain an injunction from the Court restraining the company from
parting with it provided that he intervenes before is money spent on or the identity of
the property is lost.
5. The lender of the money to a company under the ultra-vires contract has a right to
make director personally liable.

Liability clause A declaration that the liability of the members is limited in case of the
company limited by the shares or guarantee must be given. The MA of a company limited by
guarantee must also state that each member undertakes to contribute to the assets of the
company such amount not exceeding specified amounts as may be required in the event of
the liquidation of the company. A declaration that the liability of the members is unlimited in
case of the unlimted companies must be given. The effect of this clause is that in a company
limited by shares, no member can be called upon to pay more than the uncalled amount on
his shares. If his shares are already fully paid up, he has no liabilty towards the company.

The following are exceptions to the rule of limited liability of members :-

1. If a member agrees in writing to be bound by the alteration of MA / AA requiring him


to take more shares or increasing his liability, he shall be liable upto the amount
agreed to by him.
2. If every member agrees in writing to re-register the company as an unlimited
company and the company is re-registered as such, such members will have
unlimited liability.
3. If to the knowledge of a member, the number of shareholders has fallen below the
legal minimum, (seven in the case of a public limited company and two in case of a
private limited company ) and the company has carried on business for more than 6
months, while the number is so reduced, the members for the time being constituting
the company would be personally liable for the debts of the company contracted
during that time.

Capital clause The amount of share capital with which the company is to be registered
divided into shares must be specified giving details of the number of shares and types of
shares. A company cannot issue share capital greater than the maximum amount of share
capital mentioned in this clause without altering the memorandum.

Association clause A declaration by the persons for subscribing to the Memorandum that
they desire to form into a company and agree to take the shares place against their
respective name must be given by the promoters.

Articles of Association
The Articles of Association (AA) contain the rules and regulations of the internal
management of the company. The AA is nothing but a contract between the company and
its members and also between the members themselves that they shall abide by the rules
and regulations of internal management of the company specified in the AA. It specifies the
rights and duties of the members and directors.

The provisions of the AA must not be in conflict with the provisions of the MA. In case such a
conflict arises, the MA will prevail.

Normally, every company has its own AA. However, if a company does not have its own AA,
the model AA specified in Schedule I - Table A will apply. A company may adopt any of the
model forms of AA, with or without modifications. The articles of association should be in any
of the one form specified in the tables B,C,D and E of Schedule 1 to the Companies Act,
1956. Form in Table B is applicable in case of companies limited by the shares , form in
Table C is applicable to the companies limited by guarantee and not having share capital,
form in Table D is applicable to company limited by guarantee and having a share capital
whereas form in table E is applicable to unlimited companies. However, a private company
must have its own AA.

The important items covered by the AA include :-

1. Powers, duties, rights and liabilities of Directors


2. Powers, duties, rights and liabilities of members
3. Rules for Meetings of the Company
4. Dividends
5. Borrowing powers of the company
6. Calls on shares
7. Transfer & transmission of shares
8. Forfeiture of shares
9. Voting powers of members, etc

Alteration of articles of association : A company can alter any of the provisions of its
AA, subject to provisions of the Companies Act and subject to the conditions contained in the
Memorandum of association of the company. A company, by special resolution at a general
meeting of members, alter its articles provided that such alteration does not have the effect
of converting a public limited company into a private company unless it has been approved
by the Central Government.
The articles must be printed, divided into paragraphs and numbered consequently and must
be signed by each subscriber to the Memorandum of Association who shall add his address,
description and occupation in presence of at least one witness who must attest the
signature and likewise add his address, description and occupation. The articles of
association of the company when registered bind the company and the members thereof to
the same extent as if it was signed by the company and by each member.

III. Registration of the Company


Once the documents have been prepared, vetted, stamped and signed, they must be filed
with the Registrar of Companies for incorporating the Company. The following documents
must be filed in this connection :-

1. The MA & AA
2. An agreement, if any, which the company proposes to enter into with any individual
for appointment as its managing director or whole-time director or manager.
3. A statutory declaration in Form 1 by an advocate, attorney or pleader entitled to
appear before the High Courty or a company secretary or Chartered Accountant in
whole - time practice in India who is engaged in the formation of the company or by a
person who is named as a director or manager or secretary of the company that the
requirements of the Companies Act have been complied with in respect of the
registration of the company and matters precedent and incidental thereto.
4. In addition to the above, in case of a public company, the following documents must
also be filed :-

i. Written consent of directors in Form 29 to agree to act as directors


ii. The complete address of the registered office of the company in Form 18
iii. Details of the directors, managing director and manager of the company in
Form 32.

Certificate of Incorporation
Once all the above documents have been filed and they are found to be in order, the
Registrar of Companies will issue Certificate of Incorporation of the Company. This document
is the birth certificate of the company and is proof of the existence of the company. Once,
this certificate is issued, the company cannot cease its existence unless it is dissolved by
order of the Court.

IV. Commencement of Business


A private company or a company having no share capital can commence its business
immediately after it has been incorporated. However, other companies can commence their
activities only after they have obtained Certificate of Commencement of Business. For this
purpose, the following additional formalities have to be complied with :-

1. If a company has share capital and has issued a prospectus, then :-

a. Shares upto the amount of minimum subcription must be alloted


b. Every director has paid to the company on each of the shares which he has
taken the same amount as the public have paid on such shares
c. No money is or may become payable to the applicants of shares or
debentures for failure to apply for or to obtain permission to deal in those
shares or debentures in any recognised stock exchange.
d. A statutory declaration in Form 19 signed by one director or the employee -
company secretary or a Company secretary in whole time practice that the
above provisions have been complied with must be filed
2. If a company has share capital but has not issued a prospectus, then :-

a. It must file a statement in lieu of prospectus with the Registrar of Companies


b. Every director has paid to the company on each of the shares which he has
taken the same amount as the other members have paid on such shares
c. A statutory declaration in Form 20 signed by one director or the employee -
company secretary or a Company secretary in whole time practice that the
above provisions have been complied with must be filed

Once the above provisions have been complied with, the Registrar of Companies grants
"Certificate of Commencement of Business" after which the company can commence its
activities.

Capital refers to the amount invested in the company so that it can carry on its activities. In
a company capital refers to "share capital". The capital clause in Memorandum of
Association must state the amount of capital with which company is registered giving details
of number of shares and the type of shares of the company. A company cannot issue share
capital in excess of the limit specified in the Capital clause without altering the capital
clause of the MA.

The following different terms are used to denote different aspects of share capital:-

1.Nominal, authorised or registered capital means the sum mentioned in the capital
clause of Memorandum of Association. It is the maximum amount which the company raise
by issuing the shares and on which the registration fee is paid. This limit is cannot be
exceeded unless the Memorandum of Association is altered.

2.Issued capital means that part of the authorised capital which has been offered for
subscription to members and includes shares alloted to members for consideration in kind
also.

3.Subscribed capital means that part of the issued capital at nominal or face value which
has been subscribed or taken up by purchaser of shares in the company and which has been
alloted.

4.Called-up capital means the total amount of called up capital on the shares issued and
subscribed by the shareholders on capital account. I.e if the face value of a share is Rs. 10/-
but the company requires only Rs. 2/- at present, it may call only Rs. 2/- now and the
balance Rs.8/- at a later date. Rs. 2/- is the called up share capital and Rs. 8/- is the uncalled
share capital.

5.Paid-up capital means the total amount of called up share capital which is actually paid
to the company by the members.

In India, there is the concept of par value of shares. Par value of shares means the face
value of the shares. A share under the Companies act, can either of Rs10 or Rs100 or any
other value which may be the fixed by the Memorandum of Association of the company.
When the shares are issued at the price which is higher than the par value say, for example
Par value is Rs10 and it is issued at Rs15 then Rs5 is the premium amount i.e, Rs10 is the
par value of the shares and Rs5 is the premium. Similarily when a share is issued at an
amount lower than the par value, say Rs8, in that case Rs2 is discount on shares and Rs10
will be par value.
Types of shares : Shares in the company may be similar i.e they may carry the same
rights and liabilities and confer on their holders the same rights, liabilities and duties. There
are two types of shares under Indian Company Law :-

1.Equity shares means that part of the share capital of the company which are not
preference shares.

2.Preference Shares means shares which fulfill the following 2 conditions. Therefore, a
share which is does not fulfill both these conditions is an equity share.

a. It carries Preferential rights in respect of Dividend at fixed amount or at fixed rate i.e.
dividend payable is payable on fixed figure or percent and this dividend must paid
before the holders of the equity shares can be paid dividend.
b. It also carries preferential right in regard to payment of capital on winding up or
otherwise. It means the amount paid on preference share must be paid back to
preference shareholders before anything in paid to the equity shareholders. In other
words, preference share capital has priority both in repayment of dividend as well as
capital.

Types of Preference Shares


1.Cumulative or Non-cumulative : A non-cumulative or simple preference shares gives
right to fixed percentage dividend of profit of each year. In case no dividend thereon is
declared in any year because of absence of profit, the holders of preference shares get
nothing nor can they claim unpaid dividend in the subsequent year or years in respect of
that year. Cumulative preference shares however give the right to the preference
shareholders to demand the unpaid dividend in any year during the subsequent year or
years when the profits are available for distribution . In this case dividends which are not
paid in any year are accumulated and are paid out when the profits are available.

2.Redeemable and Non- Redeemable : Redeemable Preference shares are preference


shares which have to be repaid by the company after the term of which for which the
preference shares have been issued. Irredeemable Preference shares means preference
shares need not repaid by the company except on winding up of the company. However,
under the Indian Companies Act, a company cannot issue irredeemable preference shares.
In fact, a company limited by shares cannot issue preference shares which are redeemable
after more than 10 years from the date of issue. In other words the maximum tenure of
preference shares is 10 years. If a company is unable to redeem any preference shares
within the specified period, it may, with consent of the Company Law Board, issue further
redeemable preference shares equal to redeem the old preference shares including dividend
thereon. A company can issue the preference shares which from the very beginning are
redeemable on a fixed date or after certain period of time not exceeding 10 years provided
it comprises of following conditions :-

1. It must be authorised by the articles of association to make such an issue.


2. The shares will be only redeemable if they are fully paid up.
3. The shares may be redeemed out of profits of the company which otherwise would
be available for dividends or out of proceeds of new issue of shares made for the
purpose of redeem shares.
4. If there is premium payable on redemption it must have provided out of profits or out
of shares premium account before the shares are redeemed.
5. When shares are redeemed out of profits a sum equal to nominal amount of shares
redeemed is to be transferred out of profits to the capital redemption reserve
account. This amount should then be utilised for the purpose of redemption of
redeemable preference shares. This reserve can be used to issue of fully paid bonus
shares to the members of the company.

3.Participating Preference Share or non-participating preference shares :


Participating Preference shares are entitled to a preferential dividend at a fixed rate with the
right to participate further in the profits either along with or after payment of certain rate of
dividend on equity shares. A non-participating share is one which does not such right to
participate in the profits of the company after the dividend and capital have been paid to the
preference shareholders.

Alternation of capital
A company limited by shares can alter the capital clause of its Memorandum in any of the
following ways provided that such alteration is authorised by the articles of association of
the company :-

1. Increase in share capital by such amount as it thinks expedient by issuing new


shares.
2. Consolidate and divide all or any of its share capital into shares of larger amount than
its existing shares. eg, if the company has 100 shares of Rs.10 each ( aggregating to
Rs. 1000/-) it may consolidate those shares into 10 shares of Rs100 each.
3. Convert all or any of its fully paid shares into stock and re-convert stock into fully
paid shares of any denomination.
4. Subdivide shares or any of shares into smaller amounts fixed by the Memorandum so
that in subdivision the proportion between the amount paid and the amount if any
unpaid on each reduced shares shall be same as it was in case of from which the
reduced share is derived.
5. Cancel shares which have been not been taken or agreed to be taken by any person
and diminish the amount of share capital by the amount of the shares so cancelled.

The alteration of the capital of the company in any of the manner specified above can be
done by passing a resolution at the general meeting of the company and does not require
any confirmation by the court.

Reduction of the share capital can be effected only in the manners specified in Section 100-
104 of the Act or by way of buy back under Section 77A and 77B of the Act. Notice of
alteration to share capital is required to be filed with the registrar of the company in Form
no 5 within 30 days of the alteration of the capital clause of the MA. The Registrar shall
record the notice and make necessary alteration in Memorandum and Articles of Association
of the company. Any default in giving notice to the registrar renders company and its
officers in default liable to punishment with fine which may extend to the Rs50 for each day
of default.

Conversion of shares into stocks : Conversion of fully paid shares into stock may
likewise be affected by the ordinary resolution of the company in the general meeting.
Notice of the conversion must be given to the Registrar within 30 days of the conversion, the
stock may be converted into fully paid shares following the same procedure and notice given
to the Registrar in Form no 5. In this connection, the following provisions are important :-

1. Only fully paid shares can be converted into stocks


2. Direct issue of stock to members is not lawful and cannot be done.
3. The difference between shares and stock is that shares are transferable only in
complete units so that transfer of half or any portion of share is not possible whereas
stock is expressed in terms of any amount money and is transferable in any money
fractions.
4. Articles may be give the Board of Directors authority to fix minimum amount of stock
transferable.
5. Since stock is not divided into different units it is not required to be numbered.
Shares on the other hand must be numbered.

Reduction of share capital with sanction of the Court


A company limited by the shares or a company limited by guarantee and having share
capital can if authorised by its articles, by special resolution and subject to confirmation by
the court on petition reduce its share capital. It may effect reduction of its share capital in
any of following circumstances:-

1. Where the company is overcapitalised :-

a. It may extinguish or reduce the liability of member in respect of uncalled or


unpaid capital. For example, where shares are of Rs100 each with Rs60 paid
up, the company may reduce them to Rs60 fully paid and thus release the
shareholder from the liability on uncalled capital of Rs. 40/-.
b. Pay off or return part of the unpaid capital not wanted for the purpose of the
company. For example, where the shares are fully paid of Rs100 they may be
reduced Rs40 each and Rs60 may be paid back to the shareholders.
c. Pay off part of the paid up share capital on the footing that it may be called up
again. If shares are of Rs100 each the company may pay off Rs25 per share
on condition that when desired the company may call it again without
extinguishing the liability of shareholders to pay the uncalled share capital.
d. Reduce by a combination of the aforesaid methods

2. Where has suffered loss of capital, in such situation the company can write off or cancel
the share capital which has been lost or is unrepresented by available assets.

Where the company has passed the resolution for reducing the share capital, it must, by
petition, apply to the court in the prescribed form to the court for an order confirming the
reduction. Where the proposed reduction of share capital involves the either diminution of
liabilities in respect of unpaid share capital or the payment to any shareholder of any paid-
up share capital or in any other case if the court so directs the following provisions shall
have effect :-

1. Every creditor of the company who on the date fixed by the court is entitled to debt
from or any claim against the company shall be entitled to object to the reduction.
2. The Court shall settle a list of creditors so entitled to object and for that purpose shall
ascertain as far as possible without requiring an application from any of the creditors,
the names of creditors and the nature and amount of debt or claims and publish
notices fixing the day or days within which creditors not entered in the list are to be
entered if they so desire.
3. Where a creditor entered on the list whose debt or claim is not discharged or has not
been determined does not consent to the reduction, the court may, if it thinks fit,
dispense with the consent of the creditors if the company secures payment of this
debt or claim by appropriating the following amounts as the court may direct:-

a. The company admits the full amount claim or debt or though not admitting it
is willing to provide for it, then the full amount of debt or claim
b. If the company does not admit and is not willing to provide for the full amount
of debt or claim or if the amount is contingent or not ascertained, then
amount fixed by the court after due enquiry.

1. Where the proposed reduction of share capital involves either diminution of any
liability in respect of the unpaid share capital or payment of any shareholder of any
paid share capital, the Court may, having regard to any special circumstances of the
case as it thinks proper so to do, direct that the above provisions shall not apply to
any class or classes of creditors.
2. If the court is satisfied with respect to every creditor of the company entitled to
object to reduction that either his consent to the reduction has been obtained or his
that debt or claim has been discharged or has been determined or has been secured,
make an order confirming the reduction on such terms and conditions as it thinks fit.
3. Where the court makes such an order, it may, if for any special reasons thinks fit and
proper to do so, make an order directing that the company shall shall during such
period commencing on and any time after the date of the order as is specified in the
order add to its name as the last words the words "& Reduced" and make an order
requiring the company to publish the same along with the reasons for the reduction
or such other information in regard thereto as the court may think expedient with
view to giving proper information to the public and if the court thinks fit the causes
which led to reduction.
4. Where the company is ordered to add to its name the words "& Reduced" those
words shall until the expiry of period specified in the order shall be deemed to be
part of the name of the company.
5. The registrar, on the production to him, of an order of the court confirming the
reduction of the share capital of the company and on delivering to him the certified
copy of the order and of minutes approved by the court showing with respect to the
share capital of the company as altered by the order register the reduction of share
capital. On registration of order and minutes, the reduction of share capital shall take
effect.
6. Notice of the registration shall be published in such manner as the court may direct.

Reduction of capital without the sanction of the court


Reduction of capital can take place without the sanction of the court in the following cases

1. Buy back of shares in accordance to the provisions of Section 77A and 77B
2. Forfeiture of shares - A company may if authorised by its articles forfeit shares for
non-payment of calls by the shareholders. Such proceedings amount to reduction of
capital but the act does not require court sanction for this purpose.
3. Valid surrender of the shares - A company may accept the surrender of shares
4. Cancellation of capital - A company may cancel the shares which has not been taken
up or agreed to be taken by the person and diminish the amount of its share capital.
5. Purchase of shares of member by the company under Section 402B. The Company
Law Board may, on application made under Section 397 or Section 398, order the
purchase of shares or interest of any member of the company by the company.
These provisions come in force when a prescribed number of members make a
complaint to the CLB for mis-management or oppression of the minority shareholders
in the company.
6. Redemption of redeemable preference shares. Where redeemable preference shares
are redeemed, it actually amounts to reduction of the capital. However, this does not
require the sanction of the court.
Buy-back of shares : Buy back of its own shares by a company is nothing but reduction of
share capital. After the recent amendments in the Companies Act, 1956 buy back of its own
shares by a company is allowed without sanction of the Court. It is nothing but a process
which enables a company to go back to the holders of its shares and offer to purchase from
them the shares that they hold.

There are three main reasons why a company would opt for buy back :-

1. To improve shareholder value, since with fewer shares earning per share of the
remaining shares will increase.
2. As a defense mechanism against hostile take-overs since there are fewer shares
available for the hostile acquirer to acquire.
3. Public Signaling of the Management’s Policy.

A company may purchase its own shares or other specified securities out of :-

i. its free reserves; or


ii. the securities premium account; or
iii. the proceeds of any shares or other specified securities:

No buy-back of any kind of shares or other specified securities can be made out of the
earlier proceeds of an earlier issue of the same kind of shares or same kind of other
specified securities.

No company can purchase its own shares or other specified securities unless :-

a. the buy-back is authorized by its articles;


b. a special resolution has been passed in general meeting of the company authorizing
the buy-back;
c. the buy-back is of less than twenty five per cent of the total paid-up capital and free
reserves of the company:
d. the buy-back of equity shares in any financial year shall not exceed twenty five per
cent of its total paid-up equity capital in that financial year
e. the ratio of the debt owned by the company is not more than twice the capital and its
free reserves after such buy-back. However, the Central Government may prescribe a
higher ratio of the debt than that specified under this clause for a class or classes of
companies.
f. all the shares or other specified securities for buy-back are fully paid-up;
g. the buy-back of the shares or other specified securities listed on any recognized
stock exchange is in accordance with the regulations made by the Securities and
Exchange Board of India in this behalf;
h. the buy-back in respect of shares or other specified securities other than those
specified in clause (g) is in accordance with the guidelines as may be prescribed.

The notice of the meeting at which special resolution is proposed to be passed shall be
accompanied by an explanatory statement stating

a. a full and complete disclosure of all material facts


b. the necessity for the buy-back
c. the class of security intended to be purchased under the buy-back
d. the amount to be invested under the buy-back and
e. the time limit for completion of buy-back.

Every buy-back must be completed within twelve months from the date of passing the
special resolution.

The buy-back may be :-

a. from the existing security holders on a proportionate basis;


b. from the open market or
c. from odd lots, that is to say, where the lot of securities of a listed public company
whose shares are listed on a recognized stock exchange is smaller than such
marketable lot as may be specified by the stock exchange;
d. by purchasing the securities issued to employees of the company pursuant to a
scheme of stock option or sweat equity.

Where a company has passed a special resolution to buy-back its own shares or other
securities under this section, it shall, before making such buy-back, file with the Registrar
and the Securities and Exchange Board of India a declaration of solvency in the form as may
be prescribed and verified by an affidavit to the effect that the Board has made a full inquiry
into the affairs of the company as a result of which they have formed an opinion that it is
capable of meeting its liabilities and will not be rendered insolvent within a period of one
year of the date of declaration adopted by the Board, and signed by at least two directors of
the company, one of whom shall be the managing director, if any:

Such a declaration of solvency need not be filed with the Securities and Exchange Board of
India by a company whose shares are not listed on any recognized stock exchange.

Where a company buys back its own securities, it shall extinguish and physically destroy the
securities so bought back within seven days of the last date of completion of buy-back.

Where a company completes a buy-back of its shares or, other specified securities under
this section, it shall not make further issue of the same kind of shares or other specified
securities within a period of twenty four months except by way of bonus issue or in the
discharge of subsisting obligations such as conversion of warrants, stock option schemes,
sweat equity or conversion of preference shares or debentures into equity shares.

Where a company buys back its securities under this section it shall maintain a register of
the securities so bought, the consideration paid for the securities bought-back, the date of
cancellation of securities, the date of extinguishing and physically destroying of securities
and such other particulars as may be prescribed.

A company shall, after the completion of the buy-back under this section, file with the
Registrar and the Securities and Exchange Board of India, a return containing such
particulars relating to the buy-back within thirty days of such completion as may be
prescribed. However such return need not be filed with the Securities and Exchange Board
of India by a company whose shares are not listed on any recognized stock exchange.

If a company makes default in complying with the provisions of this section or any rules or
any regulations, the company or any officer of the company who is in default shall be
punishable with imprisonment for a term which may extend to two years, or with fine which
may extend to fifty thousand rupees, or with both.
For the purposes of buy back, "specified securities" includes employees' stock option or
other securities as may be notified by the Central Government from time to time;

Where a company purchases its own shares out of free reserves, then a sum equal to the
nominal value of the share so purchased shall be transferred to the capital redemption
reserve account and details of such transfer shall be disclosed in the balance sheet."

No company shall directly or indirectly purchase its own shares or other specified securities -

(a) through any subsidiary company including its own subsidiary companies; or

(b) through any investment company or group of investment companies; or

(c) if a default, by the company, in repayment of deposit or interest payable thereon,


redemption of debentures, or preference shares or payment of dividend to any shareholder
or repayment of any term loan or interest payable thereon to any financial institution or
bank, is subsisting.

No Company can, directly or indirectly, purchase its own shares or other specified securities
in case such company has not filed its annual returns with the Registrar of Companies, or
has not paid the dividends declared by it within 42 days from the date of declaration or has
not prepared its annual accounts in the prescribed manner.

Variation of shareholders rights


The rights, duties and liabilities of all shareholders are clearly defined at the time of issue of
the shares. Once the rights of shareholders are fixed, they cannot be altered unless the
provisions of the Companies Act for this purpose are complied with. The rights attached to
the shares of any class can be varied only with the consent in writing of shareholders
holding not less than 75 % of the issued shares of that class or with the sanction of special
resolution passed at a separate meeting of the holders of issued shares of that class.
However, the following conditions also must be complied with :-

1. The variation of rights are allowed by the Memorandum or Articles of Association of


the Company.
2. In absence of such provision in the Memorandum or Articles of company, such
variation must not be prohibited by the terms of issue of shares of that class.

Rights of Dissenting Shareholders : The rights of the shareholders who did not consent
to or vote for variation of their rights are protected by the Companies Act. If the rights of any
class of the shareholders are varied, the holders of not less than 10 per cent of the shares of
that class, being persons who did not consent to or vote in favour of resolution for variation
of their rights can apply to the court to have the variation cancelled. Where such application
is made to the court, such variation will not be given effect unless and until it is confirmed
by the court.

Voting Rights of the Members


Every member of a public company limited by shares holding equity shares will have votes
in proportion to his share in paid up equity capital of the company.

Generally, preference shareholders do not have any voting rights. However, they can vote
on matters directly relating to the rights attached to the preference share capital. Any
resolution for winding up of the company or for the reduction or repayment of the share
capital shall be deemed to affect directly the rights attached to preference shares. Where
the preference shares are cumulative (in respect of dividend) and the dividend thereon has
remained unpaid for an aggregate period of two years before date of any meeting of the
company, the preference shareholders will have right to vote on any resolution. In case of
non-cumulative preference shares, preference shareholders have right to vote on every
resolution if dividend due on their capital remains unpaid, either in respect of period of not
less than two years ending with the expiry of the financial year immediately preceding the
commencement of the meeting or in respect of aggregate period of not less than three
years comprised in six years ending with the expiry of concerned financial year.

Every equity shareholder has a right to vote at a general meeting. No company can prohibit
any member from exercising his voting right any ground including the ground that he has
not held his shares for a minimum period before he becomes eligible to vote. However, a
member’s voting rights can be revoked if that member does not make payment of calls or
other sums due against him or where the company has exercised the right of lien on his
shares.

Further issue of the capital


Rights Issue of Shares
If, at any time after the expiry of 2 Years from the date of incorporation of the company or
after one year from the date of first allotment of shares, whichever is earlier, a public
company limited by shares issues further shares within the limit of authorised capital, its
directors must first offer such shares to the existing holders of equity shares in proportion to
the capital paid up on their shares at the time of further issue. This is commonly known as
"Rights Issue of shares". The company must give notice each of the equity shareholders
giving him the option to buy the shares offered to him. The shareholders must be informed
of the number of shares he has the option to buy. He must be given at least 15 days to
decide for exercising his option. The directors must state in the notice of the offer the fact
that the shareholders also has the right to renounce the offer in whole or part in favour of
some other person. This is commonly known as "Renunciation of Rights".

If the shareholder does not inform the company of his decision to take the shares, it is
deemed that he has declined the offer. In case where the rights shares are not taken by the
shareholders, the directors of the company may dispose of the shares in the manner they
think fit.

A company may by special resolution in the general meeting decide that the directors need
not offer the shares to the existing shareholders of the equity shares and that they may
dispose them off in a manner thought fit by them. This is known as "preferential offer of
shares" where third parties or only certain shareholders are given shares in priority over the
other shareholders.

However, if a special resolution for preferential issue of shares is not passed but merely an
ordinary resolution is passed, preferential issue of shares may be done provided sanction of
the Central Government is obtained. The price at which the preferential shares are to be
offered are governed by the SEBI guidelines in case of listed companies. Such shares cannot
be issued at a price which is less than the higher of the following :-

1. The average of the weekly highs and lows of the closing prices of the shares on the
stock exchange during 6 months preceding the date of issue ; or
2. The average of the weekly highs and lows of the closing prices of the shares on the
stock exchange during 2 weeks preceding the date of issue

The above provisions of preferential allotment do not apply to conversion of loans or


debentures in equity shares provided the terms of the loan or terms of issue of debentures
give an option to convert such loans or debentures into shares of the company. Such terms
and conditions must be approved before the issue of debenture or raising of the loan by the
Central Government or must be in confirmity with the rules made by the Government for
this purpose. The proposal must be approved by the special resolution passed by Company
at the general meeting before the issue of debentures or raising of the loan. For this purpose
the Central Government has framed the Public Companies (Terms of issue of debentures
and raising of loans with option to convert such debentures or loan into equity shares )
Rules, 1977. The following is the broad gist of these rules :-

1. The debenture or loan is raised or issued either through private subscription or


through issue of the prospectus to the public.
2. The financial institutions specified for this purpose either underwrite or subscribe to
the whole or part of the issue of debentures or sanction the raising of loan.
3. Having regard to financial position of the company, the terms of issue of debentures
or terms of loan (eg rate of interest payable on debenture and loan the capital of the
company, its liabilities and its profits during immediately preceeding five years and
the current market price of shares of the company), the conversion must be either at
par and or at premium not exceeding 25 percent of the face value of the shares.

The provisions of rights and preferential issue do not apply in the following cases :-

1. Increase in share capital by a private company.


2. Increase in share capital by a deemed public company.

Issue of shares at discount


A company may issue shares at a discount i.e at a value below its par value. The following
conditions must be satisfied in connection with the issue of shares at a discount :-

1. The shares must be of a class already issued


2. Issue of the shares at discount must be authorised by resolution passed in the
general meeting of company and sanctioned by the company law board.
3. The resolution must also specify the maximum rate of discount at which the shares
are to be issued
4. Not less than one year has elapsed from the date on which the company was entitled
to commence the business.
5. The shares to be issued at discount must issued within 2 months after the date on
which issue is sanctioned by the company law board or within extended as may be
allowed by the Company Law Board.
6. The discount must not exceed 10 percent unless the Company Law Board is of the
opinion that the higher percentage of discount may be allowed in special
circumstances of case.

Issue of shares at premium


A company may issue shares at a premium i.e. at a value above its par value. The following
conditions must be satisfied in connection with the issue of shares at a premium:-

1. The amount of premium must be transfered to an account to be called share


premium account. The provisions of this Act relating to the reduction of share capital
of the company will apply as if the share account premium account were paid up
share capital of the company.
2. Share premium account can be used only for the following purposes :-
a. In issuing fully paid bonus shares to members.
b. In Writing off preliminary expenses of the company.
c. In writing off public issue expenses such as underwriting commission,
advertisement expenses, etc
d. In providing for the premium payable paid on redemption of any redeemable
preference shares or debentures.
e. In buying back its shares

Issue of bonus shares


Bonus shares are issued by converting the reserves of the company into share capital. It is
nothing but capitalization of the reserves of the company. Bonus shares can be issued by a
company only if the Articles of Association of the company authorises a bonus issue. Where
there is no provision in this regard in the articles, they must be amended by passing special
resolution act at the general meeting of the company. Care must be taken that issue of
bonus shares does not lead to total share capital in excess of the authorised share capital.
Otherwise, the authorised capital must be increased by amending the capital clause of the
Memorandum of association. If the company has availed of any loan from the financial
institutions, prior permission is to obtained from the institutions for issue of bonus shares. If
the company is listed on the stock exchange, the stock exchange must be informed of the
decision of the board to issue bonus shares immediately after the board meeting. Where the
bonus shares are to be issued to the non-resident members, prior consent of the Reserve
Bank should be obtained.

Only fully paid up bonus share can be issued. Partly paid up bonus shares cannot be issued
since the shareholders become liable to pay the uncalled amount on those shares.

Sweat Equity and Employee Stock Options


Sweat Equity Shares mean equity shares issued by the company to its directors and / or
employees at a discount or for consideration other than cash for providing know how or
making available the rights in the nature of intellectual property rights or value additions.

A company may issue sweat equity shares of a class of shares already issued if the following
conditions are fulfilled :-

i. A special resolution to the effect is passed at a general meeting of the company


ii. The resolution specifies the number of shares, the current market price,
consideration, if any, and the class of employees to whom the shares are to be issued
iii. At least 1 year has passed since the date on which the company became eligible to
commence business.
iv. In case of issue of such shares by a listed company, the Sweat Equity Shares are
listed on a recognized stock exchange in accordance with SEBI regulations and where
the company is not listed on any stock exchange, the the prescribed rules are
complied with.

Share certificate
A share certificate is a document issued by the company stating that the person named
therein is the registered holder of specified number of shares of a certain class and they are
paid up upto the amount specified in the share certificate. The share certificate must bear
the common seal of the company and also must be stamped under the relevant stamp act.
One or more directors must sign it .It should state the name as well as occupation of the
holder and number of shares , their distinctive number and the amount paid up.
Every company making allotment of shares must deliver the share certificate of all
shareholders within three months of allotment. In case of transfer of shares, the share
certificate must be ready for delivery within two months after the shares are lodged with the
company for transfer. If default is made in complying with the above provisions, the
company and every officer of company who is in default is liable to punishment by way of
fine which may extent to Rs500 for every day of default. The allotee must give notice to the
company reminding of its obligation and even then, if default is not made good within 10
days of the notice, the allotee may apply to the Company Law Board for direction to the
company to issue such share certificate in accordance with the Act. Application for this
purpose must be made with the concerned regional bench of the Company Law Board by
way of petition. The petition should be accompanied by the following documents :-

1. Copy of the letter of allotment issued by the company


2. Documentary evidence for the allotment of the shares or debentures for transfer
3. Copy of the notice served on the company requiring to make good the default
4. Any other correspondence
5. Affidavit verifying the petition
6. Bank draft evidencing payment of application fee
7. Memorandum of appearance with the Board copy of resolution of the board for the
executive Vakalat Nama as the case may be Companies act does not prescribe any
form for share certificate.

A Shareholder must keep his share certificate in safe custody or in case of shares which are
traded in demat mode, with the depository. The company may renew or issue a duplicate
certificate if such certificate is proved to have been lost or destroyed or having being
defaced or mutilated or torn or is surrendered to the company. However, if the company,
with the intention to defraud issues duplicate certificate, the company shall be punishable
with the fine upto Rs10000 and every officer of the company who is in default with
imprisonment upto 6 months or fine upto Rs10000 or both.

Once a share certificate is issued by the company, the name of the person in whose favour it
has been issued becomes the registered shareholder. Nobody can then deny the fact of his
being the registered shareholder of the company. Similarly, if the certificate states that on
each of shares a certain amount has been paid up, nobody can deny the fact that such
amount has been paid up

A charge means an interest or right which a lender or creditor obtains in the property of the
company by way of security that the company will pay back the debt. Charges are of 2 types
:-

1. Fixed Charge : Such a charge is against a specific clearly identifiable and defined
property. The property under charge is identified at the time of creation of charge.
The nature and identity of the property does not change during the existence of the
charge. The company can transfer the property charged only subject to that charge
so that the charge holder or mortgage must be paid first whatever is due to him
before disposing off that property.
2. Floating Charge : Such a charge is available only to companies as borrower. A
Floating charge does attach to any definite property but covers the property of a
circulating and fluctuating nature such as stock-in-trade, debtors, etc. It attaches to
the property charged in the varying conditions in which happens to be from time to
time. Such a charge remains dormant until the undertaking charge ceases to be a
going concern or until the person in whose favour charge created takes steps to
crystallise the floating charge. A floating charge on crystallisation becomes a fixed
charge.

Crystallization of floating charge :


When the charge holder takes steps to enforce his charge, a floating charge becomes a fixed
charge on the assets covered by that charge. Until a floating charge becomes a fixed
charge, the company is free to deal with the property charged in any manner it deems fit.
But once the floating charge crystallises, the company cannot dispose off the charged assets
without paying of the chargeholder. Otherwise, the chargeholder can recover his dues from
the proceeds. A floating charge crystallises or becomes the fixed in following situations :-

1. Where the company ceases to carry on the business, whether the principal money
has become payable or not, unless the debenture or trust deed contains the
stipulation to the contrary.
2. Upon the commencement of winding up of the company.
3. If a debentureholder, having become entitled to realise the securities by the reason
of the fact that the principal money has become payable, intervenes for the purpose
by appointing the receiver or by making an application to the court for appointment
of the receiver.

Registration of charges :
Every company must keep at its registered office a register of charges in which all the
charges and mortgages specifically affecting the property of the company must be entered.
The register must contain short description of the property charged, the amount of the
charge, the name of the person entitled to the charge, etc. The company must keep at its
registered office, a copy of every instrument creating any charge requiring the registration.
During the business hours inspection by the creditor or member of the company is allowed
to be without charge of the register and documents. Any outsider can inspect them on the
payment of Rs10 for each inspection during the business hours. Registrar of the company
must keep also the register of charges in respect of each company and register therein full
particulars relating to the charge created by the company and registrable under the Act.
This register is also open to inspect by any person on payment of Rs 10 as fees . The
company must submit to the Registrar the instrument creating the charge or its certified
copy which will be returned after the registration along with the certificate of registration.
The company must cause the copy of every registration to be endorsed on every debenture
or certificate of debentures stock which is issued by the company and the payment of which
is secured by the charge.

Charges requiring registration :


A company must file within 30 days of creation of a charge with the Registrar complete
details of the charge together with the instrument of charge or its verified copy in respect of
certain charges. Otherwise the charge will be void. This does not mean that the creditors
cannot recover their dues. It merely means that the benefit of the charged security will not
be available to them. The following charges are compulsorily registrable :-

i. A charge for the purpose of securing any issue of any debentures


ii. A floating charge
iii. A charge on uncalled share capital
iv. Charge on calls made but not paid
v. A charge on any immovable property
vi. A charge on ship
vii. A charge on book debts of the company
viii. A charge on goodwill or on patent or on license under the patent or on trademark or
copyright or on the license under the copyright
ix. A charge other than a pledge on any movable property of the company.

Effects of Registration :
Once a charge is registered, it acts as a notice to the public at large that the charge holder
has an interest in the charged property. No person can take a defense against the charge
holder that he was not aware that a charge was created against the property. That person
will be entitled to the property subject to the interest of the charge holder. Once certificate
of charge is issued by the Registrar, it is conclusive evidence that the document creating the
charge is properly registered.

Consequences of Non-Registration :

1. A charge which is compulsorily registarble but which is not registered is void. This
does not mean that the creditors cannot recover their dues. It merely means that the
benefit of the charged security will not be available to them.
2. Although the security becomes void by non-registration, it does not affect the
contract or obligation of the company to repay the money thereby secured.
3. Omission to registrar particulars of charge is required punishable with fine. A
company or every officer of company is in default shall be liable to fine upto Rs 500
for each day of continuing default. A further fine of Rs. 1000 may be impose on the
company and every officer for other defaults relating to registration of charges.

Wherever the terms and conditions or the extent of the operation of any registered charge is
modified , the company is required to file the particulars of modification within 30days
thereof with the Registrar of Companies.

Memorandum of satisfaction
A company must make a report to the Registrar of payment of satisfying in full of any
charge registered under this act. The satisfaction of charges must be filed with the Registrar
within 30 days from the date of such a payment of charge. On receipt of intimation to the
company, the Registrar gives notice to the charge-holder calling upon him to show cause
within time not exceeding 14 days as why the payment of satisfaction should not be
registered. If no cause is shown within the time stipulated above the Registrar must enter
the satisfaction of the payment of charge. If some cause is shown, the Registrar must record
note to that effect in the register and inform the company accordingly A company is an
association of several persons. Decisions are made according to the view of the majority.
Various matters have to be discussed and decided upon. These discussions take place at the
various meetings which take place between members and between the directors. Needless
to say, the importance of meetings cannot be under-emphasised in case of companies. The
Companies Act, 1956 contains several provisions regarding meetings. These provisions have
to be understood and followed.

For a meeting, there must be at least 2 persons attending the meeting. One member cannot
constitute a company meeting even if he holds proxies for other members.

Kinds of Company Meetings :Broadly, meetings in a company are of the following types :-

I. Meetings of Members :
These are meetings where the members / shareholders of the company meet and discuss
various matters. Member’s meetings are of the following types :-
A. Statutory Meeting :
A public company limited by shares or a guarantee company having share capital is required
to hold a statutory meeting. Such a statutory meeting is held only once in the lifetime of the
company. Such a meeting must be held within a period of not less than one month or within
a period not more than six months from the date on which it is entitled to commence
business i.e. it obtains certificate of commencement of business. In a statutory meeting, the
following matters only can be discussed :-

a. Floatation of shares / debentures by the company


b. Modification to contracts mentioned in the prospectus

The purpose of the meeting is to enable members to know all important matters pertaining
to the formation of the company and its initial life history. The matters discussed include
which shares have been taken up, what money has been received, what contracts have
been entered into, what sums have been spent on preliminary expenses, etc. The members
of the company present at the meeting may discuss any other matter relating to the
formation of the Company or arising out of the statutory report also, even if no prior notice
has been given for such other discussions but no resolution can be passed of which notice
have not been given in accordance with the provisions of the Act.

A notice of at least 21 days before the meeting must be given to members unless consent is
accorded to a shorter notice by members, holding not less than 95% of voting rights in the
company.

A statutory meeting may be adjourned from time to time by the members present at the
meeting.

The Board of Directors must prepare and send to every member a report called the
"Statutory Report" at least 21 days before the day on which the meeting is to be held. But if
all the members entitled to attend and vote at the meeting agree, the report could be
forwarded later also. The report should be certified as correct by at least two directors, one
of whom must be the managing director, where there is one, and must also be certified as
correct by the auditors of the company with respect to the shares allotted by the company,
the cash received in respect of such shares and the receipts and payments of the company.
A certified copy of the report must be sent to the Registrar for registration immediately after
copies have been sent to the members of the company.

A list of members showing their names, addresses and occupations together with the
number shares held by each member must be kept in readiness and produced at the
commencement of the meeting and kept open for inspection during the meeting.

If default is made in complying with the above provisions, every director or other officer of
the company who is in default shall be punishable with fine upto Rs. 500. The Registrar or a
contributory may file a petition for the winding up of the company if default is made in
delivering the statutory report to the Registrar or in holding the statutory meeting on or
after 14 days after the last date on which the statutory meeting ought to have been held.

Contents of Statutory Report must provide the following particulars:- (a)The total number of
shares allotted, distinguishing those fully or partly paid-up, otherwise than in cash, the
extent to which partly paid shares are paid-up, and in both cases the consideration for which
they were allotted.(b) The total amount of cash received by the company in respect of all
shares allotted, distinguishing as aforesaid.(c) An abstract of the receipts and payments
upto a date within 7 days of the date of the report and the balance of cash and bank
accounts in hand, and an account of preliminary expenses.(d) Any commission or discount
paid or to be paid on the issue or sale of shares or debentures must be separately shown in
the aforesaid abstract.(e) The names, addresses and occupations of directors, auditors,
manager and secretary, if any, of the company and the changes which have taken place in
the names, addresses and occupations of the above since the date of incorporation.(f)
Particulars of any contracts to be submitted to the meeting for approval and modifications
done or proposed.(g) If the company has entered into any underwriting contracts, the
extent, if any, to which they have not been carried out and the reasons for the failure.(h)
The arrears, if any, due on calls from every director and from the manager.(i) The particulars
of any commission or brokerage paid or to be paid, in connection with the issue or sale of
shares or debentures to any director or to the manager.

The auditors have to certify that all information regarding calls and allotment of shares are
correct.

B. Annual General Meeting


Must be held by every type of company, public or private, limited by shares or by guarantee,
with or without share capital or unlimited company, once a year. Every company must in
each year hold an annual general meeting. Not more than 15 months must elapse between
two annual general meetings. However, a company may hold its first annual general
meeting within 18 months from the date of its incorporation. In such a case, it need not hold
any annual general meeting in the year of its incorporation as well as in the following year
only.

In the case there is any difficulty in holding any annual general meeting (except the first
annual meeting), the Registrar may, for any special reasons shown, grant an extension of
time for holding the meeting by a period not exceeding 3 months provided the application
for the purpose is made before the due date of the annual general meeting. However,
generally delay in the completion of the audit of the annual accounts of the company is not
treated as "special reason" for granting extension of time for holding its annual general
meeting. Generally, in such circumstances, an AGM is convened and held at the proper
time . all matters other than the accounts are discussed. All other resolutions are passed
and the meeting is adjourned to a later date for discussing the final accounts of the
company. However, the adjourned meeting must be held before the last day of holding the
AGM.

A notice of at least 21 days before the meeting must be given to members unless consent is
accorded to a shorter notice by members, holding not less than 95% of voting rights in the
company. The notice must state that the meeting is an annual general meeting. The time,
date and place of the meeting must be mentioned in the notice. The notice of the meeting
must be accompanied by a copy of the annual accounts of the company, director’s report on
the position of the company for the year and auditor’s report on the accounts. Companies
having share capital should also state in the notice that a member is entitled to attend and
vote at the meeting and is also entitled to appoint proxies in his absence. A proxy need not
be a member of that company. A proxy form should be enclosed with the notice. The proxy
forms are required to be submitted to the company at least 48 hours before the meeting.

The AGM must be held on a working day during business hours at the registered office of the
company or at some other place within the city, town or village in which the registered office
of the company is situated. The Central Government may, however, exempt any class of
companies from the above provisions. If any day is declared by the Central government to
be a public holiday after the issue of the notice convening such meeting, such a day will be
traeted as a working day.
A company may, by appropriate provisions in its its articles, fix the time for its annual
general meeting and may also by a resolution passed in one annual general meeting fix the
time for its subsequent annual general meetings.

Companies licensed under Section 25 are exempt from the above provisions provided that
the time, date and place of each annual general meeting are decided upon beforehand by
the Board of Directors having regard to the directions, if any, given in this regard by the
company in general meeting.

In case of default in holding an annual general meeting, the following are the
consequences :-

1. Any member of the company may apply to the Company Law Board.
The Company Law Board may call, or direct the calling of the meeting, and
give such ancillary or consequential directions as it may consider expedient in
relation to the calling, holding and conducting of the meeting. The Company
Law Board may direct that one member present in person or by proxy shall be
deemed to constitute the meeting. A meeting held in pursuance of this order
will be deemed to be an annual general meeting of the company. An
application by a member of the company for this purpose must be made to
the concerned Regional Bench of the Company Law Board by way of petition
in Form No. 1 in Annexure II to the CLB Regulations with a fee of rupees fifty
accompanied by (i) affidavit verifying the petition, (ii) bank draft for payment
of application fee.
2. Fine which may extend to Rs. 5,000 on the company and every officer
of the company who is in default may be levied and for continuing default, a
further fine of Rs. 250 per day during which the default continues may be
levied.

Business to be Transacted at Annual General Meeting :


At every AGM, the following matters must be discussed and decided. Since such matters are
discussed at every AGM, they are known as ordinary business. All other matters and
business to be discussed at the AGM are specila business.

The following matters constitute ordinary business at an AGM :-

a. Consideration of annual accounts, director’s report and the auditor’s


report
b. Declaration of dividend
c. Appointment of directors in the place of those retiring
d. Appointment of and the fixing of the remuneration of the statutory
auditors.

In case any other business ( special business ) has to be discussed and decided upon, an
explanatory statement of the special business must also accompany the notice calling the
meeting. The notice must should also give the nature and extent of the interest of the
directors or manager in the special business, as also the extent of the shareholding interest
in the company of every such person. In case approval of any document has to be done by
the members at the meeting, the notice must also state that the document would be
available for inspection at the Registered Office of the company during the specified dates
and timings.
C. Extraordinary General Meeting
Every general meeting (i.e. meeting of members of the company) other than the statutory
meeting and the annual general meeting or any adjournment thereof, is an extraordinary
general meeting. Such meeting is usually called by the Board of Directors for some urgent
business which cannot wait to be decided till the next AGM. Every business transacted at
such a meeting is special business. An explanatory statement of the special business must
also accompany the notice calling the meeting. The notice must should also give the nature
and extent of the interest of the directors or manager in the special business, as also the
extent of the shareholding interest in the company of every such person. In case approval of
any document has to be done by the members at the meeting, the notice mus also state
that the document would be available for inspection at the Registered Office of the company
during the specified dates and timings.

The Articles of Association of a Company may contain provisions for convening an


extraordinary general meeting. Eg. It may provide that "the board may, whenever it thinks
fit, call an extraordinary general meeting" or it may provide that "if at any time there are not
within India, directors capable of acting who are sufficient in number to form a quorum, any
director or any two members of the company may call an extraordinary general meeting".

Extraordinary General Meeting on Requisition :


The members of a company have the right to require the calling of an extraordinary general
meeting by the directors. The board of directors of a company must call an extraordinary
general meeting if required to do so by the following number of members :-

a. members of the company holding at the date of making the demand


for an EGM not less than one-tenth of such of the voting rights in regard to the
matter to be discussed at the meeting ; or
b. if the company has no share capital, the members representing not
less than one-tenth of the total voting rights at that date in regard to the said
matter.

The requisition must state the objects of the meetings and must be signed by the
requisitioning members. The requisition must be deposited at the company's registered
office. When the requisition is deposited at the registered office of the company, the
directors should within 21 days, move to call a meeting and the meeting should be actually
be held within 45 days from the date of the lodgement of the requisition. If the directors fail
to call and hold the meeting as aforesaid, the requisitionists or any of them meeting the
requirements at (a) or (b) above, as the case may be, may themselves proceed to call
meeting within 3 months from the date of the requisition, and claim the necessary expenses
from the company. The company can make good this sum from the directors in default. At
such an EGM, any business which is not covered by the agenda mentioned in the notice of
the meeting cannot be voted upon.

Power of Company Law Board to Order Calling of Extraordinary General Meeting :


If for any reason, it is impracticable to call a meeting of a company, other than an annual
general meeting, or to hold or conduct the meeting of the company, the Company Law
Board may, either i) on its own motion, or ii) on the application of any director of the
company, or of any member of the company, who would be entitled to vote at the meeting,
order a meeting to be called and conducted as the Company Law Board thinks fit, and may
also give such other ancillary and consequential directions as it thinks fit expedient. A
meeting so called and conducted shall be deemed to be a meeting of the company duly
called and conducted.
Procedure for Application under Section 186 :
An application by a director or a member of a company for this purpose is required to be
made to the Regional Bench of the Company Law Board before whom the petition is to be
made in Form No 1 specified in Annexure II to the CLB Regulations with a fee of Rs200. The
petition must be accompanied with the following documents -

a. Evidence in proof of status of the applicant.


b. Affidavit verifying the petition.
c. Bank draft evidencing payment of application fee.
d. Memorandum of appearance with copy of the Board's resolution or
executed vakalat nama, as the case may be.

D. Class Meeting
Class meetings are meetings which are held by holders of a particular class of shares, e.g.,
preference shareholders. Such meetings are normally called when it is proposed to vary the
rights of that particular class of shares. At such meetings, these members dicuss the pros
and cons of the proposal and vote accordingly. (See provisions on variations of shareholder’s
rights). Class meetings are held to pass resolution which will bind only the members of the
class concerned, and only members of that class can attend and vote.

Unless the articles of the company or a contract binding on the persons concerned otherwise
provides, all provisions pertaining to calling of a general meeting and its conduct apply to
class meetings in like manner as they apply with respect to general meetings of the
company.

II. Meetings of the Board of Directors

- Meeting of the Board of Directors

- Meeting of a Committee of the Board

III. Other Meetings


A. Meeting of debenture holders
A company issuing debentures may provide for the holding of meetings of the
debentureholders. At such meetings, generally nmmatters pertaining to the variation in
terms of security or to alteration of their rights are discussed. All matters connected with the
holding, conduct and proceedings of the meetings of the debentureholders are normally
specified in the Debenture Trust Deed. The decisions at the meeting made by the prescribed
majority are valid and lawful and binding upon the minority.

B. Meeting of creditors
Sometimes, a company, either as a running concern or in the event of winding up, has to
make certain arrangements with its creditors. Meetings of creditors may be called for this
purpose. Eg U/s 393, a company may enter into arrangements with creditors with the
sanction of the Court for reconstruction or any arrangement with its creditors. The court, on
application, may order the holding of a creditors' s meeting. If the scheme of arrangement is
agreed to by majority in number of holding debts to value of the three-fourth of the total
value of the debts, the court may sanction the scheme. A certified copy of the court's order
is then filed with the Registrar and it is binding on all the creditors and the company only
after it is filed with Registrar.
Similarly, in case of winding up of a company, a meeting of creditors and of contributories is
held to ascertain the total amount due by the company and also to appoint a liquidator to
wind up the affairs of the company.

Requisites of a Valid Meetings The following conditions must be satisfied for a meeting
to be called a valid meeting :-

1. It must be properly convened. The persons calling the meeting must be authorised to
do so.
2. Proper and adequate notice must have been given to all those entitled to attend.
3. The meeting must be legally constituted. There maust be a chairperson. The rules of
quorum must be maintained and the provisions of the Companies Act, 1956 and the
articles must be complied with.
4. The business at the meeting must be validly transacted.. The meeting must be
conducted in accordance with the regulations governing the meetings.

Notice of General Meeting


A meeting cannot be held unless a proper notice has been given to all persons entitled to
attend the meeting at the proper time, containing the necessary information. A notice
convening a general meeting must be given at least 21 clear days prior to the date of
meeting. However, an annual general meeting may be called and held with a shorter notice,
if it is consented to by all the members entitled to vote at the meeting. In respect of any
other meeting, it may be called and held with a shorter notice, if at least members holding
95 percent of the total voting power of the Company consent to a shorter notice.

Notice of every meeting of company must be sent to all members entitled to attend and
vote at the meeting. Notice of the AGM must be given to the statutory auditor of the
company.

Accidental omission to give notice to, or the non-receipt of notice by, any member or any
other person on whom it should be given will not invalidate the proceedings of the meeting.
The notice may be given to any member either personally or by sending it by post to him at
his registered address, or if there is none in India, to any address within India supplied by
him for the purpose. Where notice is sent by post, service is effected by properly addressing,
pre-paying and posting the notice. A notice may be given to joint holders by giving it to the
jointholder first named in the register of members. A notice of meeting may also be given by
advertising the same in a newspaper circulating in the neighbourhood of the registered
office of the company and it shall be deemed to be served on every member who has to
registered address in India for the giving of notices to him.

A notice calling a meeting must state the place, day and hour of the meeting and must
contain the agenda of the meeting. If the meeting is a statutory or annual general meeting,
notice must describe it as such. Where any items of special business are to be transacted at
the meeting, an explanatory statement setting out all materials facts concerning each item
of the special business including the concern or interest, if any, therein of every director and
manager, is any, must be annexed to the notice. If it is intended to propose any resolution
as a special resolution, such intention should be specified.

A notice convening an AGM must be accompanied by the annual accounts of the company,
the director’s report and the auditor’s report. The copies of these documents could,
however, be sent less than 21 days before of the date of the meeting if agreed to by all
members entitled to vote at the meeting.
Proxy
In case of a company having a share capital and in the case of any other company, if the
articles so authorise, any member of a company entitled to attend and vote at a meeting of
the company shall be entitled to appoint another person (whether a member or not) as his
proxy to attend and vote instead of himself. Every notice calling a meeting of the company
must contain a statement that a member entitled to attend and vote is entitled to appoint
one proxy in the case of a private company and one or more proxies in the case of a public
company and that the proxy need not be member of the company.

A member may appoint another person to attend and vote at a meeting on his behalf. Such
other person is known as "Proxy". A member may appoint one or more proxies to vote in
respect of the different shares held by him, or he may appoint one or more proxies in the
alternative, so that if the first named proxy fails to vote, the second one may do so, and so
on.

The member appointing a proxy must deposit with the company a proxy form at the time of
the meeting or prior to it giving details of the proxy appointed. However, any provision in the
articles which requires a period longer than forty eight hours before the meeting for
depositing with the company any proxy form appointing a proxy, shall have the effect as if a
period of 48 hours had been specified in such provision.

A company cannot issue an invitation at its expense asking any member to appoint a
particular person as proxy. If the company does so, every officer in default shall be liable to
fine up to Rs1,000. But if a proxy form is sent at the request of a member, the officer shall
not be liable. Every member entitled to vote at a meeting of the company, during the period
beginning 24 hours before the date fixed for the meeting and ending with the conclusion of
the meeting may inspect proxy forms at any time during business hours by giving 3 days
notice to the company of his intention to do so.

The proxy form must be in writing and be signed by the member or his authorised attorney
duly authorised in writing or if the appointer is a company, the proxy form must be under its
seal or be signed by an officer or an attorney duly authorised by it.

The proxy can be revoked by the member at any time, and is automatically revoked by the
death or insolvency of the member. The member may revoke the proxy by voting himself
before the proxy has voted, but once the proxy has exercised the vote, the member cannot
retract his vote. Where two proxy forms by the same shareholder are lodged in respect of
the same votes, the last proxy form will be treated as the correct proxy form.

A proxy is not entitled to vote except on a poll. Therefore, a proxy cannot vote on show of
hands.

Quorum
Quorum refers to the minimum number of members who must be present at a meeting in
order to constitute a valid meeting. A meeting without the minimum quorum is invalid and
decisions taken at such a meeting are not binding. The articles of a company may provide
for a quorum without which a meeting will be construed to be invalid. Unless the articles of a
company provide for larger quorum, 5 members personally present (not by proxy) in the
case of a public company and 2 members personally present (not by proxy) in the case of a
private company shall be the quorum for a general meeting of a company.

It has been held by Courts that unless the articles otherwise provide, a quorum need to be
present only when the meeting commenced, and it was immaterial that there was no
quorum at the time when the vote was taken. Further, unless the articles otherwise provide,
if within half an hour from the time appointed for holding a meeting of the company, a
quorum is not present in the person, the meeting :-

a. if called upon the requisition of members, shall stand dissolved;


b. in any other case, it shall stand adjourned to the same day in the next week, at the
same time and place, or to such other day and time as the Board of Directors may
determine.

If at the adjourned meeting also, the quorum is not present within half an hour from the time
appointed for holding the meeting, the members present shall a quorum.

In case the Company Law Board calls or directs the calling of a meeting of the company,
when default is made in holding an annual general meeting, the government may give
directions regarding the quorum including a direction that even one member of the
company present in person, or by proxy shall be deemed to constitute a meeting. Similarly
the Company Law Board may, direct a meeting of the company (other than an annual
general meeting) to be called and held where for any reason it is impracticable to call a
meeting and direct that even one member present in person or by proxy shall be deemed to
constitute a meeting.

Chairman
The chairman is the head of the meeting. Generally, the chairman of the Board of Directors
is the Chairman of the meeting. Unless the articles otherwise provide, the members present
in person at the meeting elect one of themselves to be the chairman thereof on a show of
the hands. If there is no Chairman or he is not present within 15 minutes after the appointed
time of the meeting or is unwilling to act as chairman of the meeting, the directors present
may elect one among themselves to be the chairman of the meeting. If, however no director
is willing to act as chairman or if no director is present within 15 minutes after the appointed
time of the meeting, the members present should choose one among themselves to be
chairman of the meeting. If, after the election of a chairman on a show of hands, poll is
demanded and taken and a different person is elected as chairman, then that person will be
the chairman for the rest of the meeting.

Duties of the chairman


Without a chairman, a meeting is incomplete. The chairman is the regulator of the meeting.
His duties include the following :-

1. He must ensure that the meeting is properly convened and constituted i.e. that
proper notice has been given, that the required quorum is present, etc.
2. He must ensure that the provisions of the act and the articles in regard to the
meeting and its procedures are observed.
3. He must ensure that business is taken in the order set out in agenda and no business
which is not mentioned in the agenda is taken up unless agreed to by the members.
4. He must impartially regulate the proceedings of the meeting and maintain discipline
at the meeting.
5. He may exercise his powers of adjournment of the meeting, should he in good faith
feel that such a step is necessary. The chairman has the power to adjourn the
meeting in case of indiscipline at the meeting. A chairman however does not have
the power to stop or adjourn the meeting at his own will and pleasure. If he adjourns
the meeting prematurely, the members present may decide to continue the meeting
and elect another chairman and proceed with the business for which it was
convened.
6. He must exercise his power to order a poll correctly and must order it to be taken
when demanded properly.
7. He must exercise his casting vote bonafide in the interest of the company.

Voting and Demand for Poll


Generally, initially matters are decided at a general meeting by a show of hands. If the
majority of the hands raise their hands in favour of a particular resolution, then unless a poll
is demanded, it is taken as passed. Voting by a show of hands operates on the principle of
"One Member-One Vote". However, since the fundamental voting principle in a company is
"One Share-One Vote", if a poll is demanded, voting takes place by a poll. Before or on
declaration of the result of the voting on any resolution on a show of hands, the chairman
may order suo motu (of his own motion) that a poll be taken. However, when a demand for
poll is made, he must order the poll be taken. The chairman may order a poll when a
resolution proposed by the Board is lost on the show of hands or if he is of the opinion that
the decision taken on the show of hands is likely to be reversed by poll. When a poll is taken,
The decision arrived by poll is final and the decision on the show of hands has no effect.

A poll is allowed only if the prescribed number of members demand a poll. A poll must be
ordered by the chairman if it is demanded:-

a. in the case of a public company having a share capital, by any member


or members present in person or by proxy and holding shares in the company-

i. which confer a power to vote on the resolution not being less


than one-tenth of the total voting power in respect of the resolution, or
ii. on which an aggregate sum of not less than fifty thousand
rupees has been paid up.

b. in the case of a private company having a share capital, by one


member having the right to vote on the resolution and present in person or by
proxy if not more than seven such members are personally present, and by
two such members present in person or by proxy, if more than seven such
members are personally present.
c. in the case of any other, by any member or members present in person
or by proxy and having not less than one-tenth of the total voting power in
respect of the resolution.

Motion
Motion means a proposal to be discussed at a meeting by the members. A resolution may be
passed accepting the motion, with or without modifications or a motion may be entirely
rejected. A motion, on being passed as a resolution becomes a decision. A motion must be in
writing and signed by the mover and put to the vote of the meeting by the chairman. Only
those motions which are mentioned in the agenda to the meeting can be discussed at the
meeting. However, motions incidental or ancillary to the matter under discussion may be
moved and passed. Generally, a motion is proposed by one member and seconded by
another member.

Amendment
Amendment means any modification to a motion before it is put to vote for adoption.
Amendment may be proposed by any member who has not already spoken on the main
motion or has not previously moved an amendment thereto. There can be an amendment to
an amendment motion also. A motion must be in writing and signed by the mover and put to
the vote of the meeting by the chairman. An amendment must not raise any question
already decided upon at the same meeting and must be relevant to the main motion which
it seeks to amend. The chairman has the discretion to accept or reject an amendment on
various grounds such as inconsistency, redundancy, irrelevance, etc. If the amendment is
adopted on a vote by the members, it is incorporated in the body of the main motion. The
altered motion is then discussed and put to vote and if passed, becomes a resolution.

Kinds of Resolutions
Resolutions mean decisions taken at a meeting. A motion, with or without amendments is
put to vote at a meeting. Once the motion is passed, it becomes a resolution. A valid
resolution can be passed at a properly convened meeting with the required quorum. There
are broadly three types of resolutions :-

1. Ordinary Resolution :
An ordinary resolution is one which can be passed by a simple majority. I.e. if the votes
(including the casting vote, if any, of the chairman), at a general meeting cast by members
entitled to vote in its favour are more than votes cast against it. Voting may be by way of a
show of hands or by a poll provided 21 days notice has been given for the meeting.

2. Special Resolution :
A special resolution is one in regard to which is passed by a 75 % majority only i.e. the
number of votes cast in favour of the resolution is at least three times the number of votes
cast against it, either by a show of hands or on a poll in person or by proxy. The intention to
propose a resolution as a special resolution must be specifically mentioned in the notice of
the general meeting. Special resolutions are needed to decide on important matters of the
company. Examples where special resolutions are required are :-

a. To alter the domicile clause of the memorandum from one State to


another or to alter the objects clause of the memorandum.
b. To alter / change the name of the company with the approval of the
central government
c. To alter the articles of association
d. To change the name of the company by omitting "Limited" or "Private
Limited". The Central Government may allow a company with charitable
objects to do so by special resolution under section 25 of the Companies Act,
1956.

3. Resolution requiring Special Notice :


There are certain matters specified in the Companies Act, 1956 which may be discussed at a
general meeting only if a special notice is given regarding the proposal to discuss these
matters at a meeting. A special notice enables the members to be prepared on the matter to
be discussed and gives them time to indicate their views on the resolution. In case special
notice of resolution is required by the Companies Act, 1956 or by the articles of a company,
the intention to propose such a resolution must be notified to the company at least 14 days
before the meeting. The company must within 7 days before the meeting give the notice of
the proposed resolution to its members. Notice of the resolution is required to be given in
the same way in which notice of a meeting is given, or if that is not practicable, the
company may give notice by advertisement in a newspaper having an appropriate
circulation or in any other manner allowed by the articles, not less 7 days before the
meeting.

The following matters requiring Special Notice before they are discussed before tha
meeting :-

a. To appoint at an annual general meeting appointing an auditor a


person other than a retiring auditor.
b. To resolve at an annual general meeting that a retiring auditor shall
not be reappointed.
c. To remove a director before the expiry of his period of office.
d. To appoint another director in place of removed director.
e. Where the articles of a company provide for the giving of a special
notice for a resolution, in respect of any specified matter or matters.

Please note that a resolution requiring special notice may be passed either as an ordinary
resolution (Simple majority) or as a special resolution (75 % majority).

Circulation of Member's Resolution


Generally, the Board of Directors prepare the agenda of the meeting to be sent to all
members of the meeting. A member, by himself has very little say in deciding the agenda.
However, there are provisions in the Companies Act which enable members to introduce
motions at a meeting and give prior notice of their intention to do so to all other members of
the company. If members having one twentieth of the total voting rights of all members
having the right to vote on a resolution or if 100 members having the right to vote and
holding paid-up capital of Rs1,00,000 or more, require the company to do so, the company
must :-

1. Give to the members entitled to receive notice of the next annual general meeting,
notice of any resolution which may be properly moved and is intended to be moved
at that meeting; and
2. Circulate to members entitled to have notice of any general meeting sent to them,
any statement of not more than 1,000 words with respect to the matter referred to in
any proposed resolution, or any business to be dealt with at that meeting.

The expenses for this purpose must be borne by the requisitionists and must be tendered to
the company. The requisition, signed by all the requisitionists, must be deposited at the
registered office of the company at least 6 weeks before the meeting in the case of
resolution and not less than 2 weeks before the meeting in case of any other requisition
together with a reasonable sum to meet the expenses. However, where a copy of the
requisition requiring notice of resolution has been deposited at the registered office of the
company and an annual general meeting is called for a date six weeks or less after the
requisition is deposited, the copy though not deposited within the prescribed time is deemed
to have been properly deposited.

The company is required to serve the notice of resolution and/or the statement to the
members as far as possible in the manner and so far as practicable at the same time as the
notice of the meeting ; otherwise as soon as practicable thereafter.

However, a company need not circulate a statement if the Court, on the application either of
the company or any other aggrieved person, is satisfied that the rights so conferred are
being abused to secure needless publicity or for defamatory purposes. Secondly a banking
company need not circulate such statement, if in the opinion of its Board of directors, the
circulation will injure the interest of the company.

Registration of Resolutions and Agreements


A copy of each of the following resolutions along with the explantory statement in case of a
special business and agreements must, within 30 days after the passing or making thereof,
be printed or typewritten and duly certified under the signature of an officer of the company
and filed with the Registrar of Companies who shall record the same :-

1. All special resolutions


2. All resolutions which have been unanimously agreed to by all the members but
which, if not so agreed, would not have been effective unless passed as special
resolutions
3. All resolutions of the board of directors of a company or agreement executed by a
company, relating to the appointment, re-appointment or renewal of the
appointment, or variation of the terms of appointment, of a managing director
4. All resolutions or agreements which have been agreed to by all members of any class
of members but which, if not so agreed, would not have been effective unless passed
by a particular majority or in a particular manner and all resolutions or agreements
which effectively bind all members of any class of shareholders though not agreed to
by all of those members
5. All resolutions passed by a company conferring power upon its directors to sell or
dispose of the whole or any part of the company's undertaking; or to borrow money
beyond the limit of the paid-up share capital and free reserves of the company; or to
contribute to charities beyond Rs50000 or 5 per cent of the average net profits
6. All resolutions approving the appointment of sole selling agents of the company
7. All copies of the terms and conditions of appointment of a sole selling agent or sole
buying or purchasing agent
8. Resolutions for voluntary winding up of a company

Adjournment
Adjournment means suspending the proceedings of a meeting for the time being so that the
meeting may be continued at a later date and time fixed in that meeting itself at the time of
such adjournment or to decided later on. Only the business not finished at the original
meeting can be transacted at the adjourned meeting.

The majority of members at a meeting may move an adjournment motion at a meeting. If


the chairman adjourns the meeting, ignoring the views of the majority, the remaining
members can continue the meeting. The chairman cannot adjourn the meeting at his own
discretion without there being a good cause for such an adjournment. Where the chairman,
acting bona fide within his powers, adjourns the meeting as per the view of the majority, the
minority members cannot to continue with such meeting and, if they do the proceedings
there will be null and void.

An adjourned meeting is merely the continuation of the original meeting and therefore, a
fresh notice is not necessary, if the time, date and place for holding the adjourned meeting
are decided and declared at the time of adjourning it. If a meeting is adjourned without
stipulation as to when it will be continued, fresh notice of the adjourned meeting must be
given.

Postponement
Postponement of a meeting means defering the holding of the meeting itself at a later date.
Postponement is done by the Board of Directors or by the person convening the meeting. In
case of adjournment, it is the decision of the majority of the members present at the
meeting itself.

Dissolution
Dissolution of a meeting means termination of a meeting. The meeting no longer exists once
it has been dissolved. If within half an hour after the time appointed for holding a general
meeting; the quorum is not present, the meeting shall stand dissolved if it was called on
requisition by members.

Minutes of Proceedings of Meetings


Every company must keep minutes of the proceedings of general meetings and of the
meetings of board of directors and its committees. The minutes are a record of the
discussions made at the meeting and the final decisions taken thereat.

Every company must keep minutes containing details of all proceedings at the meetings.
The pages of the minute books must be consecutively numbered and the minutes must be
recorded therein within 30 days of the meeting. They have to be written directly on the
numbered pages. Pasting or attaching of papers is not allowed. Each page of every such
minutes books must be initialed or signed and last page of the record of proceedings of each
meeting in such books must be dated and signed by :-

a. in the case of the meeting of the Board of directors or committee thereof, by the
chairman of that meeting or that of the succeeding meeting, and
b. in the case of a general meeting, by the chairman of the same meeting within the
aforesaid 30 days or in the event of the death or inability of that chairman within the
period, by a director duly authorised by the Board of directors for the purpose.

The Company Law Board, however, may not object if minutes are maintained in loose leaf
form provided all other procedural requirements are complied with and all possible
safeguards against manipulation or interpolation of the minutes are ensured. The loose
leaves must be bound at reasonable intervals. Entering the minutes in a bound minute book
by a chemical process, which does not amount to attachment to any book by pasting or
otherwise is permissible provided on the mechanical impression of the minutes, the original
signatures of the Chairman are given on each page. All appointments of officers made at
any of the meetings must be included in the minutes of the meeting. In the case of a
meeting of the Board of directors or its Committee, the minutes must also state the names
of directors present at the meeting and the names of directors, if any, dissenting from, or
not concurring with a resolution passed at the meeting.

The chairman may exclude from the minutes any matters which are defamatory, irrelevant
or immaterial or which are detrimental to the interests of the company. The discretion of the
Chairman with regard to the inclusion or exclusion of any matter is absolute and unfettered.

Where minutes of the proceedings of any meeting have been kept properly, they are, unless
the contrary is proved, presumed to be correct, and are valid evidence that the meeting was
duly called and held, and all proceedings thereat have actually taken place, and in
particular, all appointments of directors or liquidators made at the meeting shall be deemed
to be valid.

The minute books of the proceedings of general meetings must be kept the registered office
of the company. Any member has a right to inspect, free of cost during business hours at
the registered office of the company, the minutes books containing the proceedings of the
general meetings of the company. Further, any member shall be entitled to be furnished,
within 7 days after he has made a request to the company, with a copy of any minutes on
payment of Rupee One for every hundred words or fraction thereof. If any inspection is
refused or copy not furnished within the time specified, every officer in default shall be
punishable with fine up to Rs. 500 for each offence. The Company Law Board may also by
order compel an immediate inspection or furnishing of a copy forthwith. But the minutes
books of the board meetings are not open for inspection of members

Books of Account to be kept by a Company


Every company must maintain proper books of accounts of its affairs. The following
transactions must be entered in the books of accounts of the company which must be kept
at its registered office :-
a. all sums of money received and expended by the company and the matters in
respect of which the respect of which the receipt and expenditure took place;
b. all sales and purchases of goods by the company; and
c. the assets and liabilities of the company.
d. in the case of a company engaged in production, processing, manufacturing or
mining activities, such particulars relating to utilisation of material or other items of
cost as may be prescribed relating to certain class of companies as the Central
Government may require.

The books of accounts must comply with the following conditions :-

1. The books must give a true and fair view of the state of affairs of the company or the
branch office, if any, and explain its transaction.
2. The books must be kept on accrual basis and according to double entry system of
accounting.

Every company must keep its books of account at its registered office. However, some of the
books of account may be kept at such other place in India as the Board of Directors may
decide, provided a notice in writing giving full address of that other place alongwith requisite
filing fee is filed with the Registrar of Companies within seven of such decision.

If the company has a branch office, the books of account relating to transactions at the
branch office may be kept at that branch office, but proper summarised reports and
statements must be sent to the registered office or such other place where the books are
kept, at intervals of not more than three months. The books of account of the branch must
give a true and fair view of the affairs of the branch and clearly explain its transactions.

They must not conceal any transaction and also not disclose any transaction which is
fictitious. The books of accounts and other documents and records are open to inspection by
any director during business hours. Similarly, they are open to inspection by the Registrar of
Companies or an officer authorised by the Central Government.

These books and papers together with the vouchers pertaining to entries made must be
maintained for at least 8 years. It has been clarified by the Department of Company Affairs
in their Circular No. 2/83 dated 2/3/1983 that the books of account should be prepared and
maintained in indelible ink (and not in pencil).

The following persons are responsible for maintaining the books of accounts of a company :-

1. The managing director or manager;


2. If the company has neither a managing director nor manager, then every director of
the company;
3. Every officer and other employee who has been authorised and to whom
responsibility to maintain the books has been alloted by the Board of Directors.

If any of the persons referred to above fails to take all reasonable steps to maintain proper
books of accounts or has by his own willful act been the cause of any default by the
company in this respect, he is punishable with imprisonment up to six months or with fine
which may extend to Rs. 1,000 or with both. However, no person can be sentenced to
imprisonment unless it is proved that the contravention was committed by him wilfully.
Preparation of Balance Sheet and Profit and Loss Account
The company has to prepare its balance sheet and profit & loss account from the books of
account maintained by it. Every Balance Sheet of a company must give a true and fair view
of the state of affairs of the company as at the end of the financial year and must be in the
prescribed format.

If the responsible for maintaining proper books of account fails to take all reasonable steps
to secure compliance by the company with the requirement of law relating to the form and
contents of the balance sheet, he is liable for each offence to imprisonment for a term
extending up to six months or to fine up to Rs.1,000/- or to both.

Form of Balance Sheet,


Part 1 to Schedule VI of the Companies Act, 1956 gives the format in which the balance
sheet is to be prepared. The schedule specifies 2 types of formats, the horizontal format and
the vertical format. A company can prepare its balance sheet in either of the 2 formats. In
the horizontal format, the liabilities including the share capital are placed on the left side
and assets of all types on the right. The main heads in this form are arranged as under:

(a) Share Capital (a) Fixed assets


(b) Reserves and surplus (b) Investments
(c) Loans (c) Current assets, loans and advances
Current liabilities and (d) Miscellaneous
(d) expenditure to the provisions extent not written
off or adjusted
(e) Profit & Loss Account
----------- -----------
Total
----------- -----------

In the vertical format, the various heads of liabilities and assets are arranged vertically and
current liabilities are shown as deduction, from current assets. Whatever information which
is required to be given in the horizontal format must also be given in the vertical format.
Summarised prescribed vertical form of balance sheet is given below:

I. Sources of Funds

(1) Shareholders' funds


(2) Loan funds
----------------------
Total
----------------------

II Application of Funds

(1) Fixed assets


(2) Investments
(3) Current assets, loans and advances
Less: Current liabilities & provisions
(a) Miscellaneous expenditure to the extent not
(4)
written off or adjusted
(b) Profit & Loss Account
----------------------
Total
----------------------

The Central Government may, on the application or with the consent of the Board of
Directors of the company, by order, modify in relation to that company, any of the
requirements as to matters to be stated in the company's balance sheet or profit and loss
account for adapting them to the circumstances of the company.

Contents of Profit and Loss Account


Though no format has been prescribed for the profit and loss account, Part II to Schedule VI
of the Companies Act, 1956 gives a list of items which must be disclosed in every profit &
loss account. Every profit and loss account of a company must give a true and fair view of
the company's profit or loss for the financial year for which it is drawn up.

Adoption of Balance Sheet and Profit & Loss Account


The Board of directors must present to the shareholders of the company, the balance sheet
and a profit and loss account for the financial year at every annual general meeting. In the
case of companies which are not commercial organisations such as Section 25 companies,
instead if the profit & loss account, an income & expenditure account may be prepared. The
profit and loss account to be placed in the FIRST annual general meeting should relate to a
period beginning with the incorporation of the company and ending with a day, the interval
between which and the date of the meeting does not exceed nine months. In case of
subsequent annual general meetings, the profit and loss account should relate to a period
beginning with a day immediately after the period for which the preceding profit & loss
account was made and ending with a day, the interval between which and the date of the
meeting should not exceed six months. The financial year may be more or less than a
calendar year, but it must not exceed 15 months or with the special permission of the
Registrar, 18 months.

If any director fails to take all reasonable steps to comply with the aforesaid requirements
he is, in respect of each offence liable to be punished with imprisonment up to six months or
with fine up to Rs.1,000/- or with both.

Authentication of Balance Sheet and Profit & Loss Account


The balance sheet and profit & loss account of a company must be signed on behalf of the
Board of directors by two directors out of whom one must be the managing director, where
there is one and the manager, or secretary, if any. The balance sheet and profit and loss
account must be approved by the Board of directors before they are submitted to the
auditors for the purpose of audit. The report of the auditors must be attached to the balance
sheet and profit & loss account.

The company and every officer of the company who is in default with the above provisions
shall be punishable with the fine which may extend to Rs.500/-, if:

a. any copy of balance sheet and profit and loss account is issued, circulated or
published, without being signed as required ; or
b. any copy of balance sheet is issued, circulated or published, without there being
annexed or attached thereto, a copy each of the following :-

1. the profit and loss account;


2. any accounts, reports or statements pertaining to subsidiary
companies which are required to be attached to the balance sheet,
3. the auditors' report; and
4. the Report of the Board of Directors

Circulation of Balance Sheet and Auditors' Report


A copy of every balance sheet, profit and loss account, auditors' report and every other
document required to be annexed or attached to the balance sheet must be sent not less
than twenty-one days before the general meeting to every member, to every trustee for
debenture holders, and to all other persons who are entitled to have a notice of general
meetings. In the case of a company not having a share capital, the above documents need
not be sent to a member, or debenture holder who is not entitled to have notice of general
meetings.

In case of listed companies, the company may keep the aforesaid documents available for
inspection at its registered office during working hours for a period of twenty-one days
before the meeting and send to every member and trustee for debentureholders only a
summarised statement containing the salient features of these documents in the prescribed
format.

Filing of Annual Accounts with the Registrar


Every company must file with the Registrar within 30 days from the day on which the annual
accounts, auditor’s report and the director’s report were presented at the annual general
meeting, three certified copies of these documents signed by the managing director,
manager or secretary of the company or if there be none of these by a director of the
company.

These accounts may be inspected and copies thereof may be obtained by any member of
the public at the Registrar of Companies on payment of the requisite fee. However, no
person other than a member of the company is entitled to inspect, or obtain copies, of the
profit and loss account in the case of the following types of companies :-

1. a private company which is not a subsidiary of public company;


2. a private company whose entire paid-up capital is held only by one or more bodies
corporate incorporated outside India; or
3. a private company which is deemed to be a public company by virtue of Section 43A,
if the Central Government directs that it is not in the public interest that any person
other than a member of the company should be entitled to inspect or obtain copies of
the profit and loss account of the company.

In case the annual general meeting of a company for any year has not been held, , 3 copies
of the balance sheet and profit and loss account, duly signed, within thiry days from the
latest day on or before which that meeting should have been held in accordance with the
provisions of the Act must be filed with the Registrar of Companies. If for any reason, the
annual general meeting before which a balance sheet is laid does not adopt it, or is
adjourned without adopting the balance sheet or if the annual general meeting of a
company for any year has not been held, a statement of the fact and reasons thereof must
also be annexed to the balance sheet and to the copies thereof to be filed with the Registrar.
If default is made in complying with the above provisions, then the company and every
officer of the company who is in default shall be punishable with fine which may extend to
Rs.50 for every day during the period the default continues.

Directors' Report

The report of the Board of Directors must be attached to every balance sheet prsented at
the annual general meeting. The report must contain information regarding the following
matters :-

1. The state of affairs of the company


2. The amount, if any, which it proposes to carry to any reserves in such balance sheet
3. The amount of dividend recommended
4. Details of any material changes and commitments, if any, affecting the financial
position of the company which have occurred between the end of the financial year
of the company to which the balance sheet relates and the date of the report
5. Conservation of energy, technology absorption, foreign exchange earnings and
outgo.
6. Names, designations and other particulars of all employees drawing more than Rs.
50000/- p.m. in the company
7. Details necessary for a proper understanding of the state of the company's affairs
and which are not, in the Board's opinion, harmful to the business of the company or
of any of its subsidiaries, in respect of changes which have occured during the
financial year :-

i. in the nature of company's business;


ii. in the company's subsidiaries or in the nature of the business carried
on by them; and
iii. generally in the classes of business in which the company has an
interest

Auditors of Company

Auditors of Government Companies


The auditor of a Government company is appointed or re-appointed by the Central
Government on the advice of the Comptroller and Auditor-General of India provided that the
audit would be within the number of acceptable audits available to each auditor.

The Comptroller & Auditor General of India has the power :-

a. to direct the manner in which the company's accounts are to be be audited by the
auditor so appointed and to give such auditor instructions in regard to any matter
relating to the performance of his functions as such
b. to conduct supplementary or test audit of the company's accounts by such person or
persons or persons as he may authorise in this behalf; and for the purpose of such
audit, to require additional information to be furnished to any person or persons so
authorised, on such matters, by such person or persons, and in such form, as the
Comptroller and Auditor-General may, by general or special order, direct.

The auditor must submit a copy of his audit report to the Comptroller and Auditor-General of
India who shall have the right to comment upon or supplement, the audit report in such
manner as he may think fit.
Any such comments upon, or supplement to, the audit report must be placed before the
annual general meeting of the company at the same time and in the same manner as the
auditors' report.

Auditors of Other Companies


It is the duty of the auditor conduct the audit of the books of accounts of the company and
to make his report to the members of the company on the accounts examined by him, and
on every balance sheet, every profit and loss account and on every other document
declared by the Act to be part of or annexed to the balance-sheet or profit and loss account
and laid before the company in general meeting during his tenure of office. The auditor’s
report, besides other things necessary in any particular case, must expressly state-

1. whether, in his opinion and to the best of his information and according to
explanation given to him, the accounts give the information required by the Act and
in the manner as required;
2. whether the balance-sheet gives a true and fair view of the company's affairs as at
the end of the financial year and the profit and loss account gives a true and fair view
of the profit or loss for the financial year;
3. whether he has obtained all the information and explanations required by him for the
purposes of his audit;
4. whether in his opinion, the profit & loss account and balance sheet refered to in his
report comply with the accounting standards recommended by the Institute of
Chartered Accountants of India;
5. whether, in his opinion, proper books of account as required by law have been kept
by the company, and proper returns for the purposes of his audit have been received
from the branches not visited by him;
6. whether the company's balance sheet and profit and loss account dealt with by the
report are in agreement with the books of account and returns.

In case any of the above matters is answered in the negative or with a qualification, the
auditor's report must state the reason for the same. Where the auditor is unable to express
any opinion in answer to a particular question, his report shall indicate such fact together
with the reasons why it is not possible for him to give an answer to such question.

The Central Government is empowered to issue orders requiring the auditor to include in his
report a statement on such matters as may be specified. In exercise of this power the
Central Government has issued an order called "The Manufacturing and other Companies
(Auditor's Report) Order, 1975. It is the duty of the auditor to comply with this order when
making his report to the shareholders.

Only the person appointed as auditor of the company or where a firm of auditors is so
appointed, only a partner of that the firm practising in India, can sign the auditor's report or
sign or authenticate any other document of the company required by law to be signed or
authenticated by the auditor.

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

Inter Corporate Loans and Investments

A company cannot :-

i. make any loan to any other body corporate


ii. give guarantee or security in connection with any loan made by any person to
another body corporate
iii. acquire, by subscription, purchase or in any other manner, securities in any other
body corporate

exceeding 60 % of its paid up share capital and free reserves or 100 % of its free reserves,
whichever is more, unless approved by a special resolution passed at a general meeting of
members.

The Board of the company may give a guarantee without being previously authorised by a
special resolution of members if all the following conditions are satisfied :-

i. a Board resolution is passed to this effect


ii. there exist exceptional circumstances which prevent the company from obtaining
previous authorisation by special resolution
iii. the Board resolution is confirmed within 12 months in a general meeting or its next
Annual general meeting, whichever is earlier.

Notice of such resolution must clearly indicate the specific limits, the particulars of the body
corporate in which the investment / loan / guarantee / security is proposed, the purpose of
the investment / loan / guarantee / security, sources of funding, etc.

No investment / loan / guarantee / security may be made or given unless the Board
resolution sanctioning it is with the consent of all directors present at the meeting and prior
approval of the public financial institution ( if any term loan is outstanding ) is obtained.

Approval of the public financial institution is not required if the investment / loan / guarantee
/ security is with the 60 % limit as mentioned above and there has been no default in
repaying the term loan and / or interest thereon.

No loan can be made at a rate of interest lower than the bank rate prescribed by the
Reserve Bank of India.

A company which has defaulted in repaying public fixed deposits cannot make or give any
investment / loan / guarantee / security unless the fixed deposit is fully repaid along with
interest due as per the terms and conditions of the fixed deposit.

A register of such inter-corporate loans and investments must be maintained giving the
relevant details.

The above provisions do not apply to :-

i. Any loan / guarantee / security made or given by :-

a. a banking company or an insurance company or a housing finance company in


the ordinary course of its business or a company established with the object of
financing industrial enterprises or providing infrastructural facilities
b. a company whose principal business is the acquisition of shares, stocks,
debentures or other securities
c. a private company unless it is a subsidiary of a public company
ii. Investment made under Rights issue of securities
iii. Loan made by holding company to its wholly subsidiary company
iv. Guarantee or security given by a holding company for loan to its wholly owned
subsidiary
v. Acquisition of securities by a holding company in its wholly owned subsidiary

Books of Account to be kept by a Company


Every company must maintain proper books of accounts of its affairs. The following
transactions must be entered in the books of accounts of the company which must be kept
at its registered office :-

a. all sums of money received and expended by the company and the matters in
respect of which the respect of which the receipt and expenditure took place;
b. all sales and purchases of goods by the company; and
c. the assets and liabilities of the company.
d. in the case of a company engaged in production, processing, manufacturing or
mining activities, such particulars relating to utilisation of material or other items of
cost as may be prescribed relating to certain class of companies as the Central
Government may require.

The books of accounts must comply with the following conditions :-

1. The books must give a true and fair view of the state of affairs of the company or the
branch office, if any, and explain its transaction.
2. The books must be kept on accrual basis and according to double entry system of
accounting.

Every company must keep its books of account at its registered office. However, some of the
books of account may be kept at such other place in India as the Board of Directors may
decide, provided a notice in writing giving full address of that other place alongwith requisite
filing fee is filed with the Registrar of Companies within seven of such decision.

If the company has a branch office, the books of account relating to transactions at the
branch office may be kept at that branch office, but proper summarised reports and
statements must be sent to the registered office or such other place where the books are
kept, at intervals of not more than three months. The books of account of the branch must
give a true and fair view of the affairs of the branch and clearly explain its transactions.

They must not conceal any transaction and also not disclose any transaction which is
fictitious. The books of accounts and other documents and records are open to inspection by
any director during business hours. Similarly, they are open to inspection by the Registrar of
Companies or an officer authorised by the Central Government.

These books and papers together with the vouchers pertaining to entries made must be
maintained for at least 8 years. It has been clarified by the Department of Company Affairs
in their Circular No. 2/83 dated 2/3/1983 that the books of account should be prepared and
maintained in indelible ink (and not in pencil).

The following persons are responsible for maintaining the books of accounts of a company :-

1. The managing director or manager;


2. If the company has neither a managing director nor manager, then every director of
the company;
3. Every officer and other employee who has been authorised and to whom
responsibility to maintain the books has been alloted by the Board of Directors.

If any of the persons referred to above fails to take all reasonable steps to maintain proper
books of accounts or has by his own willful act been the cause of any default by the
company in this respect, he is punishable with imprisonment up to six months or with fine
which may extend to Rs. 1,000 or with both. However, no person can be sentenced to
imprisonment unless it is proved that the contravention was committed by him wilfully.

Preparation of Balance Sheet and Profit and Loss Account


The company has to prepare its balance sheet and profit & loss account from the books of
account maintained by it. Every Balance Sheet of a company must give a true and fair view
of the state of affairs of the company as at the end of the financial year and must be in the
prescribed format.

If the responsible for maintaining proper books of account fails to take all reasonable steps
to secure compliance by the company with the requirement of law relating to the form and
contents of the balance sheet, he is liable for each offence to imprisonment for a term
extending up to six months or to fine up to Rs.1,000/- or to both.

Form of Balance Sheet,


Part 1 to Schedule VI of the Companies Act, 1956 gives the format in which the balance
sheet is to be prepared. The schedule specifies 2 types of formats, the horizontal format and
the vertical format. A company can prepare its balance sheet in either of the 2 formats. In
the horizontal format, the liabilities including the share capital are placed on the left side
and assets of all types on the right. The main heads in this form are arranged as under:

(a) Share Capital (a) Fixed assets


(b) Reserves and surplus (b) Investments
(c) Loans (c) Current assets, loans and advances
Current liabilities and (d) Miscellaneous
(d) expenditure to the provisions extent not written
off or adjusted
(e) Profit & Loss Account
----------- -----------
Total
----------- -----------

In the vertical format, the various heads of liabilities and assets are arranged vertically and
current liabilities are shown as deduction, from current assets. Whatever information which
is required to be given in the horizontal format must also be given in the vertical format.
Summarised prescribed vertical form of balance sheet is given below:

I. Sources of Funds

(1) Shareholders' funds


(2) Loan funds
----------------------
Total
----------------------

II Application of Funds

(1) Fixed assets


(2) Investments
(3) Current assets, loans and advances
Less: Current liabilities & provisions
(a) Miscellaneous expenditure to the extent not
(4)
written off or adjusted
(b) Profit & Loss Account
----------------------
Total
----------------------

The Central Government may, on the application or with the consent of the Board of
Directors of the company, by order, modify in relation to that company, any of the
requirements as to matters to be stated in the company's balance sheet or profit and loss
account for adapting them to the circumstances of the company.

Contents of Profit and Loss Account


Though no format has been prescribed for the profit and loss account, Part II to Schedule VI
of the Companies Act, 1956 gives a list of items which must be disclosed in every profit &
loss account. Every profit and loss account of a company must give a true and fair view of
the company's profit or loss for the financial year for which it is drawn up.

Adoption of Balance Sheet and Profit & Loss Account


The Board of directors must present to the shareholders of the company, the balance sheet
and a profit and loss account for the financial year at every annual general meeting. In the
case of companies which are not commercial organisations such as Section 25 companies,
instead if the profit & loss account, an income & expenditure account may be prepared. The
profit and loss account to be placed in the FIRST annual general meeting should relate to a
period beginning with the incorporation of the company and ending with a day, the interval
between which and the date of the meeting does not exceed nine months. In case of
subsequent annual general meetings, the profit and loss account should relate to a period
beginning with a day immediately after the period for which the preceding profit & loss
account was made and ending with a day, the interval between which and the date of the
meeting should not exceed six months. The financial year may be more or less than a
calendar year, but it must not exceed 15 months or with the special permission of the
Registrar, 18 months.

If any director fails to take all reasonable steps to comply with the aforesaid requirements
he is, in respect of each offence liable to be punished with imprisonment up to six months or
with fine up to Rs.1,000/- or with both.

Authentication of Balance Sheet and Profit & Loss Account


The balance sheet and profit & loss account of a company must be signed on behalf of the
Board of directors by two directors out of whom one must be the managing director, where
there is one and the manager, or secretary, if any. The balance sheet and profit and loss
account must be approved by the Board of directors before they are submitted to the
auditors for the purpose of audit. The report of the auditors must be attached to the balance
sheet and profit & loss account.

The company and every officer of the company who is in default with the above provisions
shall be punishable with the fine which may extend to Rs.500/-, if:

a. any copy of balance sheet and profit and loss account is issued, circulated or
published, without being signed as required ; or
b. any copy of balance sheet is issued, circulated or published, without there being
annexed or attached thereto, a copy each of the following :-

1. the profit and loss account;


2. any accounts, reports or statements pertaining to subsidiary
companies which are required to be attached to the balance sheet,
3. the auditors' report; and
4. the Report of the Board of Directors

Circulation of Balance Sheet and Auditors' Report


A copy of every balance sheet, profit and loss account, auditors' report and every other
document required to be annexed or attached to the balance sheet must be sent not less
than twenty-one days before the general meeting to every member, to every trustee for
debenture holders, and to all other persons who are entitled to have a notice of general
meetings. In the case of a company not having a share capital, the above documents need
not be sent to a member, or debenture holder who is not entitled to have notice of general
meetings.

In case of listed companies, the company may keep the aforesaid documents available for
inspection at its registered office during working hours for a period of twenty-one days
before the meeting and send to every member and trustee for debentureholders only a
summarised statement containing the salient features of these documents in the prescribed
format.

Filing of Annual Accounts with the Registrar


Every company must file with the Registrar within 30 days from the day on which the annual
accounts, auditor’s report and the director’s report were presented at the annual general
meeting, three certified copies of these documents signed by the managing director,
manager or secretary of the company or if there be none of these by a director of the
company.

These accounts may be inspected and copies thereof may be obtained by any member of
the public at the Registrar of Companies on payment of the requisite fee. However, no
person other than a member of the company is entitled to inspect, or obtain copies, of the
profit and loss account in the case of the following types of companies :-

1. a private company which is not a subsidiary of public company;


2. a private company whose entire paid-up capital is held only by one or more bodies
corporate incorporated outside India; or
3. a private company which is deemed to be a public company by virtue of Section 43A,
if the Central Government directs that it is not in the public interest that any person
other than a member of the company should be entitled to inspect or obtain copies of
the profit and loss account of the company.

In case the annual general meeting of a company for any year has not been held, , 3 copies
of the balance sheet and profit and loss account, duly signed, within thiry days from the
latest day on or before which that meeting should have been held in accordance with the
provisions of the Act must be filed with the Registrar of Companies. If for any reason, the
annual general meeting before which a balance sheet is laid does not adopt it, or is
adjourned without adopting the balance sheet or if the annual general meeting of a
company for any year has not been held, a statement of the fact and reasons thereof must
also be annexed to the balance sheet and to the copies thereof to be filed with the Registrar.

If default is made in complying with the above provisions, then the company and every
officer of the company who is in default shall be punishable with fine which may extend to
Rs.50 for every day during the period the default continues.

Directors' Report

The report of the Board of Directors must be attached to every balance sheet prsented at
the annual general meeting. The report must contain information regarding the following
matters :-

1. The state of affairs of the company


2. The amount, if any, which it proposes to carry to any reserves in such balance sheet
3. The amount of dividend recommended
4. Details of any material changes and commitments, if any, affecting the financial
position of the company which have occurred between the end of the financial year
of the company to which the balance sheet relates and the date of the report
5. Conservation of energy, technology absorption, foreign exchange earnings and
outgo.
6. Names, designations and other particulars of all employees drawing more than Rs.
50000/- p.m. in the company
7. Details necessary for a proper understanding of the state of the company's affairs
and which are not, in the Board's opinion, harmful to the business of the company or
of any of its subsidiaries, in respect of changes which have occured during the
financial year :-

i. in the nature of company's business;


ii. in the company's subsidiaries or in the nature of the business carried
on by them; and
iii. generally in the classes of business in which the company has an
interest

Auditors of Company

Auditors of Government Companies


The auditor of a Government company is appointed or re-appointed by the Central
Government on the advice of the Comptroller and Auditor-General of India provided that the
audit would be within the number of acceptable audits available to each auditor.

The Comptroller & Auditor General of India has the power :-


a. to direct the manner in which the company's accounts are to be be audited by the
auditor so appointed and to give such auditor instructions in regard to any matter
relating to the performance of his functions as such
b. to conduct supplementary or test audit of the company's accounts by such person or
persons or persons as he may authorise in this behalf; and for the purpose of such
audit, to require additional information to be furnished to any person or persons so
authorised, on such matters, by such person or persons, and in such form, as the
Comptroller and Auditor-General may, by general or special order, direct.

The auditor must submit a copy of his audit report to the Comptroller and Auditor-General of
India who shall have the right to comment upon or supplement, the audit report in such
manner as he may think fit.

Any such comments upon, or supplement to, the audit report must be placed before the
annual general meeting of the company at the same time and in the same manner as the
auditors' report.

Auditors of Other Companies


It is the duty of the auditor conduct the audit of the books of accounts of the company and
to make his report to the members of the company on the accounts examined by him, and
on every balance sheet, every profit and loss account and on every other document
declared by the Act to be part of or annexed to the balance-sheet or profit and loss account
and laid before the company in general meeting during his tenure of office. The auditor’s
report, besides other things necessary in any particular case, must expressly state-

1. whether, in his opinion and to the best of his information and according to
explanation given to him, the accounts give the information required by the Act and
in the manner as required;
2. whether the balance-sheet gives a true and fair view of the company's affairs as at
the end of the financial year and the profit and loss account gives a true and fair view
of the profit or loss for the financial year;
3. whether he has obtained all the information and explanations required by him for the
purposes of his audit;
4. whether in his opinion, the profit & loss account and balance sheet refered to in his
report comply with the accounting standards recommended by the Institute of
Chartered Accountants of India;
5. whether, in his opinion, proper books of account as required by law have been kept
by the company, and proper returns for the purposes of his audit have been received
from the branches not visited by him;
6. whether the company's balance sheet and profit and loss account dealt with by the
report are in agreement with the books of account and returns.

In case any of the above matters is answered in the negative or with a qualification, the
auditor's report must state the reason for the same. Where the auditor is unable to express
any opinion in answer to a particular question, his report shall indicate such fact together
with the reasons why it is not possible for him to give an answer to such question.

The Central Government is empowered to issue orders requiring the auditor to include in his
report a statement on such matters as may be specified. In exercise of this power the
Central Government has issued an order called "The Manufacturing and other Companies
(Auditor's Report) Order, 1975. It is the duty of the auditor to comply with this order when
making his report to the shareholders.
Only the person appointed as auditor of the company or where a firm of auditors is so
appointed, only a partner of that the firm practising in India, can sign the auditor's report or
sign or authenticate any other document of the company required by law to be signed or
authenticated by the auditor.

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

Inter Corporate Loans and Investments

A company cannot :-

i. make any loan to any other body corporate


ii. give guarantee or security in connection with any loan made by any person to
another body corporate
iii. acquire, by subscription, purchase or in any other manner, securities in any other
body corporate

exceeding 60 % of its paid up share capital and free reserves or 100 % of its free reserves,
whichever is more, unless approved by a special resolution passed at a general meeting of
members.

The Board of the company may give a guarantee without being previously authorised by a
special resolution of members if all the following conditions are satisfied :-

i. a Board resolution is passed to this effect


ii. there exist exceptional circumstances which prevent the company from obtaining
previous authorisation by special resolution
iii. the Board resolution is confirmed within 12 months in a general meeting or its next
Annual general meeting, whichever is earlier.

Notice of such resolution must clearly indicate the specific limits, the particulars of the body
corporate in which the investment / loan / guarantee / security is proposed, the purpose of
the investment / loan / guarantee / security, sources of funding, etc.

No investment / loan / guarantee / security may be made or given unless the Board
resolution sanctioning it is with the consent of all directors present at the meeting and prior
approval of the public financial institution ( if any term loan is outstanding ) is obtained.

Approval of the public financial institution is not required if the investment / loan / guarantee
/ security is with the 60 % limit as mentioned above and there has been no default in
repaying the term loan and / or interest thereon.

No loan can be made at a rate of interest lower than the bank rate prescribed by the
Reserve Bank of India.

A company which has defaulted in repaying public fixed deposits cannot make or give any
investment / loan / guarantee / security unless the fixed deposit is fully repaid along with
interest due as per the terms and conditions of the fixed deposit.

A register of such inter-corporate loans and investments must be maintained giving the
relevant details.
The above provisions do not apply to :-

i. Any loan / guarantee / security made or given by :-

a. a banking company or an insurance company or a housing finance company in


the ordinary course of its business or a company established with the object of
financing industrial enterprises or providing infrastructural facilities
b. a company whose principal business is the acquisition of shares, stocks,
debentures or other securities
c. a private company unless it is a subsidiary of a public company

ii. Investment made under Rights issue of securities


iii. Loan made by holding company to its wholly subsidiary company
iv. Guarantee or security given by a holding company for loan to its wholly owned
subsidiary
v. Acquisition of securities by a holding company in its wholly owned subsidiary

Minimum number of directors


Every public company ( other than a deemed public company ) must have at least three
directors. Every other company must have at least two directors.

The directors of a company collectively are referred to as the "Board of directors" or


"Board". Only individuals can be appointed as directors. No body corporate, association or
firm can be appointed director of a Company.

In case the first directors are not appointed by the promoters of a company, subscribers of
the memorandum who are individuals, shall be deemed to be the directors of the company,
until the directors are duly appointed.

Appointment of directors and proportion of those who are to be retire by rotation


Unless that articles provide for the retirement of all directors at every annual general
meeting, at least two-thirds of the total number of directors of a public company, or of a
private company which is subsidiary of a public company, must :-

(a) retire by rotation

(b) be appointed by the company in general meeting, except where otherwise provided by
the Companies Act.

The remaining directors in the case of any such company, and the directors generally in the
case of a private company which is not a subsidiary of a public company, must also be
appointed by the company in general meeting, unless otherwise provided in any regulations
in the articles of the company.

Ascertainment of directors retiring by rotation and filling of vacancies


At every annual general meeting of a public company, or a private company which is a
subsidiary of a public company, one-third of the directors liable to retirement by rotation or
if their number is not three or a multiple of three, then, the number nearest to one-third,
shall retire from office.
The directors to retire by rotation at every annual general meeting shall be those who have
been longest in office since their last appointment, but as between persons who became
directors on the same day, those who will have to retire is to be determined by lot, unless
otherwise agreed to among themselves.

At the annual general meeting at which a director retires as aforesaid the company may fill
up the vacancy by appointing the retiring director or some other person thereto. In other
words, a retiring director is eligible for re-appointment at the same meeting.

If the place of the retiring director is not so filled up and the meeting has not expressly
resolved not to fill the vacancy, the meeting shall stand adjourned till the same day in the
next week, at the same time and place, or if that day is a public holiday, till the next
succeeding day which is not a public holiday, at the same time and place.

If at the adjourned meeting also, the place of the retiring director is not filled up and that
meeting also has not expressly resolved not to fill the vacancy the retiring director shall be
deemed to have been re-appointed at the adjourned meeting, unless

i. a resolution for the re-appointment of such director has been put to the meeting and
lost
ii. the retiring director, has by a notice in writing addressed to the company or its Board
of directors, expressed his unwillingness to be so re-appointed
iii. he is not qualified or is disqualified for appointment
iv. a resolution, whether special or ordinary, is required for his appointment or re-
appointment in virtue of any provisions of this Act.

Right of persons other than retiring directors to stand for directorship


A person who is not a retiring director shall, subject to the provisions of this Act, be eligible
for appointment to the office of director at any general meeting, if he or some member
intending to propose him has, given notice in writing to the company at its registered office
of at least 14 days before the meeting, signifying his candidature for the office of director or
the intention of such member to propose him as a candidate for that office along with a
deposit of rupees five hundred ( refundable on successful election ).

The company must inform its members of such candidature by giving at least 7 days prior
notice. Such notice may not be required if the company advertises such candidature at least
7 days before the meeting in at least 2 newspapers circulating in the place where the
registered office of the company is situated, one of which must be in English and the other
in the regional language.

This provision shall not apply to a private company, unless it is a subsidiary of a public
company.

Right of company to increase or reduce the number of directors


A company, at a general meeting may, by ordinary resolution, increase or reduce the
number of its directors within the limits fixed in that behalf by its articles.

Increase in number of directors to require Government sanction


In the case of a public company, or a private company which is a subsidiary of a public
company, any increase in the number of its directors, beyond the maximum number of
directors permitted by the Articles of the Company as first registered, shall not have any
effect unless approved by the Central Government and shall become void if, and in so far as,
it is disapproved by that Government.
However, where such permissible maximum is 12 or less, no approval of the Central
Government is required provided the increase does not increase the number of directors
beyond 12.

Additional directors
The Board of directors may appoint additional directors if such power is conferred on it by
the articles of the company. Such additional directors shall hold office only up to the date of
the next annual general meeting of the company.

Provided further that the number of the directors and additional directors together shall not
exceed the maximum strength fixed for the Board by the articles.

Filling of casual vacancies among directors


In the case of a public company or a private company which is a subsidiary of a public
company, if the office of any director appointed by the company in general meeting is
vacated before his term of office will expire in the normal course, the resulting casual
vacancy may, in default of and subject to any regulations in the articles of the company, be
filled by the Board of directors at a meeting of the Board.

Any person so appointed shall hold office only up to the date up to which the director in
whose place he is appointed would have held office if it had not been vacated as aforesaid.

Appointment and term of office of alternate director


The Board of directors of a company may, if so authorised by its articles or by a resolution
passed by the company in general meeting, appoint an alternate director to act for a
director during his absence for a period of not less than three months from the State in
which meetings of the Board are ordinarily held.

An alternate director so appointed shall not hold office for a period longer than the period for
which the original director hold office and vacate office if and when the original director
returns to the State in which meetings of the Board are ordinarily held.

Appointment of directors to be voted on individually


At a general meeting of public company or of a private company which is a subsidiary of a
public company, each director has to be appointed separately by a separate resolution.
However, appointment of more than one director through the same resolution will be valid if
it has been passed unanimously. A resolution moved in contravention of the aforesaid
provision shall be void, whether or not objection was taken at the time to its being so
moved:

Consent of candidate for directorship to be filled with Registrar


A person shall not act as director of a company unless he has, by himself or by his agent
authorised in writing, signed and filed with the Registrar, a consent in writing to act as such
director within 30 days of his appointment. This provision shall not apply to a private
company unless it is a subsidiary of a public company.

Option to company to adopt proportional representation for the appointment of


directors
If the articles of a company provide for the appointment of not less than two-thirds of the
total number of the directors of a public company or of a private company which is a
subsidiary of a public company, according to the principle of proportional, representation,
whether by the single transferable vote or by a system of cumulative voting or otherwise.
Such appointments may be made once in every three years and interim casual vacancies
being filled by the Board of Directors as Casual Vacancies. This may enable minority
shareholders to have a proportional representation on the Board of Directors of the
company.

Restrictions on appointment or advertisement of director


A person shall not be capable of being appointed director of a company by the articles,
unless before the registration of the articles, the publication of the prospectus, or the filing
of the statement in lieu of prospectus, as the case may be , he has, by himself or by his
agent authorised in writing

(a) signed and filed with the Registrar a consent in writing to act as such director; and

(b) either ;-

i. signed the memorandum for shares not being less in number or value than
that of his qualification shares, if any, or
ii. taken his qualification shares, if any, from the company and paid or agreed to
pay for them; or
iii. signed and filed with the Registrar and undertaking in writing to take from the
company his qualification shares, if any, and pay for them; or
iv. made and filed with the Registrar an affidavit to the effect that shares, not
being less in number or value than that of his qualification shares, if any, are
registered in his name.

Qualification shares are the minimum number of shares a person must own, as provided
in the articles of the company, in order to qualify to become a director of the company.
Qualification shares must be acquired by a director within 2 months of his appointment. The
articles cannot require a director to acquire qualification shares within a shorter period. The
face value of the qualification shares cannot exceed five thousand rupees, or if the face
value of one share is more than five thousand rupees, then the qualification share will be
one qualification share.

Every director, not being a technical director of a director appointed, by the Central or a
State Government, shall within two months after his appointment file with the company a
declaration specifying the qualification shares held by him. If, after the expiry of the said
period of two months, any person acts as a director of the company when he does not hold
the qualification shares, he shall be punishable with the fine which may extend to fifty
rupees for every day between such expiry and the last day on which he acted as a director.

The above provisions do not apply to-

a. a company not having a share capital;


b. a private company;
c. a company which was a private company before becoming a public company; or
d. a prospectus issued by or on behalf of a company after the expiry of one year from
the date on which the company was entitled to commence business.

Managing Directors
Managing Director means a person who, by virtue of an agreement with the company or of a
resolution passed by the company in a general meeting or by its Board of directors or by
virtue of its memorandum or articles of association, is entrusted with substantial powers of
management which could not otherwise be exercisable by him and includes a director
occupying the position of a managing director, by whatever name called. The power merely
to do administrative acts of a routine nature, when so authorised by the Board such as the
power to affix the common seal of the company on any document or to draw and endorse
any cheque on the account of the company in any bank or to draw and endorse any
negotiable instrument or to sign any share certificate or to direct registration of share
transfers will not be deemed to be included within substantial powers of management. The
managing director must exercise his powers subject to the superintendence, control and
direction of the Board.

Certain persons not to be appointed managing directors


No company can, appoint or employ, or continue the appointment or employment of, any
person as its managing or whole time director who-

a. is an undischarged insolvent, or has at any time been adjudged an insolvent


b. suspends, or has at any time suspended, payment to his creditors or makes, or has
at any time made, a composition with them
c. is, or has at any time been, convicted by a Court in India of an offence involving
moral turpitude.

Every public company or a private company which is a subsidiary of a public company,


having a paid up share capital of Rs. 5 crores or more must have a managing director or
wholetime director or manager.

Appointment of managing director or wholetime director or manager of a public company or


a private company which is a subsidiary of a public company requires the approval of the
Central Government unless the appointment is in accordance with the conditions specified in
Schedule XIII of the Companies Act, 1956 and a returm in Form 25 C is filed within 30 days
of appointment.

Application for approval must be made to the Central Government if Form 25 A within 90
days of appointment. The Central Government shall grant its approval if it is satisfied that :-

a. the managing director or wholetime director or manager is in its opinion, a fit and
proper person
b. such appointment is not against public interest
c. the terms and conditions of the appointment are fair and reasonable.

The Central Government may grant approval for a period less that the period for which
approval is sought.

In case the approval of the Central Government is refused, the appointed person shall
vacate his office on the date of communication of the decision of the Central Government to
the company and if he omits to do so, he shall be liable to a fine of Rs. 500/- for each day of
default.

The Central Government, on information received by it or suo moto, is of the opinion that
such appointment made without approval of the Central Government contravenes the
conditions given in Schedule XIII, it may refer the matter to the Company Law Board for
decision.

On receipt of the order of the Company Law Board against the company,:-
a. The company shall be liable to fine of upto Rs. 5000/-
b. Every officer of the company in default shall be liable to a fine of Rs. 10000/-
c. The appointment shall be deemed to have come to an end and the appointed person
shall in addition to being liable to pay a fine of Rs. 10000/-, refund to the company
the entire amount of remuneration received by him from such appointment.

Number of companies of which one person may be appointed managing director


No public company or private company which is a subsidiary of a public company can,
appoint or employ any person as managing director, of he is either the managing director or
the manager of any other company, except as provided below.

A public company or a private company which is the subsidiary of a public company may
appoint or employ a person as its managing director, if he is the managing director or
manager of one, and of not more than one, other company provided that such appointment
or employment is made or approved by a unanimous resolution passed at a meeting of the
Board and of which meeting, and of the resolution to be moved thereat, specific notice has
been given to all the directors then in India.

In addition to the above provision, the Central Government may, by order, permit any
person to be appointed as a managing direct of more than two companies if the Central
Government is satisfied that it is necessary that the companies should, for their proper
working, function as a single unit and have a common managing director.

Managing director not to be appointed for more than five years at a time
No company can, appoint or employ any individual as its managing director for a term
exceeding five years at a time.

However, a person may be re-appointed, re-employed, or his term of office extended by


further periods not exceeding five years on each occasion. Such re-appointment, re-
employment or extension cannot be sanctioned earlier than two years from the date on
which it is to come into force.

This provision does not apply to a private company unless it is a subsidiary of a public
company.

Disqualifications of directors
A person shall not be capable of being appointed director of a company, if,

a. he has been found to be of unsound mind by a Court of competent jurisdiction and


the finding is in force
b. he is an undischarged insolvent
c. he has applied to be adjudicated as an insolvent and his application is pending
d. he has been convicted by a Court of any offence involving moral turpitude and
sentenced in respect thereof to imprisonment for not less than six months, and a
period of five years has not elapsed from the date of expiry of the sentence
e. he has not paid any call in respect of shares of the company held by him, whether
alone or jointly with others, and six months have elapsed from the last day fixed for
the payment of the call
f. an order disqualifying him for appointment as director has been passed by a court
and is in force unless the leave of the court has been obtained for his appointment in
pursuance of that section.
The Central Government may, by notification in the Official Gazette, remove :-

i. the disqualification incurred by any person in virtue of clause (d) either generally or
in relation to any company or companies specified in the notification; or
ii. the disqualification incurred by any person in virtue of clause (e)

A private company which is not a subsidiary of a public company may, by its articles,
provide that a person shall be disqualified for appointment as a director on any grounds in
addition to those specified above.

No person to be a director of more than twenty companies


No person shall, hold office at the same time as director in more than twenty companies.

Where a person already holding the office of director in twenty companies is appointed, as a
director of any other company, the appointment :-

a. shall not take effect unless such person has, within fifteen days thereof, effectively
vacated his office as director in any of the companies in which he was already a
director; and
b. shall become void immediately on the expiry of the fifteen days if he has not, before
such expiry effectively vacated his office as director in any of the other companies
aforesaid.

Where a person already holding the office of director in nineteen companies or less is
appointed, as a director of other companies, making the total number of his directorships
more than twenty, he shall choose the directorships which he wishes to continue to hold or
to accept so however that the total number of the directorships, old and new, held by him
shall not exceed twenty.

None of the new appointments of director shall take effect until such choice, is made; and all
the new appointments shall become void if the choice is not made within fifteen days of the
day on which the last of them was made.

In calculating the number of companies of which a person may be a director, the following
companies shall be excluded :-

a. a private company which is neither a subsidiary nor a holding company of a public


company
b. an unlimited company
c. an association not carrying on business for profit or which prohibits the payment of
dividend
d. a company in which such person is only an alternate director, that is to say, a
director who is only qualified to act as such during the absence or incapacity of some
other director.

Any person who holds office, or acts, as a director of more than twenty companies in
contravention of the foregoing provisions shall be punishable with fine which may extend to
five thousand rupees in respect of each of those companies after the first twenty.

Vacation of office by directors


The office of a director shall become vacant if :-
a. he fails to obtain within the time specified ( 2 months ) or at any time thereafter
ceases to hold, the share qualification, if any, required of him by the articles of the
company
b. he is found to be of unsound mind by a Court of competent jurisdiction
c. he applies to be adjudicated an insolvent
d. he is adjudged an insolvent
e. he is convicted by a Court of any offence involving moral turpitude and is sentenced
in respect thereof to imprisonment for not less than six months
f. he fails to pay any call in respect of shares of the company held by him, whether
alone or jointly with others, with in six months from the last date fixed for the
payment of the call unless the Central Government has, by notification in the Official
Gazette removed such disqualification.
g. he absents himself from three consecutive meetings of the Board of directors, or
from all meetings of the Board, for a continuous period of three months, whichever is
longer, without obtaining leave of absence from the Board
h. he, whether by himself or by any person for his benefit or on his account or any firm
in which he is a partner or any private company of which he is a director, accepts a
loan, or any guarantee or security for a loan, from the company in contravention of
section 295 ( without due authorization of the Central Government )
i. he acts in contravention of section 299 ( failure to disclose interest in any transaction
with the company )
j. he becomes disqualified by an order of Court under section 203
k. he is removed by the members by- resolution at a general meeting
l. having been appointed a director by virtue of his holding any office or other
employment in the company, he ceases to hold such office or other employment in
the company.

The disqualification referred to in clauses (d). (e) and (j) shall not take effect,-

a. for thirty days from the date of the adjudication sentence or order
b. where any appeal or petition is preferred within the thirty days aforesaid against the
adjudication, sentence or conviction resulting in the sentence, or order until the
expiry of seven days from the date on which such appeal or petition is disposed of
c. where within the seven days aforesaid, any further appeal or petition is preferred in
respect of the adjudication, sentence, conviction, or order, and the appeal or petition,
if allowed, would result in the removal of the disqualification, until such further
appeal or petition is disposed of.

If a person functions as a director, knowing that his office has vacated on account of the
above provisions, shall be liable to a fine upto Rs. 500/- per day of default.

A private company which is not a subsidiary of a public company may, by its articles,
provide, that the office of director shall be vacated on any grounds in addition to those
specified in above

Removal of directors
A company may, by ordinary resolution, remove a director (not being a director appointed
by the Central Government in pursuance of section 408) before the expiry of his period of
office. This provision shall not apply where the company has availed itself of the option
given to it of proportional representation on the Board of Directors to appoint not less than
two-thirds of the total number of directors according to the principle of proportional
representation.

Special notice shall be required of any resolution to remove a director, or to appoint


somebody instead of a director so removed at the meeting at which he is removed.

On receipt of notice of a resolution to remove a director under this section, the company
shall forthwith send a copy thereof to the director concerned, and the director (whether or
not he is a member of the company) shall be entitled to be heard on the resolution at the
meeting.

Where notice is given of a resolution to remove a director and the director concerned makes
representations in writing to the company (not exceeding a reasonable length) and requests
their notification to members of the company, the company shall, unless the representations
are received by it too late for it to do so :-

a. in any notice of the resolution given to members of the company state the fact of the
representations having been made; and
b. send a copy of the representations to every member of the company to whom notice
of the meeting is sent

If a copy of the representations is not sent as aforesaid because they were received too late
or because of the company's default, the director may (without prejudice to his right to be
heard orally) require that the representations shall be read out at the meeting.

However, copies of the representations need not be sent out and the representations need
not be read out at the meeting if, on the application either of the company or of any other
person who claims to be aggrieved, the Company Law Board is satisfied that the rights
conferred by this provision are being abused to secure needless publicity for defamatory
matter and the Company Law Board may order the company's costs on the application to be
paid in whole or in part by the director.

A vacancy created by the removal of a director if he had been appointed by the company in
general meeting or by the board in on a casual vacancy, be filled by the appointment of
another director in his stead by the meeting at which he is removed, provided special notice
of the intended appointment has been given.

A director so appointed shall hold office until the date up to which his predecessor would
have held office if he had not been removed as aforesaid.

If the vacancy is not filled, it may be filled as a causal vacancy in accordance with the
provisions.

The above provisions of removal of a director shall not affect :-

a. any compensation or damages payable to him in respect of the termination of his


appointment as director or of any appointment terminating with that as director
b. any other power to remove a director which may exist apart from this provision.

Board to meet once in every three months


In the case of every company, a meeting of its Board of directors shall be held at least once
every three months and at least four such meetings must be held every year.
Notice of meetings
Notice of every meeting of the Board of directors of a company shall be given in writing to
ever director for the time being in India, and at his usual address in India to every other
director.

Every officer of the company whose duty it is to give notice as aforesaid and who fails to do
so shall be punishable with fine which may extend to one hundred rupees.

Quorum for meetings


The quorum for a meeting of the Board of directors of a company shall be one-third of its
total strength (any fraction contained in that one-third being rounded off as one), or two
directors, whichever is higher.

Provided that where at any time the number of interested directors exceeds or is equal to
two-thirds of the total strength, the number of the remaining directors, that is to say, the
number of the directors who are not interested, present at the meeting being not less than 2
shall be the quorum during such time.

Interested director means any director whose presence cannot, by reason of his being
interested in some manner in the subject matter of discussion be counted for the purpose of
forming a quorum at a meeting of the Board, at the time of the discussion or vote on any
matter.

Procedure where meeting adjourned for want of quorum


If a meeting of the Board could not be held for wand of quorum, then, unless the articles
otherwise provide, the meeting shall automatically stand adjourned till the same day in the
next week, at the same time and place, or if that day is a public holiday, till the next
succeeding day which is not a public holiday, at the same time and place.

Passing or resolutions by circulation


No resolution shall be deemed to have been duly passed by the Board or by a committee
thereof by circulation, unless the resolution has been circulated in draft, together with the
necessary papers, if any, to all the directors, or to all the members of the committee, then in
India (not being less in number than the quorum fixed for a meeting of the Board of
committee, as the case may be), and to all other directors or members at their usual
address in India, and has been approved by such of the directors as are then in India, or by a
majority of such of them, as are entitled to vote on the resolution.

Validity of acts of directors


Acts done by a person as a director shall be valid, notwithstanding that it may afterwards be
discovered that his appointment was invalid by reason of any defect or disqualification or
had terminated by virtue of any provision contained in this Act or in the articles.

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Board's powers and restrictions thereon

General powers of Board


Subject to the provisions of this Act, the Board of directors of a company shall be entitled to
exercise all such powers, and to do all such acts and things, as the company is authorised to
exercise and do.
However, the Board shall not exercise any power or do any act or thing which is directed or
required, whether by this or any other Act or by the memorandum or articles of the
company or otherwise, to be exercised or done by the company in general meeting.

Certain powers to be exercised by Board only at meeting


The Board of directors of a company shall exercise the following powers on behalf of the
company, and it shall do so only by means of resolutions passed at meetings of the Board:-

a. the power to make calls on shares holders in respect of money unpaid on their shares
b. the power to issue debentures
c. the power to borrow moneys otherwise than on debentures
d. the power to invest the funds of the company
e. the power to make loans

However, the Board may, by a resolution passed at a meeting delegate to any committee of
directors, the managing director, or the manager of the company or any other principal
officer of the company or in the case of a branch office of the company, a principal officer of
the branch office, the powers specified in clauses (c), (d) and (e), to the extent specified in
the resolution and subject to such conditions as may be imposed.

Acceptance by a banking company in the ordinary course of its business of deposits of


money from the public repayable on demand or otherwise and withdrawable by cheque,
draft, order or otherwise or the placing of moneys on deposit by a banking company with
another banking company on such conditions as the Board may prescribe, shall not be
deemed to be borrowing of moneys or making of loans by a banking company for the
purpose of these provisions.

These provisions also do not apply to borrowings by a banking company from other banking
companies or from the Reserve Bank of India, the State Bank of India or any other banks.

In respect of dealings betwwen a company and its bankers, the exercise by the company of
its powers to borrow money otherwise than on debentures shall mean the arrangement
made by the company with its bankers for the borrowing of money by way of overdraft or
cash credit or otherwise and not the actual day-to-day operation of overdrafts, cash credit or
other accounts.

Every resolution delegating the power referred to in clause (c) ( the power to borrow moneys
otherwise than on debentures ) shall specify the total amount outstanding at any one time
up to which moneys may be borrowed by the delegate.

Every resolution delegating the power referred to in clause (d) (the power to invest the
funds of the company ) shall specify the total amount up to which the funds may be
invested, and the nature of the investments which may be made, by the delegate.

Every resolution delegating the power referred to in clause (e) (the power to make loans )
shall specify the total amount up to which loans may be made by the delegate, the purposes
for which the loans may be made, and the maximum amount of loans which may be made
for each such purpose in individual cases.

Nothing in this section be deemed to affect the right of the company in general meeting to
impose restrictions and conditions on the exercise by the Board of any of the powers
specified above.
Restrictions on powers of Board
The Board of directors of a public company, or of a private company which is a subsidiary of
a public company, shall not, except with the consent of such public company or subsidiary in
general meeting :-

a. sell, lease or otherwise dispose of the whole, or substantially the whole, of the
undertaking of the company, or where the company owns more than one
undertaking, of the whole, or substantially the whole, of any such undertaking
b. remit, or give time for the re-payment of, any debt due by a director except in the
case or renewal or continuance of any advance made by a banking company to its
director in the ordinary course of business
c. invest, otherwise than in trust securities, the amount of compensation received by
the company in respect of compulsory acquisition of any such undertaking as is
referred to in clause (a), or of any premises or properties used for any such
undertaking and without which it cannot be carried on or can be carried on only with
difficulty or only after a considerable time
d. borrow moneys, where the moneys to be borrowed together with the moneys already
borrowed by the company, (apart from temporary loans obtained from the company's
bankers in the ordinary course of business) will exceed the aggregate of the paid-up
capital of the company and its free reserves
e. contribute, to charitable and other funds not directly relating to the business of the
company or the welfare of its employees, any amounts the aggregate of which will, in
any financial year, exceed fifty thousand rupees, or five per cent of its average net
profits during the three financial years immediately preceding, whichever is greater.

The resolutions under clause (d) and (e) above must specify the total amount upto which the
Board may borrow or the total amount which may be contributed in a financial year.

Temporary loans mean loans repayable on demand or within 6 months from the date of the
loan such as short term cash credit arrangements, the discounting of bills and the issue of
other short term loans of a seasonal character, but does not include loans raised for the
purpose of financial expenditure of a capital nature.

Any resolution passed by the company permitting any transaction such as is referred to in
clause (a) may attach such conditions to the permission as may be specified in the
resolution, including conditions regarding the use, disposal or investment of the sale
proceeds which may result from the transaction:

The acceptance by a banking company, in the ordinary course of its business, of deposits of
money from the public, repayable on demand, or otherwise, and withdrawable by cheque,
draft, order or otherwise, shall not be deemed to be a borrowing of moneys by the banking
company within the meaning of clause (d).

No debt incurred by the company in excess of the limit imposed by clause by clause (d) shall
be valid or effectual, unless the lender proves that he advanced the loan in good faith and
without knowledge that the limit imposed by that clause had been exceeded.

No company, without obtaining the prior approval of the Central Government in this behalf,
can make any loan to, or give any guarantee or provide any security in connection with a
loan made by any other person, to or to any other person by,-
a. any director of the lending company or of a company which is its holding company or
any partner or relative of any such director
b. any firm in which any such director or relative is a partner
c. any private company of which any such director is a director or member
d. any body corporate at a general meeting of which not less than twenty five percent
of the total voting power may be exercised or controlled by any such director, or by
two or more such directors together
e. any body corporate, the Board of directors, managing director, or manager whereof is
accustomed to act in accordance with the directions or instructions of the Board, or
of any director or directors, of the lending company.

The above provision shall not apply to any loan made, guarantee given or security provided-

a. by a banking company
b. by a private company unless it is a subsidiary of a public company

The above provision shall not apply to any loan made by a holding company to its
subsidiary.

The above provision shall not apply to guarantee given or security provided by a holding
company in respect of a loan made to its subsidiary.

Every person who is knowingly a party to any contravention of the aforesaid provisions,
including in particular any person to whom the loan is made or who has taken the loan in
respect of which the guarantee is given or the security is provided, shall be punishable
either with fine which may extend to five thousand rupees or with simple imprisonment for a
term which may extend to six months:

However, where any such loan, or any loan in connection with which any such guarantee or
security has been given or provided by the lending company, has been repaid in full, no
punishment by way of imprisonment shall be imposed.

Where the loan has been re-paid in part, the maximum punishment which may be imposed
by way of imprisonment shall be proportionately reduced.

All persons who are knowingly parties to any contravention of the afoesaid provisions shall
be liable jointly and severally, to the lending company for the repayment of the loan or for
making good the sum which the lending company may have been called upon to pay in
virtue of the guarantee given or the security provided by such company.

The above provisions will also apply to any transaction represented by a book debt which
was from its inception in the nature of a loan or advance.

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Disclosure of Director's Interest

Boards sanction to be required for certain contracts in which particular directors


are interested
Except with the consent of the Board of directors, a director of the company or his relative, a
firm in which such a director or relative is a partner, any other partner in such a firm, or a
private company of which the director is a member or director, shall not enter into any
contract with the company

a. for the sale, purchase or supply of any goods, materials or services


b. for underwriting the subscription of any shares in, or debentures of, the company.

In case of a company having paid up share capital of at least Rs. 1 crore, no such contract
can be entered into by the company without the previous approval of the Central
Government.

However, the above provision will not affect:-

i. the purchase of goods and materials from the company or the sale of goods and
materials to the company by any director, relative, firm, partner or private company
as aforesaid for cash at prevailing market prices.
ii. any contract or contracts between the company on one side and any such director,
relative, firm, partner or private company on the other for the sale, purchase or
supply of any goods, materials or services in which either the company, or the
director, firm, partner of private company, as the case may be regularly, trades or
does business, provided that such contract or contracts do not relate to goods and
materials the value of which or services, the cost of which exceeds five thousand
rupees in the aggregate in any calendar year comprised in the period of the contract
or contracts
iii. in the case or a banking or insurance company, any transaction in the ordinary
course of business of such company with any director, relative, firm, partner or
private company.

A director, relative, firm, partner or private company may enter into a contract with the
company for the sale, purchase or supply of any goods, materials or services even if the
value exceeds Rs. 5000/- and the approval of the Board is not obtained in cases of urgent
necessity. However, approval of the Board must be obtained at a meeting within 3 months
of the date on which the contract was entered into.

Every consent of the Board under these provisions must be by a resolution passed at a
meeting of the Board and either before the contract was entered into, or within 3 months of
the date on which it was entered into.

Where such consent is not accorded to the contract, the contract shall be voidable at the
option of the Board.

Procedure, etc, where director interested


Disclosure of interests by director
Every director of a company who is in any way, whether directly or indirectly concerned or
interested in a contract or arrangement, or proposed contract or arrangement entered into
or to be entered into, by or on behalf of the company, shall disclose the nature of his
concern or interest at a meeting of the Board of directors.

In the case of a proposed contract or arrangement, the disclosure required to be made by a


director shall be made at the meeting of the Board at which the question of entering into the
contract or arrangement is first taken into consideration, or if the director was not, at the
date of that meeting, concerned or interested in the proposed contract or arrangement, at
the first meeting of the Board held after he comes so concerned or interested.
In the case of any other contract or arrangement, the required disclosure shall be made at
the first meeting of the Board held after the director becomes concerned or interested in the
contract or arrangement.

A general notice given to the Board by a director, to the effect that he is a director or a
member of a specified body corporate or is a member of a specified firm and is to be
regarded as concerned or interested in any contract or arrangement which may, after the
date of the notice, be entered into with that body corporate or firm, shall be deemed to be a
sufficient disclosure of concern or interest in relation to any contract or arrangement so
made.

Any such general notice shall expire at the end of the financial year in which it is give, but
may be renewed for further periods of one financial year at a time, by a fresh notice given in
the last month of the financial year in which it would otherwise expire (Form 24 AA).

No such general notice, and no renewal thereof, shall be of effect unless either it is given at
a meeting of the Board, or the director concerned takes reasonable steps to secure that it is
brought up and read at the first meeting of the Board after it is given.

Every director who fails to comply with the aforesaid provisions shall be punishable with fine
which may extend to five thousand rupees.

Nothing in these provisions shall be taken to prejudice or adversely affect the operation of
any rule of law restricting a director of a company from having any concern or interest in
any contracts or arrangements with the company.

Nothing in these provisions shall apply to any contract or arrangement entered into or to be
entered into between two companies where any of the directors of one company or two or
more of them together hold not more than 2 % of the paid up capital in the other company.

Interested director not to participate or vote in Boards proceedings


No director of a company shall, as a director, take any part in the discussion of, or vote on,
any contract or arrangement entered into, or to be entered into, by or on behalf of the
company, if he is in any way, whether directly or indirectly, concerned or interested in the
contract or arrangement.

Nor shall his presence count for the purpose of forming a quorum at the time of any such
discussion or vote and if he does vote, his vote shall be void.

The above provision shall not apply to :-

a. a private company which is neither a subsidiary not a holding company of a public


company
b. a private company which is a subsidiary of a public company, in respect of any
contract or arrangement entered into, or to be entered into, by the private company
with the holding company thereof
c. any contract of indemnity against any loss which the directors, or any one or more of
them, may suffer by reason of becoming or being sureties or a surety for the
company
d. any contract or arrangement entered into or to be entered into with a public
company, or a private company which is a subsidiary of a public company, in which
the interest of the director aforesaid consists solely :-
i. in his being a director of such company and the holder of not more than the
qualification shares
ii. in his being a member holding not more than 2 % of its paid-up share capital
f. a public company, or a private company which is subsidiary of a public company, in
respect of which a notification is issued, to the extent specified in the notification.

In the case of a public company or a private company which is a subsidiary of a public


company, if the Central government is of opinion that having regard to the desirability of
establishing or promoting any industry, business or trade, it would not be in the public
interest to apply all or any or the prohibitions contained above to the company, the Central
Government may, by notification in the Official Gazette, direct that the said provisions shall
not apply to such company, or shall apply thereto subject to such exceptions, modifications
and conditions as may be specified in the notification.

Every director who knowingly contravenes the provisions of this section shall be punishable
with fine which may extend to five thousand rupees.

Registrar of contracts, companies and firms in which directors are interested


Every company shall keep a register in which all contracts or arrangements in which
directors are interested are entered into giving detailed information on

a. the date of the contract or arrangement


b. the names of the parties thereto
c. the principal terms and conditions thereof
d. the date on which it was placed before the Board
e. the names of the directors voting for and against the contract or arrangement and
the names of those remaining neutral.

Particulars of every such contract or arrangement shall be entered in the register


aforesaid within

i. 7 days ( exclusive of public holidays ) of the meeting of the Board where approval of
the board is required
ii. 7 days of the receipt of the particulars of such contract or arrangement at the
registered office of the company or within 30 days of the date of such other contract
or arrangement, whichever is later.

The register must be placed before the next meeting of the Board and must then be signed
by all the directors present at that meeting.

The register must also specify in relation to each director of the company, the names of the
bodies corporate and firms of which notice has been given by him wherein he has interest.

The above provisions do not apply to :-

i. any contract or arrangement for the sale, purchase or supply of any goods, materials
or services if the value does not exceed Rs. 1000/- per annum
ii. Any contract or arrangement by a banking company for the collection of bills in the
ordinary course of its business or to any transaction with the director, , relative, firm,
partner or private company as aforesaid in the ordinary course of its business.
If default is made in complying with the aforesaid provisions, the company, and every officer
of the company who is in default, shall, in respect of each default, be punishable with fine
which may extend to five hundred rupees.

The register aforesaid shall be kept at the registered office of the company, and it shall be
open to inspection at such office, and extracts may be taken therefrom and copies thereof
may, be required, by any member of the company to the same extent, in the same manner,
and on payment of the same fee, as in the case of the register of members of the company.

Disclosure to members of directors interest in contract appointing manager,


managing director
Where a company :-

a. enters into a contract for the appointment of a manager of the company, in which
contract and director of the company is in any way, whether directly or indirectly,
concerned or interested or
b. varies any such contract already in existence and in which a director is concerned or
interested as aforesaid

the company shall, within twenty-one days from the date of entering into the contract or of
the varying of the contract, as the case may be, send to every member of the company as
abstract of the terms of the contract of variation, together with a memorandum clearly
specifying the nature of the concern or interest of the director in such contract or variation.

Where a company enters into a contract for the appointment of a managing director of the
company, or varies any such contract which is already in existence, the company shall send
an abstract of the terms of the contract or variation to every member of the company within
within twenty-one days from such date and if any other director of the company is
concerned or interested in the contract or variation, a memorandum clearly specifying the
nature of the concern or interest of such other director in the contract or variation shall also
be sent to every member of the company with the abstract aforesaid.

Where a director becomes concerned or interested as aforesaid in any such contract as is


referred to above after it is made, the abstract and the memorandum, if any, referred to
above shall be sent to every member of the company within twenty-one days from the date
on which the director becomes so concerned or interested.

If default is made in complying with the foregoing provisions of this section, the company,
and every officer of the company who is in default, shall be punishable with fine which may
extend to one thousand rupees.

All contracts entered into by a company for the appointment of a manager, or managing
director, shall be kept at the registered office of the company; and shall be open to the
inspection of any member of the company at such office; and extracts may be taken
therefrom and copies thereof may be required by any such member, to the same extent, in
the same manner and on payment of the same fee, as in the case of the registrar of
members of the company.

The provisions of this section shall apply in relation to any resolution of the Board of
directors of a company appointing a manager or a managing or whole-time director, or
varying and previous contract or resolution of the company relating to the appointment of a
manager or a managing or whole time director, as they apply in relation to any contract for
the like purpose.
Register of Directors
Every company shall keep at its registered office a register of its directors, managing
director, manager and secretary, containing with respect to each of them the following
particulars, that is to say:

a. in the case of an individual, his present name and surname in full, any former name
or surname in full, his father's name and surname in full or where the individual is a
married woman, the husband's name and surname in full, his usual residential
address; his nationality; and, if that nationality is not the nationality of origin, his
nationality of origin; his business occupation, if any; if he holds the office of director,
managing director, manager or secretary in any other body corporate, the particulars
of each such office held by him; and except in the case of a private company which is
not a subsidiary of a public company, the date of his birth
b. in the case of a body corporate, its corporate name and registered or principal official
and the full name, address, nationality, and nationality of origin, if different from that
nationality, his father's name and surname in full or where the director is a married
woman, the husband's name and surname in full of each of its directors; and if it
holds the office of manger or secretary in any other body corporate, the particulars of
each such office
c. in the case of a firm, the name of the firm, the full name, address, nationality, and
nationality of origin, if different from that nationality, his father's name and surname
in full or where the partner is a married woman, the husband's name and surname in
full of each partner; and the date on which each became a partner; and if the firm
holds the office of manager or secretary in any other body corporate, the particulars
of each such officer
d. if any director or directors have been nominated by a body corporate; its corporate
name; all the particulars referred to in clause (a) in respect of each director so
nominated, and also all the particulars referred to in clause (b) in respect of the body
corporate
e. if any director or directors have been nominated by a firm, the name of the firm, all
the particulars referred to in clause (a) in respect of each director so nominated, and
also all the particulars referred to in clause (c) in respect of the firm

The company shall, within the prescribed periods send to the Registrar a return in duplicate
in the prescribed form ( form 32 ) within 30 days of appointment containing the particulars
specified in the said register and a notification in duplicate in the prescribed form within 30
days of any change among its directors, managing directors or in any of the particulars
contained in the register, specifying the date of the change.

If default is made in complying, the company, and every officer of the company who is in
default, shall be punishable with fine which may extend to fifty rupees for every day during
which the default continues.

Inspection of the register


The register kept shall be open to the inspection of any member of the company without
charge and of any other person on payment of one rupee for each inspection during
business hours subject to such reasonable restrictions as the company may by its articles or
in general meeting impost, so that not less than two hours in each day are allowed for
inspection.

If any inspection is refused :-


a. the company, and every officer of the company who is in default, shall be punishable
with fine which may extend to fifty rupees; and
b. the court may, by order, compel an immediate inspection of the register.

Duty of directors etc., to make disclosure


Every director, managing director, manager or secretary of any company, who is appointed
to or relinquishes the office of director, managing director, manager of any other body
corporate must within 20 days of his appointment or relinquishment, disclose to the
company aforesaid the particulars relating to the office in the other body corporate and if he
fails to do so, he shall be punishable with fine which may extend to five hundred rupees.

Register of Director's shareholdings


Every company shall keep a register showing, as respects each director of the company, the
number, description and amount of any shares in, or debentures, of the company or any
other body corporate, being the company's subsidiary or holding company, or a subsidiary of
the company's holding company, which are held by him or in trust for him, or of which he
has any right to become the holder whether on payment or not.

Where any shares or debentures have to be recorded in the said register or to be omitted
therefrom, in relation to any director, by reason of a transaction entered into and while he is
a director, the register shall also show the date of, and the price or other consideration for,
the transaction.

However, where there is an interval between the agreement for any such transaction and
the completion thereof, the date so shown shall be that of the agreement.

The nature and extent of any interest or right in or over any shares or debentures recorded
in relation to a director in the said register shall, if he so requires, be indicated in the
register.

The said register shall, subject to the provisions of this section, be kept at the registered
office of the company, and shall be open to inspection during business hours (subject to
such reasonable restrictions as the company may, by its articles or in general meeting,
impost so that not less than two hours in each day are allowed for inspection) as follows:-

a. during the period beginning fourteen days before the date of the company's annual
general meeting and ending three days after the date of its conclusion, it shall be
open to the inspection of any member of holder of debentures, of the company; and
b. during that or any other period, it shall be open to the inspection of any person
acting on behalf of the Central Government or of the Registrar.

In computing the fourteen days and the three days mentioned above, any day which is a
Saturday, a Sunday or a public holiday shall be disregarded.

The Central Government or the Registrar may, at any time, require a copy of the said
register, or any part thereof.

The said register shall also be produced at the commencement of every annual general
meeting of the company and shall remain open and accessible during the continuance of the
meeting to any person having the right to attend the meeting.
Duty of directors and persons deemed to be directors to make disclosure of
shareholdings
Every director of a company, must give notice to the company of such matters relating to
himself as may be necessary for the purpose of enabling the company to company with the
aforesaid provisions.

Any such notice shall be given in writing, and if it is not given at a meeting of the Board, the
person giving the notice shall take all reasonable steps to secure that it is brought up and
read at the meeting of the Board next after it is given.

Any person who fails to comply with the above provisions shall be punishable with
imprisonment for a term which may extend to two years, or with fine which may extend to
five thousand rupees, or with both

No company, without obtaining the prior approval of the Central Government in this behalf,
can make any loan to, or give any guarantee or provide any security in connection with a
loan made by any other person, to or to any other person by,-

a. any director of the lending company or of a company which is its holding company or
any partner or relative of any such director
b. any firm in which any such director or relative is a partner
c. any private company of which any such director is a director or member
d. any body corporate at a general meeting of which not less than twenty five percent
of the total voting power may be exercised or controlled by any such director, or by
two or more such directors together
e. any body corporate, the Board of directors, managing director, or manager whereof is
accustomed to act in accordance with the directions or instructions of the Board, or
of any director or directors, of the lending company.

The above provision shall not apply to any loan made, guarantee given or security provided-

a. by a banking company
b. by a private company unless it is a subsidiary of a public company

The above provision shall not apply to any loan made by a holding company to its
subsidiary.

The above provision shall not apply to guarantee given or security provided by a holding
company in respect of a loan made to its subsidiary.

Every person who is knowingly a party to any contravention of the aforesaid provisions,
including in particular any person to whom the loan is made or who has taken the loan in
respect of which the guarantee is given or the security is provided, shall be punishable
either with fine which may extend to five thousand rupees or with simple imprisonment for a
term which may extend to six months:

However, where any such loan, or any loan in connection with which any such guarantee or
security has been given or provided by the lending company, has been repaid in full, no
punishment by way of imprisonment shall be imposed.

Where the loan has been re-paid in part, the maximum punishment which may be imposed
by way of imprisonment shall be proportionately reduced.
All persons who are knowingly parties to any contravention of the afoesaid provisions shall
be liable jointly and severally, to the lending company for the repayment of the loan or for
making good the sum which the lending company may have been called upon to pay in
virtue of the guarantee given or the security provided by such company.

The above provisions will also apply to any transaction represented by a book debt which
was from its inception in the nature of a loan or advance.

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

Disclosure of Director's Interest

Boards sanction to be required for certain contracts in which particular directors


are interested
Except with the consent of the Board of directors, a director of the company or his relative, a
firm in which such a director or relative is a partner, any other partner in such a firm, or a
private company of which the director is a member or director, shall not enter into any
contract with the company

a. for the sale, purchase or supply of any goods, materials or services


b. for underwriting the subscription of any shares in, or debentures of, the company.

In case of a company having paid up share capital of at least Rs. 1 crore, no such contract
can be entered into by the company without the previous approval of the Central
Government.

However, the above provision will not affect:-

i. the purchase of goods and materials from the company or the sale of goods and
materials to the company by any director, relative, firm, partner or private company
as aforesaid for cash at prevailing market prices.
ii. any contract or contracts between the company on one side and any such director,
relative, firm, partner or private company on the other for the sale, purchase or
supply of any goods, materials or services in which either the company, or the
director, firm, partner of private company, as the case may be regularly, trades or
does business, provided that such contract or contracts do not relate to goods and
materials the value of which or services, the cost of which exceeds five thousand
rupees in the aggregate in any calendar year comprised in the period of the contract
or contracts
iii. in the case or a banking or insurance company, any transaction in the ordinary
course of business of such company with any director, relative, firm, partner or
private company.

A director, relative, firm, partner or private company may enter into a contract with the
company for the sale, purchase or supply of any goods, materials or services even if the
value exceeds Rs. 5000/- and the approval of the Board is not obtained in cases of urgent
necessity. However, approval of the Board must be obtained at a meeting within 3 months
of the date on which the contract was entered into.
Every consent of the Board under these provisions must be by a resolution passed at a
meeting of the Board and either before the contract was entered into, or within 3 months of
the date on which it was entered into.

Where such consent is not accorded to the contract, the contract shall be voidable at the
option of the Board.

Procedure, etc, where director interested


Disclosure of interests by director
Every director of a company who is in any way, whether directly or indirectly concerned or
interested in a contract or arrangement, or proposed contract or arrangement entered into
or to be entered into, by or on behalf of the company, shall disclose the nature of his
concern or interest at a meeting of the Board of directors.

In the case of a proposed contract or arrangement, the disclosure required to be made by a


director shall be made at the meeting of the Board at which the question of entering into the
contract or arrangement is first taken into consideration, or if the director was not, at the
date of that meeting, concerned or interested in the proposed contract or arrangement, at
the first meeting of the Board held after he comes so concerned or interested.

In the case of any other contract or arrangement, the required disclosure shall be made at
the first meeting of the Board held after the director becomes concerned or interested in the
contract or arrangement.

A general notice given to the Board by a director, to the effect that he is a director or a
member of a specified body corporate or is a member of a specified firm and is to be
regarded as concerned or interested in any contract or arrangement which may, after the
date of the notice, be entered into with that body corporate or firm, shall be deemed to be a
sufficient disclosure of concern or interest in relation to any contract or arrangement so
made.

Any such general notice shall expire at the end of the financial year in which it is give, but
may be renewed for further periods of one financial year at a time, by a fresh notice given in
the last month of the financial year in which it would otherwise expire (Form 24 AA).

No such general notice, and no renewal thereof, shall be of effect unless either it is given at
a meeting of the Board, or the director concerned takes reasonable steps to secure that it is
brought up and read at the first meeting of the Board after it is given.

Every director who fails to comply with the aforesaid provisions shall be punishable with fine
which may extend to five thousand rupees.

Nothing in these provisions shall be taken to prejudice or adversely affect the operation of
any rule of law restricting a director of a company from having any concern or interest in
any contracts or arrangements with the company.

Nothing in these provisions shall apply to any contract or arrangement entered into or to be
entered into between two companies where any of the directors of one company or two or
more of them together hold not more than 2 % of the paid up capital in the other company.

Interested director not to participate or vote in Boards proceedings


No director of a company shall, as a director, take any part in the discussion of, or vote on,
any contract or arrangement entered into, or to be entered into, by or on behalf of the
company, if he is in any way, whether directly or indirectly, concerned or interested in the
contract or arrangement.

Nor shall his presence count for the purpose of forming a quorum at the time of any such
discussion or vote and if he does vote, his vote shall be void.

The above provision shall not apply to :-

a. a private company which is neither a subsidiary not a holding company of a public


company
b. a private company which is a subsidiary of a public company, in respect of any
contract or arrangement entered into, or to be entered into, by the private company
with the holding company thereof
c. any contract of indemnity against any loss which the directors, or any one or more of
them, may suffer by reason of becoming or being sureties or a surety for the
company
d. any contract or arrangement entered into or to be entered into with a public
company, or a private company which is a subsidiary of a public company, in which
the interest of the director aforesaid consists solely :-

i. in his being a director of such company and the holder of not more than the
qualification shares
ii. in his being a member holding not more than 2 % of its paid-up share capital
f. a public company, or a private company which is subsidiary of a public company, in
respect of which a notification is issued, to the extent specified in the notification.

In the case of a public company or a private company which is a subsidiary of a public


company, if the Central government is of opinion that having regard to the desirability of
establishing or promoting any industry, business or trade, it would not be in the public
interest to apply all or any or the prohibitions contained above to the company, the Central
Government may, by notification in the Official Gazette, direct that the said provisions shall
not apply to such company, or shall apply thereto subject to such exceptions, modifications
and conditions as may be specified in the notification.

Every director who knowingly contravenes the provisions of this section shall be punishable
with fine which may extend to five thousand rupees.

Registrar of contracts, companies and firms in which directors are interested


Every company shall keep a register in which all contracts or arrangements in which
directors are interested are entered into giving detailed information on

a. the date of the contract or arrangement


b. the names of the parties thereto
c. the principal terms and conditions thereof
d. the date on which it was placed before the Board
e. the names of the directors voting for and against the contract or arrangement and
the names of those remaining neutral.

Particulars of every such contract or arrangement shall be entered in the register


aforesaid within
i. 7 days ( exclusive of public holidays ) of the meeting of the Board where approval of
the board is required
ii. 7 days of the receipt of the particulars of such contract or arrangement at the
registered office of the company or within 30 days of the date of such other contract
or arrangement, whichever is later.

The register must be placed before the next meeting of the Board and must then be signed
by all the directors present at that meeting.

The register must also specify in relation to each director of the company, the names of the
bodies corporate and firms of which notice has been given by him wherein he has interest.

The above provisions do not apply to :-

i. any contract or arrangement for the sale, purchase or supply of any goods, materials
or services if the value does not exceed Rs. 1000/- per annum
ii. Any contract or arrangement by a banking company for the collection of bills in the
ordinary course of its business or to any transaction with the director, , relative, firm,
partner or private company as aforesaid in the ordinary course of its business.

If default is made in complying with the aforesaid provisions, the company, and every officer
of the company who is in default, shall, in respect of each default, be punishable with fine
which may extend to five hundred rupees.

The register aforesaid shall be kept at the registered office of the company, and it shall be
open to inspection at such office, and extracts may be taken therefrom and copies thereof
may, be required, by any member of the company to the same extent, in the same manner,
and on payment of the same fee, as in the case of the register of members of the company.

Disclosure to members of directors interest in contract appointing manager,


managing director
Where a company :-

a. enters into a contract for the appointment of a manager of the company, in which
contract and director of the company is in any way, whether directly or indirectly,
concerned or interested or
b. varies any such contract already in existence and in which a director is concerned or
interested as aforesaid

the company shall, within twenty-one days from the date of entering into the contract or of
the varying of the contract, as the case may be, send to every member of the company as
abstract of the terms of the contract of variation, together with a memorandum clearly
specifying the nature of the concern or interest of the director in such contract or variation.

Where a company enters into a contract for the appointment of a managing director of the
company, or varies any such contract which is already in existence, the company shall send
an abstract of the terms of the contract or variation to every member of the company within
within twenty-one days from such date and if any other director of the company is
concerned or interested in the contract or variation, a memorandum clearly specifying the
nature of the concern or interest of such other director in the contract or variation shall also
be sent to every member of the company with the abstract aforesaid.
Where a director becomes concerned or interested as aforesaid in any such contract as is
referred to above after it is made, the abstract and the memorandum, if any, referred to
above shall be sent to every member of the company within twenty-one days from the date
on which the director becomes so concerned or interested.

If default is made in complying with the foregoing provisions of this section, the company,
and every officer of the company who is in default, shall be punishable with fine which may
extend to one thousand rupees.

All contracts entered into by a company for the appointment of a manager, or managing
director, shall be kept at the registered office of the company; and shall be open to the
inspection of any member of the company at such office; and extracts may be taken
therefrom and copies thereof may be required by any such member, to the same extent, in
the same manner and on payment of the same fee, as in the case of the registrar of
members of the company.

The provisions of this section shall apply in relation to any resolution of the Board of
directors of a company appointing a manager or a managing or whole-time director, or
varying and previous contract or resolution of the company relating to the appointment of a
manager or a managing or whole time director, as they apply in relation to any contract for
the like purpose.

Register of Directors
Every company shall keep at its registered office a register of its directors, managing
director, manager and secretary, containing with respect to each of them the following
particulars, that is to say:

a. in the case of an individual, his present name and surname in full, any former name
or surname in full, his father's name and surname in full or where the individual is a
married woman, the husband's name and surname in full, his usual residential
address; his nationality; and, if that nationality is not the nationality of origin, his
nationality of origin; his business occupation, if any; if he holds the office of director,
managing director, manager or secretary in any other body corporate, the particulars
of each such office held by him; and except in the case of a private company which is
not a subsidiary of a public company, the date of his birth
b. in the case of a body corporate, its corporate name and registered or principal official
and the full name, address, nationality, and nationality of origin, if different from that
nationality, his father's name and surname in full or where the director is a married
woman, the husband's name and surname in full of each of its directors; and if it
holds the office of manger or secretary in any other body corporate, the particulars of
each such office
c. in the case of a firm, the name of the firm, the full name, address, nationality, and
nationality of origin, if different from that nationality, his father's name and surname
in full or where the partner is a married woman, the husband's name and surname in
full of each partner; and the date on which each became a partner; and if the firm
holds the office of manager or secretary in any other body corporate, the particulars
of each such officer
d. if any director or directors have been nominated by a body corporate; its corporate
name; all the particulars referred to in clause (a) in respect of each director so
nominated, and also all the particulars referred to in clause (b) in respect of the body
corporate
e. if any director or directors have been nominated by a firm, the name of the firm, all
the particulars referred to in clause (a) in respect of each director so nominated, and
also all the particulars referred to in clause (c) in respect of the firm
The company shall, within the prescribed periods send to the Registrar a return in duplicate
in the prescribed form ( form 32 ) within 30 days of appointment containing the particulars
specified in the said register and a notification in duplicate in the prescribed form within 30
days of any change among its directors, managing directors or in any of the particulars
contained in the register, specifying the date of the change.

If default is made in complying, the company, and every officer of the company who is in
default, shall be punishable with fine which may extend to fifty rupees for every day during
which the default continues.

Inspection of the register


The register kept shall be open to the inspection of any member of the company without
charge and of any other person on payment of one rupee for each inspection during
business hours subject to such reasonable restrictions as the company may by its articles or
in general meeting impost, so that not less than two hours in each day are allowed for
inspection.

If any inspection is refused :-

a. the company, and every officer of the company who is in default, shall be punishable
with fine which may extend to fifty rupees; and
b. the court may, by order, compel an immediate inspection of the register.

Duty of directors etc., to make disclosure


Every director, managing director, manager or secretary of any company, who is appointed
to or relinquishes the office of director, managing director, manager of any other body
corporate must within 20 days of his appointment or relinquishment, disclose to the
company aforesaid the particulars relating to the office in the other body corporate and if he
fails to do so, he shall be punishable with fine which may extend to five hundred rupees.

Register of Director's shareholdings


Every company shall keep a register showing, as respects each director of the company, the
number, description and amount of any shares in, or debentures, of the company or any
other body corporate, being the company's subsidiary or holding company, or a subsidiary of
the company's holding company, which are held by him or in trust for him, or of which he
has any right to become the holder whether on payment or not.

Where any shares or debentures have to be recorded in the said register or to be omitted
therefrom, in relation to any director, by reason of a transaction entered into and while he is
a director, the register shall also show the date of, and the price or other consideration for,
the transaction.

However, where there is an interval between the agreement for any such transaction and
the completion thereof, the date so shown shall be that of the agreement.

The nature and extent of any interest or right in or over any shares or debentures recorded
in relation to a director in the said register shall, if he so requires, be indicated in the
register.

The said register shall, subject to the provisions of this section, be kept at the registered
office of the company, and shall be open to inspection during business hours (subject to
such reasonable restrictions as the company may, by its articles or in general meeting,
impost so that not less than two hours in each day are allowed for inspection) as follows:-
a. during the period beginning fourteen days before the date of the company's annual
general meeting and ending three days after the date of its conclusion, it shall be
open to the inspection of any member of holder of debentures, of the company; and
b. during that or any other period, it shall be open to the inspection of any person
acting on behalf of the Central Government or of the Registrar.

In computing the fourteen days and the three days mentioned above, any day which is a
Saturday, a Sunday or a public holiday shall be disregarded.

The Central Government or the Registrar may, at any time, require a copy of the said
register, or any part thereof.

The said register shall also be produced at the commencement of every annual general
meeting of the company and shall remain open and accessible during the continuance of the
meeting to any person having the right to attend the meeting.

Duty of directors and persons deemed to be directors to make disclosure of


shareholdings
Every director of a company, must give notice to the company of such matters relating to
himself as may be necessary for the purpose of enabling the company to company with the
aforesaid provisions.

Any such notice shall be given in writing, and if it is not given at a meeting of the Board, the
person giving the notice shall take all reasonable steps to secure that it is brought up and
read at the meeting of the Board next after it is given.

Any person who fails to comply with the above provisions shall be punishable with
imprisonment for a term which may extend to two years, or with fine which may extend to
five thousand rupees, or with both

The remuneration payable to the directors of a company, including any managing or whole-
time director, shall be determined, in accordance the provisions given below either by the
articles of the company, or by a resolution ( special resolution if the articles so require ),
passed by the company in general meeting and the remuneration payable to any such
director determined as per the said provisions shall be inclusive of the remuneration payable
to such director for services rendered by him in any other capacity. However, any
remuneration for services will not be so included if the services are of a professional nature
and in the opinion of the Central Government, the director possesses the requisite
qualifications.

A director may receive remuneration by way of fees for attending each meeting of the Board
or of any committee thereof ( Sitting Fees ).

A director who is in whole time employment of the company or a managing director may be
paid remuneration either by way of a monthly payment or at a specified percentage of net
profits of the company or partly by one and partly by the other. Such remuneration cannot
exceed 5 % of the net profits of the company, except with the approval of the Central
Government in case of one director and 10 % for all such directors.

The total managerial remuneration payable by a public company or a private company


which is a subsidiary of a public company to its directors and its manager in any financial
year must not exceed 11 % of the net profits of the company calculated in accordance with
the provisions of section 349, 350 and 351.
In the case of a director who is neither in the whole-time employment of the company nor a
managing director may be paid remuneration either by way of a monthly, quarterly or
annual payment with the approval of the Central Government or by way of commission if the
company by special resolution authorises such payment. Such special resolution to in sub-
section (4) shall not remain in force for a period of more than five years; but may be
renewed, from time to time, by special resolution for further periods of not more than five
years at a time. Remuneration payable to such directors cannot exceed :-

a. if the company has a managing or whole-time director or a manager, one per cent, of
the net profits of the company;
b. in any other case, three percent of the net profits of the company.

If any director earns remuneration from a company in excess of the above limits without
prior approval of the Central Government, he shall refund the excess to the company and
until such repayment, hold the money in trust with him.

The Company cannot waive recovery of such sum due from the director unless approved by
the Central Government.

No approval of the Central Government is required in case the remuneration is within the
limits mentioned in Schedule XIII to the Companies Act, 1956.

No director of a company who is in receipt of any commission from the company and who is
either in the whole-time employment of the company or a managing director shall be
entitled to receive any commission or other remuneration from any subsidiary of such
company.

The above provisions pertaining to remuneration do not apply to a private company unless it
is a subsidiary of a public company.

Provision for increase in remuneration to require Government sanction


In the case of a public company, or a private company which is a subsidiary of a public
company, any provision relating to the remuneration of any director or any amendment
thereof, which purports to increase or has the effect of increasing, whether directly or
indirectly, the amount of remuneration shall not have any effect unless :-

i. is within the limits specified in Schedule XIII, where Schedule XIII is applicable ; or
ii. approved by the Central Government

and the amendment shall become void if, and in so far as, it is disapproved by the
Government.

Increase in remuneration of managing director on reappointment or appointment


after Act to require government sanction
In the case of a public company, or a private company, which is a subsidiary of a public
company, if the terms of any re-appointment or appointment of a managing or whole-time
director, purport to increase or have the effect of increasing, whether directly or indirectly,
the remuneration which the managing or whole-time director or the previous managing or
whole-time director, as the case may be, was receiving immediately before such
appointment, the or appointment shall not have any effect unless :-

i. is within the limits specified in Schedule XIII, where Schedule XIII is applicable ; or
ii. approved by the Central Government

and the amendment shall become void if, and in so far as, it is disapproved by the
Government.

Director cannot to hold office or place of profit


Except with the previous consent of the company accorded by a special resolution :-

i. No director of a company can hold any office or place of profit in that company
ii. No partner or relative of such a director ( i.e. a director holding an office or place of
profit in the company ), no firm in which such a director or relative is a partner, no
private company of which such a director is a director or member, and no director, or
manger of such a private company can hold any office or place of profit carrying
monthly remuneration in excess of the prescribed amount ( Rs. 10000/-).

However, the above restrictions are not applicable to the office of managing director,
manager, banker, or trustee for the holders of debentures of the company either :-

i. in the company ; or
ii. in any subsidiary of the company, unless the remuneration received from such
subsidiary in respect of such office or place is paid over to the company or its holding
company.

The special resolution required for the above purpose may be passed at the first general
meeting after the appointment. Such special resolutions will required at subsequent re-
appointments also on a higher remuneration not covered by the earlier special resolution.

However, if the monthly remuneration is not less than Rs. 20000/- per month, the special
resolution mentioned above has to be obtained prior to the appointment and in addition to
the special resolution, approval of the Central Government will also be required for the
appointment.

If any office or place of profit under the company or a subsidiary thereof is held in
contravention of the above provisions, the director, partner, relative, firm, private company
or, manager shall be deemed to have vacated his office, with effect from the day following
the date of general meeting mentioned above. Such person will also be liable to refund to
the company any remuneration received, or the monetary equivalent of any perquisites or
advantage enjoyed by him, in respect of such office or place of profit. The company will not
be able to waive recovery of such amounts, except with the approval of the Central
Government.

Any office or place in a company shall be deemed to be an office or place or profit under the
company for these provisions :-

a. in case the office or place is held by a director, if the director holding it obtains from
the company anything by way of remuneration over and above the remuneration to
which he is entitled as such director, whether as salary, fees, commission,
perquisites, the right to occupy free of rent any premises as a place of residence, or
otherwise;
b. in case the office or place is held by an individual other than a director or by any firm,
private company or other body corporate, if the individual, firm private company or
body corporate holding it obtains from the company anything by way of
remuneration whether as salary, fees, commission, perquisites, the right to occupy
free of rent any premises as a place of residence, or otherwise.

None of the above provisions apply to a director appointed by the Central Government u/s
408 of the Companies Act, 1956

Compensation for loss of office


Payment may be made by a company, except in the cases specified below and subject to
the limit specified, to a managing director or a director holding the office of manager or in
the whole time employment of the company, by way of compensation for loss of office, or as
consideration for retirement from office, or in connection with such loss or retirement.

However, such payment cannot be made by the company to any other director.

No payment shall be made to a managing or other director in the following cases :-

a. where the director resigns his office in view of the reconstruction of the company, or
of its amalgamation with any other body corporate or bodies corporate, and is
appointed as the managing director, manager or other officer of the reconstructed
company or of the body corporate resulting from the amalgamation;
b. where the director resigns his office otherwise than on the reconstruction of the
company or its amalgamation as aforesaid;
c. where the office of the director is vacated
d. where the company is being wound up, whether by or subject to the supervision of
the Court or voluntarily, provided the winding up was due to the negligence or
default of the director;
e. where the director has been guilty of fraud or breach of trust in relation to, or gross
negligence in or gross mismanagement or, the conduct of the affairs of the company
or any subsidiary or holding company thereof;
f. whether the director has instigated, or has taken part directly or indirectly in bringing
about, the termination of his office.

Any such payment made to a managing or other director shall not exceed the remuneration
which he would have earned if he had been in office for the unexpired residue of his term or
for three years, whichever is shorter, calculated on the basis of the average remuneration
actually earned by him during a period of three years immediately proceeding the date on
which he ceased to hold the office, or where he held the office for a lesser period than three
years, during such period.

No such payment shall be made to the director in the event of the commencement of the
winding up of the company, whether before, or at any time within twelve months after, the
date on which he ceased to hold office, if the assets of the company on the winding up, after
deducting the expenses thereof , are not sufficient to repay to the share-holders the share
capital (including the premiums, if any) contributed by them.

These provisions do not prohibit the payment to a managing director or a director holding
the office of manager, of any remuneration for services rendered by him to the company in
any other capacity.

Payment to director for loss of office in connection with transfer of undertaking or


property
No director of a company shall, in connection with the transfer of the whole or any part of
any undertaking of property of the company, receive any payment, by way of compensation
for loss of office, or as consideration for retirement from office, or in connection with such
loss or retirement

a. from such company; or


b. from the transferee of such undertaking or property or from any other person, unless
particulars with respect to the payment proposed to be made by such transferee or
person (including the amount thereof) have been disclosed to the members of the
company and the proposal has been approved by the company in general meeting.

Where a director of a company receives payment of any amount in contravention of the


above provisions, the amount shall be deemed to have been received by him in trust for the
company.

Payment to director for loss of office, etc., in connection with transfer of shares
No director of a company shall, in connection with the transfer to any persons of all or any of
the shares in a company, being a transfer resulting from-

i. an offer made to the general body of shareholders;


ii. an offer made by or on behalf of some other body corporate with a view to the
company becoming a subsidiary of such body corporate or a subsidiary of its holding
company;
iii. an offer made by or on behalf of an individual with a view to his obtaining the right to
exercise, or control the exercise of, not less than one-third of the total voting power
at any general meetings of the company; or
iv. any other offer which is conditional on acceptance to a given extent;

receive any payment by way of compensation for loss of office, or as consideration for
retirement from office, or in connection with such loss or retirement,-

a. from such company; or


b. from the transferees of the shares or from any other person except as provided
below.

It shall be the duty of the director concerned to take all reasonable steps to secure that
details with respect to the payment proposed to be made by the transferees or other person
(including the amount thereof) are sent with, any notice of the offer made for their shares
which is given to any shareholders.

If :-

a. any such director fails to take reasonable steps as aforesaid; or


b. any person who has been properly required by any such director to include the said
details in the aforesaid notice fails so to do;

he shall be punishable with fine which may extend to two hundred and fifty rupees.

If-

a. the above provisions are not complied with ; or


b. the making of the proposed payment is not, before the transfer of any shares in
pursuance of the offer, approved by a meeting, called for the purpose ,of the
concerned shareholders

any sum received by the director on account of the payment shall be deemed to have been
received by him in trust for any persons who have sold their shares as a result of the offer
made, and the expenses incurred by him in distributing that sum amongst those persons
shall be borne by him and not retained out of that sum.

If at a meeting called for the purpose of approving any payment, a quorum is not present
and, after the meeting has been adjourned to a later date, a quorum is again not present,
the payment shall, be deemed to have been approved.

Directors with unlimited liability in limited company


In a limited company, the liability of the directors or of any director or of the manager may
ie generally limited to the amount of investment in shares of that company. However, if so
provided by the memorandum, it may become unlimited.

In a limited company in which the liability of a director or manager is unlimited, the


directors, and the manager of the company, and the member who proposes a person for
appointment, to the office of director or manager, shall add to that proposal a statement
that the liability of the person holding that office will be unlimited and before the person
accepts the office or acts therein, notice in writing that his liability will be unlimited, shall be
given to him.

If any director, manager or proposer makes default in adding such a statement, or if any
promoter, director, manager or officer of the company makes default in giving such a notice,
he shall be punishable with fine which may extend to one thousand rupees and shall also be
liable for any damage which the person so appointed may sustain from the default; but the
liability of the person appointed shall continue to remain unlimited.

Special resolution of limited company making liability of directors unlimited


A limited company may, if so authorised by its articles, by special resolution, alter its
memorandum so as to render unlimited the liability of its directors or of any director or of its
manager.

However no alteration of the memorandum making the liability of any of the officers
unlimited shall apply to such officer, if he was holding the office from before the date of the
alteration, until the expiry of his then term, unless he has accorded his consent to his
liability becoming unlimited.

==============================================
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Prevention of Oppression and Mismanagement

Application to the Company Law Board for relief in cases of oppression


Any members of a company who complain that the affairs of the company are being
conducted in a manner prejudical to public interest or in a manner oppressive to any
member or members may apply to the Company Law Board for an order for relief, provided
such members have a right so to apply as given below.
If, on any application, the Company Law Board is of the opinion :-

a. that the company's affairs are being conducted in a manner oppressive to any
member or members; and
b. that to wind up the company would unfairly prejudice such member or members and
would be a very serious step, but that otherwise the facts would justify the making of
a winding-up order on the ground that it was just and equitable that the company
should be would up;

the Company Law Board may, with a view to bringing to an end the matters complained of,
make such order as it thinks fit.

Application to Court for relief in cases of mismanagement


Any members of a company who complain :-

a. that the affairs of the company are being conducted in a manner prejudicial to public
interest or in a manner prejudicial to the interests of the company; or
b. that a material change has taken place in the management or control of the
company, whether by an alteration in its Board of directors, or manager or in the
ownership of the company's shares, or if it has no share capital, in its membership, or
in any other manner whatsoever, and that by reason of such change, it is likely that
the affairs of the company will be conducted in a manner prejudicial to public interest
or in a manner prejudicial to the interests of the company;

may apply to the Company Law Board for an order of relief provided such members have a
right so to apply as given below.

If, on any such application, the Company Law Board is of opinion that the affairs of the
company are being conducted as aforesaid or that by reason of any material change as
aforesaid in the management or control of the company, it is likely that the affairs of the
company will be conducted as aforesaid, the court may, with a view to bringing to an end or
preventing the matters complained of or apprehended, make such order as it thinks fit.

Right to apply
The following members of a company shall have the right to apply as above:-

a. in the case of a company having a share capital, not less than one hundred members
of the company or not less than one tenth of the total number of its members,
whichever is less, or any member or members holding not less than one-tenth of the
issued share capital of the company, provided that the applicant or applicants have
paid all calls and other sums due on their shares;
b. in the case of a company not having a share capital, not less than one-fifth of the
total number of its members.

Where any share or shares are held by two or more persons jointly, they shall be counted
only as one number.

Where any members of a company, are entitled to make an application, any one or more of
them having obtained the consent in writing of the rest, may make the application on behalf
and for the benefit of all of them.
The Central Government may, if in its opinion circumstances exist which make it just and
equitable so to do, authorise any member or members of the company to apply to the
Company Law Board, notwithstanding that the above requirements for application are not
fulfilled.

The Central Government may, before authorising any member or members as aforesaid,
require such member or members to give security for such amount as the Central
Government may deem reasonable, for the payment of any costs which the Court dealing
with the application may order such member or members to pay to any other person or
persons who are parties to the application.

If the managing director or any other director, or the manager, of a company or any other
person, who has not been impleaded as a respondent to any application applies to be added
as a respondent thereto, the Company Law Board may, if it is satisfied that there is sufficient
cause for doing so, direct that he may be added as a respondent accordingly.

Notice to be given to Central Government of application


The Company Law Board must give notice of every application made to it as above to the
Central government, and shall take into consideration the representations, if any, made to it
by that Government before passing a final order.

Right of Central Government to apply


The Central Government may itself apply to the Company law Board for an order, or cause
an application to be made to the Company Law Board for such an order by any person
authorised be it in this behalf.

Powers of Company Law Board on application


Without prejudice to the generality of the powers of the Company Law Board, any under
either section may provide for :-

a. the regulation of the conduct of the company's affairs in future;


b. the purchase of the shares or interests of any members of the company by other
members thereof or by the company;
c. in the case of a purchase of its shares by the company as aforesaid, the consequent
reduction of its share capital;
d. the termination, setting aside or modification of any agreement, howsoever arrived
at, between the company on the one hand, and any of the following persons, on the
other namely:-

i. the managing director,


ii. any other director,
iii. the manager,

upon such terms and conditions as may, in the opinion of the Company Law Board, be just
and equitable in all the circumstances of the case;

a. the termination, setting aside or modification of any agreement between the


company and any person not referred to in clause (d), provided that no such
agreement shall be terminated, set aside or modified except after due notice to the
party concerned and provided further that no such agreement shall be modified
except after obtaining the consent of the party concerned;
b. the setting aside of any transfer, delivery of goods, payment, execution or other act
relating to property made or done by or against the company within three months
before the date of the application, which would, if made or done by or against an
individual, be deemed in his insolvency to be a fraudulent preference;
c. any other matter for which in the opinion of the Company Law Board it is just and
equitable that provision should be made.

Interim order by the Company Law Board


Pending the making by it of a final order, the Company Law Board may, on the application of
any party to the proceedings, make any interim order which it thinks fit for regulating the
conduct of the company's affairs, upon such terms and conditions as appear to it to be just
and equitable.

Effect of alteration of memorandum or articles of company by order


Where an order makes any alteration in the memorandum or articles of a company, then,
notwithstanding any other provision of this Act, the company shall not have power, except
to the extent, if any permitted in the order, to make without the leave of the Company Law
Board, any alteration whatsoever which is inconsistent with the order, either in the
memorandum or in the articles.

The alterations made by the order shall, in all respects, have the same effect as if they had
been duly made by the company in accordance with the provisions of this Act.

A certified copy of every order altering or giving leave to alter, a company's memorandum
or articles, must within thirty days after the making thereof, be filed by the company with
the Registrar who shall registrar the same.

If default is made in complying with the above provisions, the company, and every officer of
the company who is in default, shall be punishable with fine which may extend to five
thousand rupees.

Consequences of termination or modification of certain agreements


Where an order terminates, sets aside or modifies an agreement :-

a. the order shall not give rise to any claim whatever against the company by any
person for damages or for compensation for loss of office or in any respect, either in
pursuance of the agreement or otherwise;
b. no managing or other director or manager whose agreement is so terminated or set
aside, shall for a period of five years from the date of the order terminating the
agreement, without the leave of the Company Law Board, be appointed, or act, as
the managing or other director or manager of the company.

Any person who knowingly acts as a managing or other director or manager of a company in
contravention of the above provision, every director of the company, who is knowingly a
party to such contravention shall be punishable with imprisonment for a term which may
extend to one year, or with fine which may extend to five thousand rupees, or with both.

The Company Law Board will not grant leave for appointment as managing director or
director or manager of the company unless notice of the intention to apply for leave has
been served on the Central Government and that Government has been given an
opportunity of being heard in the matter.
Powers of Central Government to prevent oppression or mismanagement
The Central Government may appoint such number of persons as the Company Law Board
may, by order in writing, specify as being necessary to effectively safeguard the interests of
the Company or its shareholders or public interests, to act as directors thereof for such
period not exceeding 3 years on any one occasion as it deems fit if the Company Law
Board :-

a. on a reference being made to it by the Central Government ; or


b. on an application of not less than one hundred members of the company or of
members of the company holding not less than one-tenth of the total voting power
therein,

is satisfied, after such inquiry as it deems fit to make, that it is necessary to make the
appointment or appointments in order to prevent the affairs of the company being
conducted either in a manner which is oppressive to any members of the company or in a
manner which is prejudicial to the interests of the company or to public interest.

However, in lieu of passing order as aforesaid, the Company Law Board may, if the company
has not availed itself of the option given to it of proportional representation to minority
shareholders on the Board of the company, direct the company to amend its articles in the
manner provided section 265 and make fresh appointments of directors in pursuance of the
articles as so amended within such time as may be specified in that behalf by the Company
Law Board.

In case the Central Government passes such an order it may, if thinks fit, direct that until
new directors are appointed in pursuance of the order aforesaid, not more than two
members of the company specified by the Company law Board shall hold office as additional
directors of the company. The Central Government shall appoint such additional directors on
such directions.

The person appointed as a director by the Central Government in accordance with the above
provisions, need not hold any qualification shares nor need to retire by rotation. However,
his office as director may be terminated at any time by the Central Government and another
person appointed in his place.

No change in the constitution of the Board of Directors can take place after an additional
director is appointed by the Central Government in accordance with these provisions unless
approved by the Company Law Board.

The Central Government in such cases may also issue such directions to the company as it
may consider necessary or appropriate in regard to its affairs.

Power of the Company Law Board to prevent change in Board of directors likely to
affect company prejudicially
Where a complaint is made to the Company Law Board by the managing director or any
other director or the manager of a company that, as a result of a change which has taken
place or is likely to take place in ownership or any shares held in the company, a change in
the Board of directors is likely to take place which (if allowed) would affect prejudicially the
affairs of the company, the Company Law Board may, if satisfied, after such inquiry as it
thinks fit to make that it is just and proper to do so, by order direct that no resolution passed
or that may be passed or no action taken or may be taken to effect a change in the Board of
directors after the date of the complaint shall have effect unless confirmed by the Company
Law Board.
Any such order shall have effect notwithstanding anything to the contrary contained in any
other provision of this Act or in the memorandum or articles of the company, or in any
agreement with, or any resolution passed in general meeting by, or by the Board of directors
or, the company.

The Company Law Board shall have power when any such complaint is received by it, to
make an interim order to the effect set out above, before making or completing the inquiry
aforesaid.

Nothing contained above shall apply to a private company, unless it is a subsidiary of a


public company

The remuneration payable to the directors of a company, including any managing or whole-
time director, shall be determined, in accordance the provisions given below either by the
articles of the company, or by a resolution ( special resolution if the articles so require ),
passed by the company in general meeting and the remuneration payable to any such
director determined as per the said provisions shall be inclusive of the remuneration payable
to such director for services rendered by him in any other capacity. However, any
remuneration for services will not be so included if the services are of a professional nature
and in the opinion of the Central Government, the director possesses the requisite
qualifications.

A director may receive remuneration by way of fees for attending each meeting of the Board
or of any committee thereof ( Sitting Fees ).

A director who is in whole time employment of the company or a managing director may be
paid remuneration either by way of a monthly payment or at a specified percentage of net
profits of the company or partly by one and partly by the other. Such remuneration cannot
exceed 5 % of the net profits of the company, except with the approval of the Central
Government in case of one director and 10 % for all such directors.

The total managerial remuneration payable by a public company or a private company


which is a subsidiary of a public company to its directors and its manager in any financial
year must not exceed 11 % of the net profits of the company calculated in accordance with
the provisions of section 349, 350 and 351.

In the case of a director who is neither in the whole-time employment of the company nor a
managing director may be paid remuneration either by way of a monthly, quarterly or
annual payment with the approval of the Central Government or by way of commission if the
company by special resolution authorises such payment. Such special resolution to in sub-
section (4) shall not remain in force for a period of more than five years; but may be
renewed, from time to time, by special resolution for further periods of not more than five
years at a time. Remuneration payable to such directors cannot exceed :-

a. if the company has a managing or whole-time director or a manager, one per cent, of
the net profits of the company;
b. in any other case, three percent of the net profits of the company.

If any director earns remuneration from a company in excess of the above limits without
prior approval of the Central Government, he shall refund the excess to the company and
until such repayment, hold the money in trust with him.
The Company cannot waive recovery of such sum due from the director unless approved by
the Central Government.

No approval of the Central Government is required in case the remuneration is within the
limits mentioned in Schedule XIII to the Companies Act, 1956.

No director of a company who is in receipt of any commission from the company and who is
either in the whole-time employment of the company or a managing director shall be
entitled to receive any commission or other remuneration from any subsidiary of such
company.

The above provisions pertaining to remuneration do not apply to a private company unless it
is a subsidiary of a public company.

Provision for increase in remuneration to require Government sanction


In the case of a public company, or a private company which is a subsidiary of a public
company, any provision relating to the remuneration of any director or any amendment
thereof, which purports to increase or has the effect of increasing, whether directly or
indirectly, the amount of remuneration shall not have any effect unless :-

i. is within the limits specified in Schedule XIII, where Schedule XIII is applicable ; or
ii. approved by the Central Government

and the amendment shall become void if, and in so far as, it is disapproved by the
Government.

Increase in remuneration of managing director on reappointment or appointment


after Act to require government sanction
In the case of a public company, or a private company, which is a subsidiary of a public
company, if the terms of any re-appointment or appointment of a managing or whole-time
director, purport to increase or have the effect of increasing, whether directly or indirectly,
the remuneration which the managing or whole-time director or the previous managing or
whole-time director, as the case may be, was receiving immediately before such
appointment, the or appointment shall not have any effect unless :-

i. is within the limits specified in Schedule XIII, where Schedule XIII is applicable ; or
ii. approved by the Central Government

and the amendment shall become void if, and in so far as, it is disapproved by the
Government.

Director cannot to hold office or place of profit


Except with the previous consent of the company accorded by a special resolution :-

i. No director of a company can hold any office or place of profit in that company
ii. No partner or relative of such a director ( i.e. a director holding an office or place of
profit in the company ), no firm in which such a director or relative is a partner, no
private company of which such a director is a director or member, and no director, or
manger of such a private company can hold any office or place of profit carrying
monthly remuneration in excess of the prescribed amount ( Rs. 10000/-).
However, the above restrictions are not applicable to the office of managing director,
manager, banker, or trustee for the holders of debentures of the company either :-

i. in the company ; or
ii. in any subsidiary of the company, unless the remuneration received from such
subsidiary in respect of such office or place is paid over to the company or its holding
company.

The special resolution required for the above purpose may be passed at the first general
meeting after the appointment. Such special resolutions will required at subsequent re-
appointments also on a higher remuneration not covered by the earlier special resolution.

However, if the monthly remuneration is not less than Rs. 20000/- per month, the special
resolution mentioned above has to be obtained prior to the appointment and in addition to
the special resolution, approval of the Central Government will also be required for the
appointment.

If any office or place of profit under the company or a subsidiary thereof is held in
contravention of the above provisions, the director, partner, relative, firm, private company
or, manager shall be deemed to have vacated his office, with effect from the day following
the date of general meeting mentioned above. Such person will also be liable to refund to
the company any remuneration received, or the monetary equivalent of any perquisites or
advantage enjoyed by him, in respect of such office or place of profit. The company will not
be able to waive recovery of such amounts, except with the approval of the Central
Government.

Any office or place in a company shall be deemed to be an office or place or profit under the
company for these provisions :-

a. in case the office or place is held by a director, if the director holding it obtains from
the company anything by way of remuneration over and above the remuneration to
which he is entitled as such director, whether as salary, fees, commission,
perquisites, the right to occupy free of rent any premises as a place of residence, or
otherwise;
b. in case the office or place is held by an individual other than a director or by any firm,
private company or other body corporate, if the individual, firm private company or
body corporate holding it obtains from the company anything by way of
remuneration whether as salary, fees, commission, perquisites, the right to occupy
free of rent any premises as a place of residence, or otherwise.

None of the above provisions apply to a director appointed by the Central Government u/s
408 of the Companies Act, 1956

Compensation for loss of office


Payment may be made by a company, except in the cases specified below and subject to
the limit specified, to a managing director or a director holding the office of manager or in
the whole time employment of the company, by way of compensation for loss of office, or as
consideration for retirement from office, or in connection with such loss or retirement.

However, such payment cannot be made by the company to any other director.

No payment shall be made to a managing or other director in the following cases :-


a. where the director resigns his office in view of the reconstruction of the company, or
of its amalgamation with any other body corporate or bodies corporate, and is
appointed as the managing director, manager or other officer of the reconstructed
company or of the body corporate resulting from the amalgamation;
b. where the director resigns his office otherwise than on the reconstruction of the
company or its amalgamation as aforesaid;
c. where the office of the director is vacated
d. where the company is being wound up, whether by or subject to the supervision of
the Court or voluntarily, provided the winding up was due to the negligence or
default of the director;
e. where the director has been guilty of fraud or breach of trust in relation to, or gross
negligence in or gross mismanagement or, the conduct of the affairs of the company
or any subsidiary or holding company thereof;
f. whether the director has instigated, or has taken part directly or indirectly in bringing
about, the termination of his office.

Any such payment made to a managing or other director shall not exceed the remuneration
which he would have earned if he had been in office for the unexpired residue of his term or
for three years, whichever is shorter, calculated on the basis of the average remuneration
actually earned by him during a period of three years immediately proceeding the date on
which he ceased to hold the office, or where he held the office for a lesser period than three
years, during such period.

No such payment shall be made to the director in the event of the commencement of the
winding up of the company, whether before, or at any time within twelve months after, the
date on which he ceased to hold office, if the assets of the company on the winding up, after
deducting the expenses thereof , are not sufficient to repay to the share-holders the share
capital (including the premiums, if any) contributed by them.

These provisions do not prohibit the payment to a managing director or a director holding
the office of manager, of any remuneration for services rendered by him to the company in
any other capacity.

Payment to director for loss of office in connection with transfer of undertaking or


property
No director of a company shall, in connection with the transfer of the whole or any part of
any undertaking of property of the company, receive any payment, by way of compensation
for loss of office, or as consideration for retirement from office, or in connection with such
loss or retirement

a. from such company; or


b. from the transferee of such undertaking or property or from any other person, unless
particulars with respect to the payment proposed to be made by such transferee or
person (including the amount thereof) have been disclosed to the members of the
company and the proposal has been approved by the company in general meeting.

Where a director of a company receives payment of any amount in contravention of the


above provisions, the amount shall be deemed to have been received by him in trust for the
company.

Payment to director for loss of office, etc., in connection with transfer of shares
No director of a company shall, in connection with the transfer to any persons of all or any of
the shares in a company, being a transfer resulting from-
i. an offer made to the general body of shareholders;
ii. an offer made by or on behalf of some other body corporate with a view to the
company becoming a subsidiary of such body corporate or a subsidiary of its holding
company;
iii. an offer made by or on behalf of an individual with a view to his obtaining the right to
exercise, or control the exercise of, not less than one-third of the total voting power
at any general meetings of the company; or
iv. any other offer which is conditional on acceptance to a given extent;

receive any payment by way of compensation for loss of office, or as consideration for
retirement from office, or in connection with such loss or retirement,-

a. from such company; or


b. from the transferees of the shares or from any other person except as provided
below.

It shall be the duty of the director concerned to take all reasonable steps to secure that
details with respect to the payment proposed to be made by the transferees or other person
(including the amount thereof) are sent with, any notice of the offer made for their shares
which is given to any shareholders.

If :-

a. any such director fails to take reasonable steps as aforesaid; or


b. any person who has been properly required by any such director to include the said
details in the aforesaid notice fails so to do;

he shall be punishable with fine which may extend to two hundred and fifty rupees.

If-

a. the above provisions are not complied with ; or


b. the making of the proposed payment is not, before the transfer of any shares in
pursuance of the offer, approved by a meeting, called for the purpose ,of the
concerned shareholders

any sum received by the director on account of the payment shall be deemed to have been
received by him in trust for any persons who have sold their shares as a result of the offer
made, and the expenses incurred by him in distributing that sum amongst those persons
shall be borne by him and not retained out of that sum.

If at a meeting called for the purpose of approving any payment, a quorum is not present
and, after the meeting has been adjourned to a later date, a quorum is again not present,
the payment shall, be deemed to have been approved.

Directors with unlimited liability in limited company


In a limited company, the liability of the directors or of any director or of the manager may
ie generally limited to the amount of investment in shares of that company. However, if so
provided by the memorandum, it may become unlimited.
In a limited company in which the liability of a director or manager is unlimited, the
directors, and the manager of the company, and the member who proposes a person for
appointment, to the office of director or manager, shall add to that proposal a statement
that the liability of the person holding that office will be unlimited and before the person
accepts the office or acts therein, notice in writing that his liability will be unlimited, shall be
given to him.

If any director, manager or proposer makes default in adding such a statement, or if any
promoter, director, manager or officer of the company makes default in giving such a notice,
he shall be punishable with fine which may extend to one thousand rupees and shall also be
liable for any damage which the person so appointed may sustain from the default; but the
liability of the person appointed shall continue to remain unlimited.

Special resolution of limited company making liability of directors unlimited


A limited company may, if so authorised by its articles, by special resolution, alter its
memorandum so as to render unlimited the liability of its directors or of any director or of its
manager.

However no alteration of the memorandum making the liability of any of the officers
unlimited shall apply to such officer, if he was holding the office from before the date of the
alteration, until the expiry of his then term, unless he has accorded his consent to his
liability becoming unlimited.

==============================================
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Prevention of Oppression and Mismanagement

Application to the Company Law Board for relief in cases of oppression


Any members of a company who complain that the affairs of the company are being
conducted in a manner prejudical to public interest or in a manner oppressive to any
member or members may apply to the Company Law Board for an order for relief, provided
such members have a right so to apply as given below.

If, on any application, the Company Law Board is of the opinion :-

a. that the company's affairs are being conducted in a manner oppressive to any
member or members; and
b. that to wind up the company would unfairly prejudice such member or members and
would be a very serious step, but that otherwise the facts would justify the making of
a winding-up order on the ground that it was just and equitable that the company
should be would up;

the Company Law Board may, with a view to bringing to an end the matters complained of,
make such order as it thinks fit.

Application to Court for relief in cases of mismanagement


Any members of a company who complain :-

a. that the affairs of the company are being conducted in a manner prejudicial to public
interest or in a manner prejudicial to the interests of the company; or
b. that a material change has taken place in the management or control of the
company, whether by an alteration in its Board of directors, or manager or in the
ownership of the company's shares, or if it has no share capital, in its membership, or
in any other manner whatsoever, and that by reason of such change, it is likely that
the affairs of the company will be conducted in a manner prejudicial to public interest
or in a manner prejudicial to the interests of the company;

may apply to the Company Law Board for an order of relief provided such members have a
right so to apply as given below.

If, on any such application, the Company Law Board is of opinion that the affairs of the
company are being conducted as aforesaid or that by reason of any material change as
aforesaid in the management or control of the company, it is likely that the affairs of the
company will be conducted as aforesaid, the court may, with a view to bringing to an end or
preventing the matters complained of or apprehended, make such order as it thinks fit.

Right to apply
The following members of a company shall have the right to apply as above:-

a. in the case of a company having a share capital, not less than one hundred members
of the company or not less than one tenth of the total number of its members,
whichever is less, or any member or members holding not less than one-tenth of the
issued share capital of the company, provided that the applicant or applicants have
paid all calls and other sums due on their shares;
b. in the case of a company not having a share capital, not less than one-fifth of the
total number of its members.

Where any share or shares are held by two or more persons jointly, they shall be counted
only as one number.

Where any members of a company, are entitled to make an application, any one or more of
them having obtained the consent in writing of the rest, may make the application on behalf
and for the benefit of all of them.

The Central Government may, if in its opinion circumstances exist which make it just and
equitable so to do, authorise any member or members of the company to apply to the
Company Law Board, notwithstanding that the above requirements for application are not
fulfilled.

The Central Government may, before authorising any member or members as aforesaid,
require such member or members to give security for such amount as the Central
Government may deem reasonable, for the payment of any costs which the Court dealing
with the application may order such member or members to pay to any other person or
persons who are parties to the application.

If the managing director or any other director, or the manager, of a company or any other
person, who has not been impleaded as a respondent to any application applies to be added
as a respondent thereto, the Company Law Board may, if it is satisfied that there is sufficient
cause for doing so, direct that he may be added as a respondent accordingly.

Notice to be given to Central Government of application


The Company Law Board must give notice of every application made to it as above to the
Central government, and shall take into consideration the representations, if any, made to it
by that Government before passing a final order.

Right of Central Government to apply


The Central Government may itself apply to the Company law Board for an order, or cause
an application to be made to the Company Law Board for such an order by any person
authorised be it in this behalf.

Powers of Company Law Board on application


Without prejudice to the generality of the powers of the Company Law Board, any under
either section may provide for :-

a. the regulation of the conduct of the company's affairs in future;


b. the purchase of the shares or interests of any members of the company by other
members thereof or by the company;
c. in the case of a purchase of its shares by the company as aforesaid, the consequent
reduction of its share capital;
d. the termination, setting aside or modification of any agreement, howsoever arrived
at, between the company on the one hand, and any of the following persons, on the
other namely:-

i. the managing director,


ii. any other director,
iii. the manager,

upon such terms and conditions as may, in the opinion of the Company Law Board, be just
and equitable in all the circumstances of the case;

a. the termination, setting aside or modification of any agreement between the


company and any person not referred to in clause (d), provided that no such
agreement shall be terminated, set aside or modified except after due notice to the
party concerned and provided further that no such agreement shall be modified
except after obtaining the consent of the party concerned;
b. the setting aside of any transfer, delivery of goods, payment, execution or other act
relating to property made or done by or against the company within three months
before the date of the application, which would, if made or done by or against an
individual, be deemed in his insolvency to be a fraudulent preference;
c. any other matter for which in the opinion of the Company Law Board it is just and
equitable that provision should be made.

Interim order by the Company Law Board


Pending the making by it of a final order, the Company Law Board may, on the application of
any party to the proceedings, make any interim order which it thinks fit for regulating the
conduct of the company's affairs, upon such terms and conditions as appear to it to be just
and equitable.

Effect of alteration of memorandum or articles of company by order


Where an order makes any alteration in the memorandum or articles of a company, then,
notwithstanding any other provision of this Act, the company shall not have power, except
to the extent, if any permitted in the order, to make without the leave of the Company Law
Board, any alteration whatsoever which is inconsistent with the order, either in the
memorandum or in the articles.
The alterations made by the order shall, in all respects, have the same effect as if they had
been duly made by the company in accordance with the provisions of this Act.

A certified copy of every order altering or giving leave to alter, a company's memorandum
or articles, must within thirty days after the making thereof, be filed by the company with
the Registrar who shall registrar the same.

If default is made in complying with the above provisions, the company, and every officer of
the company who is in default, shall be punishable with fine which may extend to five
thousand rupees.

Consequences of termination or modification of certain agreements


Where an order terminates, sets aside or modifies an agreement :-

a. the order shall not give rise to any claim whatever against the company by any
person for damages or for compensation for loss of office or in any respect, either in
pursuance of the agreement or otherwise;
b. no managing or other director or manager whose agreement is so terminated or set
aside, shall for a period of five years from the date of the order terminating the
agreement, without the leave of the Company Law Board, be appointed, or act, as
the managing or other director or manager of the company.

Any person who knowingly acts as a managing or other director or manager of a company in
contravention of the above provision, every director of the company, who is knowingly a
party to such contravention shall be punishable with imprisonment for a term which may
extend to one year, or with fine which may extend to five thousand rupees, or with both.

The Company Law Board will not grant leave for appointment as managing director or
director or manager of the company unless notice of the intention to apply for leave has
been served on the Central Government and that Government has been given an
opportunity of being heard in the matter.

Powers of Central Government to prevent oppression or mismanagement


The Central Government may appoint such number of persons as the Company Law Board
may, by order in writing, specify as being necessary to effectively safeguard the interests of
the Company or its shareholders or public interests, to act as directors thereof for such
period not exceeding 3 years on any one occasion as it deems fit if the Company Law
Board :-

a. on a reference being made to it by the Central Government ; or


b. on an application of not less than one hundred members of the company or of
members of the company holding not less than one-tenth of the total voting power
therein,

is satisfied, after such inquiry as it deems fit to make, that it is necessary to make the
appointment or appointments in order to prevent the affairs of the company being
conducted either in a manner which is oppressive to any members of the company or in a
manner which is prejudicial to the interests of the company or to public interest.

However, in lieu of passing order as aforesaid, the Company Law Board may, if the company
has not availed itself of the option given to it of proportional representation to minority
shareholders on the Board of the company, direct the company to amend its articles in the
manner provided section 265 and make fresh appointments of directors in pursuance of the
articles as so amended within such time as may be specified in that behalf by the Company
Law Board.

In case the Central Government passes such an order it may, if thinks fit, direct that until
new directors are appointed in pursuance of the order aforesaid, not more than two
members of the company specified by the Company law Board shall hold office as additional
directors of the company. The Central Government shall appoint such additional directors on
such directions.

The person appointed as a director by the Central Government in accordance with the above
provisions, need not hold any qualification shares nor need to retire by rotation. However,
his office as director may be terminated at any time by the Central Government and another
person appointed in his place.

No change in the constitution of the Board of Directors can take place after an additional
director is appointed by the Central Government in accordance with these provisions unless
approved by the Company Law Board.

The Central Government in such cases may also issue such directions to the company as it
may consider necessary or appropriate in regard to its affairs.

Power of the Company Law Board to prevent change in Board of directors likely to
affect company prejudicially
Where a complaint is made to the Company Law Board by the managing director or any
other director or the manager of a company that, as a result of a change which has taken
place or is likely to take place in ownership or any shares held in the company, a change in
the Board of directors is likely to take place which (if allowed) would affect prejudicially the
affairs of the company, the Company Law Board may, if satisfied, after such inquiry as it
thinks fit to make that it is just and proper to do so, by order direct that no resolution passed
or that may be passed or no action taken or may be taken to effect a change in the Board of
directors after the date of the complaint shall have effect unless confirmed by the Company
Law Board.

Any such order shall have effect notwithstanding anything to the contrary contained in any
other provision of this Act or in the memorandum or articles of the company, or in any
agreement with, or any resolution passed in general meeting by, or by the Board of directors
or, the company.

The Company Law Board shall have power when any such complaint is received by it, to
make an interim order to the effect set out above, before making or completing the inquiry
aforesaid.

Nothing contained above shall apply to a private company, unless it is a subsidiary of a


public company

Power to compromise or make arrangements with creditors and members


Where a compromise or arrangements is proposed-

a. between a company and its creditors or any class or them; or


b. between a company and its members or any class or them;

the Court may, on the application of the company or of any creditor or member of the
company, or, in the case of a company which is being wound up, of the liquidator, order a
meeting of the creditors or class of creditors, or of the members of class or members, as the
case may be to be called, held and conducted in such manner in the court directs.

If 3/4 in value of the creditors, or class of creditors, or members or class of members,


present and voting either in person or, where proxies are allowed, under rules made by the
Court, by proxy, at the meeting, agree, to any compromise or arrangement, the compromise
or arrangement shall, if sanctioned by the court, be binding on all the creditors, all the
creditors of the class, all the members, or all the members of the class, as the case may be,
and also, on the company, or, in the case of a company which is being would up, on the
liquidator and contributories of the company.

The Court shall not approve of such a scheme unless it is satisfied that the Company or the
applicant has disclosed to the Court all material facts relating to the company such as the
latest financial position of the company, the latest auditor's report, details of any
investigation pending against the company, etc.

An order made by the Court shall have no effect until a certified copy of the order has been
filed with the registrar.

A copy of every such order shall be annexed to every copy of the memorandum of the
company issued after the certified copy of the order has been filed, as aforesaid.

If default is made in complying with the above provisions, the company, and every officer of
the company who is in default, shall be punishable with fine which may extend to ten rupees
for each copy in respect of which default is made.

The Court may, at any time after an application has been made to it under this section, stay
the commencement or continuation of any suit or proceeding against the company on such
terms as the Court thinks fit, until the application is finally disposed of.

An appeal shall lie from any order made by a Court exercising original jurisdiction under this
section to the Court empowered to hear appeals from the decisions of that Court, or if more
than one Court is so empowered to the Court of inferior jurisdiction.

Power of High Court to enforce compromises and arrangements


Where a High Court makes an order as above sanctioning a compromise or an arrangements
in respect of a company, it-

a. shall have power to supervise the carrying out of the compromise or arrangement;
and
b. may, at the time of making such order or at any time thereafter, give such directions
in regard to any matter or make such modifications in the compromise or
arrangement as it may consider necessary for the proper working of the compromise
or arrangement.

If the Court aforesaid is satisfied that a compromise or arrangement sanctioned under the
above provisions cannot be worked satisfactorily with or without modifications, it may, either
on its own motion or on the application of any person interested in the affairs of the
company, make an order winding up the company.

Information as to compromises or arrangements with creditors and members


Where a meeting of creditors, or any class of creditors, or of members or any class of
members, is called: -
a. with every notice calling the meeting which is sent to a creditor or member, there
shall be sent also a statement setting for the terms of the compromise or
arrangement and explaining its effect; and in particulars, stating any material
interests of the directors, managing director or manager of the company, whether in
their capacity as such or as members or creditors of the company or otherwise, and
the effect on those interest, of the compromise or arrangement, if, and in so far as, it
is different from the effect on the like interests of other persons; and
b. in every notice calling the meeting which is given by advertisement there shall be
included either such a statement as aforesaid or a notification of the place at which
and the manner in which creditors or members entitled to attend the meeting may
obtain copies of such a statement as aforesaid.

Where the compromise or arrangement affects the rights of debenture holders of the
company, the said statement shall give the like information and explanation as respects the
trustees of any deed for securing the issued of the debentures as it is required to give as
respects the company's directors.

Where a notice given by advertisement includes a notification that copies of a statement


setting forth the terms of the compromise or arrangement proposed and explaining its effect
can be obtained by creditors or members entitled to attend the meeting, every creditor or
member so entitled shall, on making an application in the manner indicated by the notice,
by furnished by the company, free of charge, with a copy of the statement.

Provisions for facilitating reconstruction and amalgamation of companies


Where an application is made to the Court as above for the sanctioning of a compromise or
arrangement proposed between a company and any such persons as are mentioned in that
section, and it is shown to the Court-

a. that the compromise or arrangement has been proposed for the purposes of , or in
connection with, a scheme for the reconstruction of any company or companies, or
the amalgamation of any two or more companies; and
b. that under the scheme the whole or any part of the undertaking, property or
liabilities of any company concerned in the scheme is to be transferred to another
company : -

the Court may, either by the order sanctioning the compromise or arrangement or by a
subsequent order, make provision for all or any of the following matters:-

a. the transfer to the transferee company of the whole or any part of the undertaking,
property or liabilities of any transferor company;
b. the allotment or appropriation by the transferee company of any shares, debentures,
policies, or other like interests in that company which, under the compromise or
arrangement, are to be allotted or appropriated by that company to or for any
person;
c. the continuation by or against the transferee company of any legal proceedings
pending by or against any transferor company;
d. the dissolution, without winding up, of any transferor company;
e. the provision to be made for any persons who, within such time and in such manner
as the court directs, dissent from the compromise or arrangement; and
f. such incidental, consequential and supplemental matters as are necessary to secure
that the reconstruction or amalgamation shall be fully and effectively carried out.
Where an order provides the transfer or any property or liabilities then, by virtue of the
order, that property shall be transferred to and vest, and those liabilities shall be transferred
to and become the liabilities of, the transferee company; and in the case of any property, it
the order so directs, freed from any charge which is, by virtue of the compromise or
arrangement, to cease to have effect.

Within fourteen days after the making of an order under this section, every company in
relation to which the order is made shall cause a certified copy thereof to be filed with the
Registrar for registration.

Power and duty to acquire shares of shareholders dissecting from scheme or


contract approved by majority
Where a scheme or contract involving the transfer of shares or any class of shares in a
company to another company has, within four months after the making of the offer in that
behalf by the transferee company, been approved by the holders of not less than nine-
tenths in value of the shares whose transfer is involved (other than shares already held at
the date of the officer by, or by a nominee for, the transferee company or its subsidiary), the
transferee company may, at any time within two months after the expiry of the said four
months, give notice in the prescribed manner to any dissenting shareholder, that it desires
to acquire his shares; and when such a notice is given, the transferee company, shall,
unless, on an application made by the dissenting shareholder within one month from the
date on which the notice was given, the Court thinks fit to order otherwise, be entitled and
bound to acquire those shares on the terms on which, under the scheme or contract, the
shares of the approving share holders are to be transferred to the transferee company.

However, where shares in the transferor company of the same class as the shares whose
transfer is involved are already held as aforesaid to a value greater than one-tenth of the
aggregate of the values of all the shares in the company of such class, the foregoing
provisions shall not apply, unless :-

a. the transferee company offers the same terms to all holders of the shares of that
class (other than those already held as aforesaid) whose transfer is involved; and
b. the holders who approve the scheme or contract, besides holding not less than nine-
tenths in value of the shares (other than those already held as aforesaid) whose
transfer is involved are not less than three-fourths in number of the holders of those
shares.

Where, in pursuance of any such scheme or contract, as aforesaid, shares or shares of any
class, in a company are transferred to another company or its nominee, and those shares
together with any other shares or any other shares of the same class, as the case may be, in
the first- mentioned company held at the date of the transfer by, or by a nominee for, the
transferee company or its subsidiary comprise nine-tenths in value of the shares, or the
shares of that class, as the case may be, in the first-mentioned company, then :-

a. the transferee company shall, within one month from the date of the transfer (unless
on a previous transfer in pursuance of the scheme or contract it has already complied
with this requirement) give notice of that fact in the prescribed manner to the holder
so the remaining shares or of t remaining shares of that class, as the cast may be,
who have not assented to the scheme or contract; and
b. any such holder may, within three months from the giving of the notice to him,
require the transferee company to acquire the shares in question; and where a
shareholder gives notice under clause (b) with respect to any shares, the transferee
company shall be entitled and bound to acquire those shares on the terms on which,
under the scheme or contract, the shares, of the approving shareholders were
transferred to it, or on such other terms as may be agreed, or as the Court on the
application of either the transferee company or the shareholder thinks fit to order.

Where a notice has been given by the transferee company and the Court has not, on an
application made by the dissenting shareholder, made an order to the contrary, the
transferee company shall, on the expiry of one month from the date on which the notice has
been given, or, if an application to the Court by the dissenting shareholder is then pending,
after that application has been disposed of, transmit a copy of the notice to the transferor
company together with an instrument of transfer executed of behalf of the shareholder by
any person appointed by the transferee company and on its own behalf by the transferee
company, and pay or transfer to the transferor company the amount or other consideration
representing the price payable by the transferee company for the shares which, by virtue of
this section, that company is entitled to acquires; and the transferor company shall
thereupon register the transferee company as the holder of those shares.

Any sums received by the transferor company shall be paid into a separate bank account,
and any such sums and any other consideration so received shall be held by that company
in trust for the several persons entitled to the shares in respect of which the said sums or
other consideration were respectively received.

Power of Central Government to provide for amalgamation of companies in


national interest
Where the Central Government is satisfied that it is essential in the national interest that
two or more companies should amalgamate, then the Central Government may, by order
notified in the Official Gazette, provide for the amalgamation of those companies into a
single company with such constitution; with such property, powers, rights, interest,
authorities, and privileges; and with such liabilities duties, and obligations ; as may be
specified in the order.

The order aforesaid may contain such consequential, incidental and supplemental provisions
as may, in the opinion of the Central Government, be necessary to give effect to the
amalgamation.

Every number or creditor (including a debenture holder) of each of the companies before the
amalgamation shall have, as nearly as may be, the same interest in or rights against the
company resulting from the amalgamation as he had in the company of which he was
originally a member or creditor; and to the extent to which the interest or rights of such
member or creditor in or against the company resulting from the amalgamation are less
than his interest in or rights against the original company, he shall be entitled to
compensation which shall be assessed by such authority as may be prescribed.

The compensation so assessed shall be paid to the member or creditor concerned by the
company resulting from the amalgamation.

No such order shall be made, unless-

a. a copy of the proposed order has been sent in draft to each of the companies
concerned; and
b. the Central Government has considered, and made such modifications if any, in the
draft order as may seem to it desirable in the light of any suggestions and objections
which may be received by it from any such company within such period as the
Central Government may fix in that behalf, not being less than two months from the
date on which the copy aforesaid is received by that company, or from any class of
shareholders, therein, or from any creditors or any class of creditors thereof.

Copies of every order made under this section shall, as soon as may be after it has been
made, be laid before both Houses of Parliament.