CA FINAL LAW SUMMARY NOTES

My Request to Readers: When ever you are studying, Please make short notes and sha
Syllabus within time and they will succeed in their exams. (SHAR

Selected Notified Defonitions Under The Co

1

10

11

12

13

14

15

16

17

Chapter.1
Declaration and Payment of D
1

i)

ii)

iii)

iv)
v)

vi)

Chapter-2
Accounts and Audit
Unit 1: Accounts of Companies

1
i)

ii)

iii)

iv)

v)

vi)

Vii)

2.2
i)

ii)
iii)

iv)

v)

vi)

2.3

2.4
i)

ii)

iii)

iv)

v)

2.5

i)

ii)

iii)

iv)

v)

vi)

vii)

viii)

ix)

x)

xi)

2.6
i)

ii)

iii)

iv)

2.7
i)

ii)

iii)
iv)
v)

vi)

2.8
i)

ii)
iii)

Unit 2 : Audit and Auditors

2.9
i)

ii)

iii)

iv)

v)

vi)

Vii)

viii)

2--10
i)

ii)

iii)

2.11
i)

ii)

iii)

2.12

2.13
i)

ii)

v)

vi)

2.14
i)

ii)
2.15

2.16

2.17
i)
ii)

iii)

iv)
v)
2.18

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

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

Chapter-3 Appointment and Qualifications

3.1
i)

3.2

3.3

3.4
i)
ii)
iii)
iv)
v)

Vi)

vii)

3.5

3.6

3.7
3.8

3.9

3.1

3.11

3.12

3.13

3.14

3.15
A)

B)

C)

D)

3.16

3.17

3.18

3.19

3.2

3.21

3.22

3.23

3.24

3.25

3.26

Prepared by Vijaya Kumar Poola Balija; email:poolavij

My Request to Readers: When ever you are studying, Please make short notes and sha
Syllabus within time and they will succeed in their exams. (SHAR

Chapter 4
Appointment and Remuneration of Manager
4.1

4.2

4.3

4.4

4.5

4.6

4.7

4.8

4.9

4.10

4.11

Chapter 5

Meetings of Boards and its Po

5.1

5.2

(i)

(ii)

(iii)

(iv)
(v)

5.3

5.4

5.5

5.6
i)

ii)

iii)
iv)

v)

vi)

vii)

viii)

>>

i)

ii)

iii)

5.7
>>>
i)

ii)

iii)

iv)
v)

vi)

>>>
i)

ii)

iii)

5.8
i)

ii)
iii)
iv)

v)

vi)
5.9
i)

ii)
iii)

iv)

v)
5.10

5.11

5.12

5.13
(i)

(ii)

(iii)

(iv)

(v)

(vi)

5.14
(i)
(ii)

(iii)

(iv)

5.15
(i)

(ii)

(iii)

(iv)

(v)

(vi)

(vii)

(viii
)

(ix)

(x)

(xi)

(xii)
(xiii
)

(xiv
)

5.16
(i)

(ii)

(iii)

(iv)

5.17
(i)

(ii)

(iii)

(iv)

(v)

(vi)
(vii)

(viii
)

5.18
(i)

(ii)

(iii)

(iv)

(v)
(vi)

(vii)

(viii
)

(ix)

5.19
(i)

(ii)
(iii)

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

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

5.21
(i)

(ii)
(iii)

5.22
(i)

(ii)
5.23

(i)

(ii)

(iii)

(iv)
5.24
(i)
(ii)

(iii)
(iv)

CA FINAL LAW SUMMARY NOTES

My Request to Readers: When ever you are studying, Please make short notes and share it for Pu
Syllabus within time and they will succeed in their exams. (SHARE NOTES, B

Selected Notified Defonitions Under The Companies

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

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

iii) A Firm---> Director, Manager or his relative---> Partner

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

Employee Staock Option

> Option given---> Director, Officer or Employees of Same or HC or SC ----> Right to Purchase or sub

Sweat Equity Shares

> Equity Shares---> Directors or Emolyees----> @ discount or for Consideration other than cash------>
in the nature of intellectual property rights or Value additions, By whatever name called

Chapter.1
Declaration and Payment of Dividend
Declaration Of Dividend(Section 123)

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

Right of dividend, Right shares and bonus shares to be held in abeyance pending registra
2013)
> Transferee ---> No written direction given----> transfer to unpaid dividend account
> Right shares & Bonus issue in abeyance
Punishment for failure to distribute dividend ( Sec127)
i) Within 30 days from declaration---> If not, Every director---> With imprisionment--> 2 Yrs
ii) Also Rs.1000 per every day default continues
iii) Company---> Pay interest @ 18 % p.a---> Period default continues
iv) Following situations---> No Offence
a) Not paid--> Reason of operation of law
b) Sh holder given direction--> But can not be complied--> Given communication also
c) Dispute---> Right to receive
d) Dividend adjusted against lawful dues from sha holder
e) Where for any other reason---> Not doen within 30 days---> Not due to default on the company

Relevant Sections of the Companies Act,1956 applicable for examination

Unpaid or Unclaimed dividend ( Sec 205A of CA, 1956)
> 30 Days---Not paid
> Transfer within 7 days from expiry of 30 days
> To Spl account---> with Scheduled bank " Unpaid Dividend A/C of..Company Ltd/Company(Private
> " Dividend which remains unpaid"---> Warrany not been encashed or Not been paid or claimed
> If company not transfer within time to unpaid account, Interest @ 12 % p.a from date of default
> Unpaid a/c balance remains unpaid for 7 yrs, Transfer to Investor Education and Protection Fund
> If Company fails to cpmly this section---> Company & Every officer in default---> 5000 for every da
Payment of unpaid or unclaimed dividend (Section 205A(5) of the companies Act, 1956)
> Once transferred to IE & PF, No payment of form that a/c towards dividend
IE & PF ( Section 205C of the CA, 1956)
> Central Govt
> The following amounts Credited to the fund
a) Unpaid Dividend a/c
b) Application Money due for refund
c) Matured deposits
d) Matured Debentures
e) Interest accrued on a debentures above
f) Grants & Donations given to fund
g) Interest or other income on ---> Investment out of the fund money
> a--> d, Unclaimed for 7 Yrs, Then only transfer

Payment of Interest out of Capital ( Section 208 of the CA, 1956)

> To Defray the expenses of the construction of an provision of any plant
> Profit will come after lenthy period
> Company can pay interest
> Sum paid chage to P & L
> Should be Authorised by Articles or by a SR
Even though, Articles or by a SR authorised, CG permission required
> CG before sanctioning such payment---> Appoint a person---> To enquire---> Company should give
> Payment perion should not exceed 6 Months from half yr in which work completed
> Rate of interest max 4% p.a or as CG
> Payment of Interest won't reduce capital amount

Chapter-2
Accounts and Audit
Unit 1: Accounts of Companies

Books of Accounts, etc to be kept by Company( Section 128 of the CA,2013)

Maintenance of books of accounts
a) Every Company prepare & Keep @ it's registered office--> Including that of branch office or office,
b) In a Position to explain Transactions---> Branch & RO office transactions
c) Accrual basis & Double entry system
Place of Maintenance of books of accounts
a) @ Regd Office
b) Any other place in India0---> Board resolution ---> file with ROC notice in writing giving full addres
Electronic form of books of accounts
a) As per Companies ( Accounts) Rules, 2014---> Company may
b) Maintained in elecrtonic form shall :
1) Remain accessible in India
2) Complete & Unaltered
3) Information from brances----> Not altered
4) Capable of being displayed in a legible form
5) Proper system for storage, Retrieval, Disply or Printout
6) Backup---> Servers in India---> On a periodic basis
c) Intimate---> ROC---> Annual Basis @ the time of filing of Financial Statements
1) Name of the Service Provider(SP)
2) Internet Protocal address of SP
3) Location of SP
4) Incase---> Cloud, Such address provided by SP
Proper books of accounts in relation to a branch of the company
a) Kept at that branch office
b) Summarised returns periodically to regd office or other place by board

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

a) Maintained in India-By any director during business hrs
b)Incase financial infn maintained outside india-Director can but s.t Companies (Accounts ) Rules,201
1) Summarised returns at qrtly intervals to R.O, There kept for open to inspection by directors.
2) Request by director
3) Within 15 Days company will give
4) Request by director himself not by POA or agent or representative.
c)Inspection inrespect of SC-Authorised by board
d)Officers and other employees should give assistance for inspection
Period of Maintenance ( Sec 128(5))
a) 8 FY immediately preceding FY
b) Company Existance for < 8 yrs for all such yrs
c) Investigation ordered-CG may specify such longer period
Persons Responsible for Maintenance & Penalty(Sec128(6))
a) 1)MD,WTD in charge of finance,CFO: or

2) Any other person charged by the board

b) 1) Imprissionment upto 1 Yr or
2) Fine not <50000 but upto 500000 or
3) Both
MCA Circular
FY commences earlier 1-4-2014, Old provisions
FY commences on or after 1-4-2014, 2013 Act provisions

Financial Statement (Section 129 of the Companies Act,2013)

Form of Financial statements shall (Sec 129(1))
a) The FS's shall
1) True & Fair View
2) Comply with AS's-Sec 133
3) Form or Forms-Schedule III
4) Items in FS-Inaccordance with AS's
b) Above provisions relating to nature and content of FS shall not aooly to following
1) Insurance Companies
2) Banking Companies
3) Company engaged in generation or supply of electricity
4) Any other company-For them separate Act is there
c) Disclosure not made, Still True and fair view
d) Reference to FS include reference to notes
Laying of Financial Statements (Section 129(2))
At Every AGM- BOD
Consolidated Financial Stements ( Section 129(3) & (4):
a) Company has 1 or more subsidiaries, Prepare CFS along with own
b) CFS also laid before AGM along with Own
c) Attach along with FS's-Form AOC-1, that contains salient features of subsidiary or subsidiries.
d) For the purpose of CFS, " Subsidiary" Include associate company and Joint venture.
e) CFS-Inaccordance with Sch III, Company which not reqrd to prepare CFS, Comply Sch III Enoughf
f) Provisions as applicable to HC, Also applicable to CSF's
Deviations from AS's (Sec 129(5)):
If FS's do not comply AS's, Disclose in FS's following
a) Deviation from AS's
b) Reasons for such deviation
c) Financial effect if any
Exemptions (Sec 129(6))
a) CG May-On own or on application-From complying with this sec-in public interest
b) That me unconditionally or s.t such conditions
Conravention(Sec 126(7))
a) MD, The WTD in charge of finance , The CFO or any othe person charged by the board- In absence1) Imprisionment upto 1 Yr or
2) Fine Rs.50000 to Rs.500000

3) Both with imprisionment and fine

CG to prescibe AS's (Section 133 of the Companies Act, 2013)
> CG on recommendation made by ICAI, in consultation with National Financial Reporting Authority.
> Till date AS prescribe AS's, AS prescribed by CA,1956 only applicable.

Financial Statement, Board's Report, etc (Sec 134 of the CA,2013)

Authentication of FS's [ Sec 134 (1),(2) & (7)]
a) The FS's, Including CFS if any-Before signing by following should be approved by board
1) Chairman of the company, where he is authorised by the board or
2) 2 Directors Out of which 1 Shall be MD and
3) The CEO, if he is Director in the company
4) The CFO, Wherever he is appointed
5) The CS , Wherever he is appointed
b) In Case of OPC, FS's should be signed by only 1 Director
c) The Auditors Report shall be attached to every Financial Statement
d) A signed copy of Financials including CFS , if any-issued,published and circulated along with followi
1) Notes Annexed
2) Auditor's Report
3) Director's Report
Board's Report [Sec 134(3) & (4)]:
a) Companies (Accounts) Rules,2014- Board's Report-Based on stand alone FS's - Separate section for
in CFS.
b) Laid in GM by BOD, Contents:
1) The extract of the Annual Return
2) No.Of meetings of the Board
3) Director's Responsibility Statement
4) A Stetement on Declaration given by Independent Directors U/S:149(6)
5) Incase Compny covered U/S:178(1)
i) Companies policy on Director's appointment and remuneration incl criteria for determining qualifica
matters U/S178(3)
6) Explanation or comment by board-On Auditors and CS in practice's Report's.
7) Particulars of Loans, Guarantees or investments U/S 186
8) Particulars of Contracts or arrangements with related parties referred to in Sec 188(1) in Form AOC
9) State of the Company affairs
10) Amounts-Propose to carry to reserves
11) Amount-Dividend Recommendation
12) Material Changes and Commitments-Effects financial position, Occurred between BS date to Date
13) The Conservation of Energy, Technology absorption, Foreign exchange earnings ond outgo-Compa
14) A Statement indicating development and implementation of risk management policy
15) Details about policy developed & Implemented by the company on CSR initiatives taken during th
16) Listed Company and other public company-Having >25 Crore Paiup capital, Statement indication
individual directors performance.

17) Shall also contain - As per Companies (Accounts) Rules,2014i) The Financial summary or highlights
ii) The changes in the nature of business if any
iii) Directors, Key Managerial peronnel- Appointed or Resigned
iv) The Names of the companies-Becomes/Ceased to be-Subsidiary, Associate or JV
v) The details relating to deposits
a) Accepted during the year
b) Unpaid/Unclaimed
c) Default in rapayment of loan/int-opg, Max, End
vi)Detais-deposits not in compliance with Ch V of the Act
vii) Significant Orders-Effects going concern
viii) Details-Adequacy of Internal financil controls-financial statements
C) Board's Report incase of OPC (Sec 134(4)):
Explanatory statement on auditors Report
Director's Responsibility Statement[Sec134(5)]:
a) The DRS Shall State that
1) In preperation of FS's- AS's followed- Explantion to materil departure
2) Selection of Accounting Policies
3) Proper & Sufficient care-Maintenance and Safekeeping books
4) Annual accounts-Prepared-Going Concern
5) Incase of Listed Company-Comment Internal Financial controls
6) To comply- Laws-Proper system director's devised
Signing of Board's Report[Sec134(6)]
Chairman-If authorised by Board or
2 Directors-1 MD or
Director-Only 1 is there
Contravention[Sec134(8)]
a) Company-50000 To 2500000
b) Every Officer of the company who is in default
1) Imprisonment-Upto 3 Yrs Or
2) Fine Rs.50000 to 500000 Or
3) Both

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

> Under CA, 1956---> No Provision for CSR
> Under CA,2013----> Sec 135 Introduced
> CSR implies---> Companies decide Voluntarily to contribute to a better society and a cleaner enviro
> Companies Integrate social and other useful concerns in their business operations.
CSR: The Companies ( CSR Policy) Rules, 2014 provides exhastive definition.
> Includes but not limited to
i) Projects or Programmes in Schedule VII
ii) Projects or Programmes ---> By BOD---> Recommendations of the CSR Committee of the Board--->
Which Company is required to constitute CSR Policy

a) Every Company---> It's HC or SC and a Foreign Company U/S 2(42) of the CA, 2013 , having its bra
1) Netwoth of Rs.500 crore or More, OR
2) Turnover of Rs. 1000 Crore or More, OR
3) A Net Profit of Rs. 5 Crore or More
During any FY shall constitute a CSR Committee of the Board.
b) CSR Committee---> Transparant monitoring mechanism---> For Implementation of the CSR Projects
company
c) However, The Networth , Turnover or NP of a Foreign Company--->As per BS and P&L A/C---> Sec 3
Exclusion of Companies
> Companies which ---> Ceases a company u/s 135(1)---> for 3 Consecutive FY's
1) Not Required to constitute a CSR Committee, And
2) Not Required to comply Sec 135
Composition of CSR Committee
a) 3 or More directors---> Out of which ar least 1 director should be Independent Director
b) An Unlisted Public Company or a Pvt company ---> Which no need to appoint Independent Director
c) A Pvt Company---> Having 2 directors on board---> Shall constitute CSR committee with 2 Director
d) For Foreign Company---> CSR Committee---> 2 persons---> One shall be Sec 380(1)(d) and anothe
e) The Board's Report U/S 134(3) ---> Disclose composition of the CSR Committee
Duties of CSR Committee
> The CSR Committee Shall,
a) Formulate & Recommend to the Board, a CSR Policy---> Indicate the activities undertaken by the c
b) Recommend Amount of Expenditure on (a)
c) Monitor CSR Policy---> From time to time
Contents of the CSR Policy
a) List of CSR Projects or programmes---> Company plans to undertake---> Schedule VII---> Specifyin
Schedules and
b) Monitering Process of---> Projects or Programmes
c) CSR Activities---> do not include---> Activities undertaken in normal cource of business of a compa
d) BOD---> Ensure---> Activities in CSR policy---> Covered in Schedule VII
e) CSR Policy---> Specify ---> Surplus arising out of CSR Projects or Programmes or Activities ---> Not
Duties of the board in relation to CSR
> The Board of every company reffered in Sec 135(1) shall
1) After taking recommendations by CSR committee---> Approve CSR Policy ---> Disclose ncontents o
website ---> Such manner as may be prescribed and
2) Ensure--> Activities included in CSR policy ---> Undertaken by the company
Amount of Contribution towards CSR
a) At least 2% of the avg Net profits of the company 3 immediately preceeding FY's---> In pursuance
b) Preference to the local area and areas around it where it operates
c) Fails to spend---> Board specify reasons for not spending in it's Report
d) Administration of CSR expenditure ---> Company on it's own or other outside agency which has tra
administration OH's---> shall not > 5% of CSR exp in One FY
Exceptions to CSR Activities
Following are not considered as CSR Activities:

1) Undertaken outside India

2) Benefit only the employees of the company and their families
3) Contributioin to political party U/S 182
Calculation of avg Net Profit:
a) Inaccordance with Sec 198
b) " Net Profit"---> Not include
1) Profit from---> Any overseas branch or branches of the company
2) Dividend from other companies in India---> Covered U/S 135
c) Net Profit ---> Financial Stetements--->CA,1956---> Noneed to re-Calculate
d) Incase of foreign company---> NP---> According to Sec 381(1)(a) read with sec 198
CSR Reporting
a) Boards Report---> Contain---> Annual Report on CSR
b) Incase of Foreign Company---> BS filed U/S 381(1)(b) shall----> Annxure regarding report on CSR
Activities specified under sche VII:
> Activities to be included in CSR Policy---Schedule VII
1) Eradicating hunger, Poverty ang malnutrition, Promoting health care including preventive health ca
water

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

3) Promoting gender equality, Empowering women, Setting up homes and hostels for women and Orp
and such other facilities for senior citizens and measures for reducing inequalities faced by socially an

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

5) Protection of National heritage, art and cul;ture including restoration of buildings and sites of histo
libraries; Promotion and development of traditional arts and handisrafts
6) Measures for the benefit of armed forces veterans, war widows and their dependencts;
7) Training to promote rural sports, Nationally recognised sports, Paralympic sports and olympic sport
8) Contribution to the PM's National Relief Fund or any other fund setup by the CG for socio-Economic
scheduled casts , the scheduled tribes, other backword classes, Minorities and Women;
9) Contributions or funds provided to technology incubators located within academic institutions whic
10) Rural Development Projects
11) Slum area development
> MCA---> Circular No:21/2014 dated 18-06-2014:
i) CSR Activities---> Should be covered in Sche VII
ii) Activities--->Projest/ Programme mode---> Not Marathons/Awards/ Charitable Contribution/ Adverti
iii) Expenses incurred to comply Act/ Statute---> Not qualified for CSR
iv) Salaries paid to CSR Staff---> Qualifies for CSR expense
v) " Any FY"referred u/s 135(1) ---> Implies any of the 3 preceeding FY's
vi) Expe incurred by foreign HC for CSR activities---> Qualify as CSR Spent of Indian SC--> s.t-- Routed
covered u/s 135
vii) 'Regd Trust' would include Trusts regd under IT Act1956, For those states where regn of trust is no
viii) Contribution to Corpus of a Trust/Society/Sec8 Companies---> Qualify as CSR exp----> If those are
---> Or corpos is for CSR activities---> Covered in Ssh VII

Right of Member to copies of Audited FS( Sec136 of CA, 2013)

Who are entitled for audited FS?
a) A copy of the FS's ---> Which laid before a company in it's GM, shall be sent to the following:
1) Every Member of the Company
2) To Every Trustee for debentures issued by company and
3) To other person---> Being the person so entitled
b) Consolidated Financial Statements, If any , Auditor's Report & every other notes which needs to be
FS's
c) Thease FS's shall be sent in ---> Not <21 days before the date of the meeting
d) In the case of ---> A listed Company:
1) The above prrovisions deemed to be coplied---> If made available for inspection @ regd office --->
2) Along With it, a Statement containing the salient features---> In form AOC-3---> Sent to every mem
3) Statement sent not < 21 Days before meeting unless the sha holders ask for full FS's
e) A company shall allow---> Every member or trustee to inspect the audited FS at it's regrd office du
Manner of circulation of FS's in Certain cases:
a) Incase of Listed Companies & Public companies--> Which have a netwoth of > 1 Crore and Turnove
1) Who has demat a/c--> Electronically
2) Who are holding physical--->Through written request requested for electronic mode---> Elecronic m
3) For any others---> Physical copy---> Recognised mode u/s 20
b) Listed company shall also disclose on it's website
Subsidiary Companies
> Companies which has---> SC or SC's
1) Place separate audited a/s's on website, if any;
2) Copy of separate audited FS's of SC---> To any shar holder who asks it
Contravention
a) Any default in complying this sec, Company shall be liable to a penaulty of RS.25000
b) Officer who is in default---> Penaulty of Rs.5000
Copy of FS to be filed with Registrar ( Sec 137 of the CA, 2013)
Filing of FS's (Sec 137(1):
> A copy of the FS's, including Cons FS's if any, Along with annexure---> Duly adopted @ AGM----> W
> along with such fees or additional fees u/s 403
If FS's are not adopted (Sec 137(1))
a) Unadopted FS's along with reqd documents---> within 30 days from AGM file with registrar
b) Registrar will treat them as provisional---> Till adopted FS's filed
c) If FS's are adopted in adjourned AGM--->File with Registrar within 30 days from that meeting
Filing by OPC ( Sec 137(1))
> Within 180 days from ---> Closure of FY--> File FS's with Registrar.
Company having subsidiaries ( sec 137(1))
> Attach a/c's of SC's incorporated outside India and which have not established their place of busine
AGM not Held (Sec 137 (2))
> FS's & Statement of facts and reasons for not holding the AGM--->file with the Registrar within 30 d
held
Penaulty ( Sec 137(2))

> If this section Contravened,

a) Company---> Rs. 1000 for every day max 10 Lakhs and
b) The MD and The CFO,if any and if no MD and CFO, Directors who charged by board, IN ABSENCE O
1) Imprisionment---> Upto 6 Months or
2) Fine---> Rs.100000 to Rs. 500000 or
3) Both
Internal Audit ( Section 138 of the CA, 2013)
Companies reqd to appoint Internal Auditors:
a) Following Companies reqd:
1) Every Listed Company
2) Every Unlisted Public company having
A) Paid Up sha capital ---> 50 Cr or more during preceeding FY or
B) Turnover of 200 Cr or more during Preceeding FY or
c) o/s Loans or borrowings from banks or PFI's > or euals to 100 Cr at any point of time during the Pre
d) o/s Deposits of > or equal to 25 Crore at any point of time during the Preceeding FY; and
3) Every Pvt Company having
A) Turnover of > or equal to 200 crores during the preceeding FY; or
B) o/s loans or borrowings from banks or pfi'S > OR equal to 100 Crore at any point of time during the
b) Audit Committee or the Board---> In consultation with---> Internal Auditor---> Formulate the Scope
conducting the internal audit
Transitional Period:
> Anexisting company covering under above criteria---> Comply sec 136 within 6 months of commen
Who is Internal Auditor
a) CA or a CMA or such other professional ---> as decided by board; CA means CA whether in Practice
b) May or may not be an employee of the company

Unit 2 : Audit and Auditors

Appointment of Auditors ( Section 139 of CA, 2013)

Appointment of Auditor (Sec 139(1))
a) Every company --->at the 1 st AGM, Appoint---> Individual or a firm as---> auditor of the company
b) Auditor hold office----> Till the conclusion of it's 6th AGM & Thereafter till the conclusion of every 6
The manner and procedure of selection of auditors prescribed under companies ( Audit and Auditors)
c) Manner and Procedure of selection and appointment of auditors:

1) A Company which is reqd to constitute an audit committee u/s 177: Competent authority is Audit
authority is, i) See qualifications & experience of the proposed auditors- They commensurate with the
pending proceeding----> Relating to professional iii) Call for such other information----> of proposed a
recommend to board

2) A Company which is not reqd to constitute an audit committee u/s 177: Competent authority is Au
is, i) See qualifications & experience of the proposed auditors- They commensurate with the size & re
proceeding----> Relating to professional iii) Call for such other information----> of proposed auditor as
members in AGM for appointment.
3) Board agrees with audit committee---> Recommend to members in the AGM

4) Board disagrees---> With committee---> Return back the recommendation to the committee---> Ci
5) If Board---> Disagree with audit committee---> Record reason---> Recommend own recommendati
audit committee---> Recommend the same to members
d) In every AGM, Company place the matter relating to appointment of auditor----> For retification by
e) Before appointment----> Written consent of auditor and a certificate should be obtained
Certificate by Auditor: Companies ( Audit and Auditors) Rules, 2014
A) Is eligible----> Not disqualified under the Act, CA Act,1949 and rules & Regulations made thereund
B) Appointment---->As per the term provided under the Act
C) Appointment---> Within the limits---> of the Act
D) List of Proceedings pending---> Sisclosed in the certificate are true and correct.
f) The certificate also contain---> Auditor satisfies sec 141
g) Company inform Auditor---> About his appointment and also file a notice ( In the form ADT-1) --->
> Appointment includes Reappointment
Term of Auditor ( Sec 139(2)
a) Listed and other prescribed class or classes of companies ( Except OPC and Small Companies) --->
1) An Individual for > 5 Consecutive Yr's and
2) An Audit firm for > 2 terms of 5 Consecutive Yr's
b) The Companies ( Audit & Auditors) Rules, 2014, Prescribed following companies for----> Sec 139(2)
1) All unlisted Public Companies having Paid up shar capital > or equal to 10 Crore
2) All pvt ltd companies having paid up shar capital > Or equal to 20 Crore
3) All Companies not 1 & 2, But
Public borrowings from financial institutions, Banks or Public Deposits of Rs.> or Equal to Rs.50 Crore
c) Cooling Off period:
1) 5 yr's from completion of term
2) An Audit Firm--> 5 Yr's from completion of term
d) Appointing another firm having common partner after expiry of term----> Not possible
e) Transitional Period:
> Existing Company which is required to comply sec 139(2)---> Comply requirement of this sub sectio
provision
f) Nothing in this section shall prejudice---> Right of company to remove or ----> Right of auditor to re
Rotation of auditor (Sec 139(3) and (4)
Individual
> On the date of 1st AGM, After commencement of this section,
Auditor already completed
Auditor eligible for no.of yr's appointment
5 or more
3 yers
4
1
3
3
2
3
1
4
Firm
Auditor already completed
10 or more
9

Auditor eligible for no.of yr's appointment

3 yrs
3

8
7
6
5
4
3
2
1

3
3
4
5
6
7
8
9

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

First Auditor (Sec 139(6))
a) Notwithstanding anything contained in sec 139(1), 1st Auditor of a company otherthan a govt com
appoint----> Auditor shall hold office till conclusion of 1st AGM
b) if the board fails---> Inform members---> Members in GM within 90 days---> Appoint auditor---> Au
Filling up Casual vacancy [ Sec139(8)]:
a) Board may within 30 days fill---> If vacancy due to resignation--->shall also be approved by compa
Board
b) Auditor appointed for casual vacancy---> hold office---> Untill the conclusion of the next AGM
Appointment of Auditors in case of govt company or any other company having controlled
a) As per Sec 139(5), CAG of India---> Shall appoint
b) Within 180 days from the commencement of the FY---> Auditor holds office till conclusion of the AG
c) First Auditor[Sec139(7)]
1) By CAG within 60 days of incorporation
2) If CAG---> fails to appoint---> Board within next 30 days
3) If Board fails----> Inform members---> They will appoint within 60 days @ EGM----> Auditor holds o
d) Casual Vacancy [Sec 139(8)]
1) CAG---> Within 30 Days
2) If CAG---> fails to appoint---> Board within next 30 days
Re-appointment of retiring auditor[Sec139(9),(10) and(11)]
a) At any AGM, a retiring auditor may be re-appointed at an AGM, If1) Not disqualified for re-appointment
2) Not given notice in writing of his unwillingness to reappointed and
3) A SR not passed at meeting for the purpose---> Auditor shall not be reappointed
b) At AGM, If no auditor is appointed or re-appointed, the existing auditor ----> Shall continue to be th
Audit Committee Recommendations [Sec 139(11)]
Where company reqd to constitute---> Audit Committee u/s 177, All appointments, Casual Vacancy of
taking into aaccount the recommendations of such Committee.
Removal, Resignation of auditor and giving of spl notice[Except 2nd Proviso to Sec 140(4)
Removal of Auditor before the expiry of his term (Sec 140(1)
a) Auditor appointed u/s 139---> Removed---> For that SR & Previous approval of CG, by making an a
b) Application to CG---> Within 30 days of Boards resolution
c) Company hold GM ----> Within 60 days of approval of CG---> For passing the SR.
d) Giving oppurtunity of being heard.
Resignation by Auditor [Sec 140(2) & (3)]

a) Auditor file ADT-2 with company & Registrar within 30 days from resignation.
b) Incase of Govt company---> File with CAG, Company & Registrar
c) Reasons & Other facts for resignation, In the statement.
d) Auditor fails to comply this Provision---> Fine 50000 to Rs. 5 Lakhs.
Appointing Auditor otherthan the retiring Auditor[Sec 140(4)]
a) If Retiring Auditor has not completed his tenure u/s 139(2), Special notice reqd for passing resoluti
other than retiring or Providing expressly that---> Retiring auditor not be reappointed.
b) On Receipt of such notice for resolution---> Forthwith send to Auditor
c) Auditor may make representation---> Company should send the same to all the members
d) If Fails to Send---> due to received too late or because mof companies default--->Readout at the m
e) If copy of representation is not sent as aforesaid---> File with the Registrar.
Eligibility, Qualifications and Disqualifications of Auditors [Sec141 of the CA,2013]
Qualificatios of an Auditor [Sec 141(1) & (2)]
a) CA within the meaning of the Chartered Accountants Act,1949
b) Incase of Firm- Majority partners qualified for appointment
c) Firm or LLP---> Appointed as auditors---> only CA is authorised to act & sign on behalf of the firm.
Disqualifications of Auditors[Sec 141(3)]
a) Following are not eligible for appointment
1) A Body Corporate other than a LLP
2) An Officer or Employee of the Company
3) Person----> Partner or in employment or officer or employee of the company
4) A person, or his relative or partner-

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

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

5) A person or a firm who, Whether directly or Indirectly, has business relationship with the company
of such HC----> According to Companies ( Audit & Auditors ) Rules, 2014, "Business Relationship" mea
Except-

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

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

Further, Council ageneral Guidelines, 2008 ( Chapter VIII): Clause ii of part II of the second schedule t
Professional misconduct ---> If holds> 20 Adudits u/s 141(3)(g) of the CA,2013
8) Convicted by a court of an offence involving fraud---> 10 yr's has elapsed from the date of convist
9) Any Person, his entities engaged in consulting & Specified services u/s 144( Sec 144- Certain servi
Vacation of office by an auditor [ Sec 141(4)]

> Incures any disqualification u/s 141(3)----> deemed to have vacated his office---> Casual vacancy
Remuneration of auditors[ Sec 142 of the CA, 2013]
i) Fixed by the company in GM or in such manner decided in GM
ii) 1st Auditor----> Board may fix
iii) Remuneration include expenses incurred during rendering service.---> But not include---> Paid for
company
Powers and Duties of Auditors and Auditing Standards [Sec 143 of the CA, 2013]
Powers of Auditors[Sec 143(1)]
a) Access to books of a/c's and vouchers
b) Entitled to have necessary information and explanation from the officers of the company for the pe
c) Matters of inquiry: The auditor may inquire following
1) Loans & Advances by company on the basis of security---> Properly secured & Whether prejuducia
2) Transactions---> Mere book entries---> Prejudicial to the interest of the company
3) Company not being investment or banking company---> Sold investments @ less than purchase pr
4) Loans & advances by company shown as deposits
5) Whether personal expenses charged to revenue a/c
6) Shares---> Sold for cash---> Whether received---> Position shown in a/c books & BS correct, regula
d) Access to record of all it's subsidiaries---> So far as it relates to the Consolidated Financial Stateme
Duties of Auditors [ Sec 143(2),(3) and (4)]
a) Report to the members on following:
1) On a/s's examined by him and
2) On every FS's ---> Laid before---> GM and
b) While making Report---> Take into a/c provisions of this Act, Th\e a/cing & auditing standards and m
rules made thereunder or under any order made u/s 143(1)
c) Express his opinion of the a/c's & FS's examined by him
d) The auditors report shall also state1) Whether he has sought & obtained all the information which is Necessary---> If not, Details thereo
2) Whether----> Proper books of a/c's reqred by law maintained. Books and proper returns from branc
3) Branch report---> Audit done by others u/s 143(8), and sent to companies auditor--->Manner in wh
4) Whether Companies BS & P and L a/c in the report---> In agreement with the books of a/c's and ret
5) Whether FS's comply with the AS's
6) Observations or comments on financial transactions or matters----> Which have adverse effect on
7) Any director disqualified u/s 164(2)
8) Any qualification, Regervation or adverse remarks relating to maintenance of a/c's and other matte
9) Internal financial controls---> operating effectiveness of such controls
10) Such other matters as may be prescribed
e) The companies( Audit and Auditors) Rules, 2014 provides that the auditors report shall also include
namely
1) Whether company disclosed---> impact if any of pending litigation on it's financial position in it's F
2) Whether the company has made provision, as required by law or AS's for matrial forseeable losses
contracts
3) Any delay in transfering to investor Education & Protection Fund a/c if any
f) If any nagative or qualifications---> Reasons for the same

g) Compliance with AS's:

1) Every auditor---> Shall comply---> AS's
2) CG may prescribe---> SA's recommended by ICAI, in consultation with & after examination of the r
3) Untill AS's notified----> As's issued by ICAI will prevail
h) Additional matters to be reported in case of specified companies:
> CG may, in consultation with NFRA, direct
i) Reporting of frauds by auditors [Sec 143(12)]

a) Notwithstanding anything contained in this Sec, Auditor in the cource of audit---> Reason to believ
employees of company, Immediately report---> to CG not > 60 days of his knowledge and after follow
Companies Audit & Auditors) Rules, 2014) :

1) Auditor forward his reportto Board or audit committee--> Immediately after he comes to knowledg
within 45 days

2) Ion receipt of reply or observATIONS FROM Board or audit committee----> Along with his own comm
receipt of such reply or observations
3) In case auditor fails to receive reply within 45 days from board or audit committee---> Forward the
4) Send to the Secretary, MCA in a sealed cover by registered post with acknowledgement due or spe
same

5) Report shall be on auditors letterhead containing postal address , Email address and contact numb
membership number
6) Report shall be in the form of a statement in Form ADT-4
b) No Contravention on the auditor---> If he done in good faith
c) Penalty for Non compliance of Sec 143(12)
If any auditor, Cost accountant in practice, Cost audit u/s 148, The CS in Practice--> Secretarial audit
1 lakh to 25 Lakh

Audit of Govt Companies [Sec 143(5), (6), & (7)]

a) Appointed by CAG u/s 139(5) or u/s 139(7)
b) CAG will direct the auditor manner in which a/c's are audited---> Auditors need to submit report to
c) The Audit Report among other things, Include the following:
1) The directions if any issued by the CAG
2) The action taken thereon and
3) Its impact on the a/c's and FS of the company
d) The CAG shall within 60 days from the date of receipt of the audit report have a right to1) Conduct a supplementary audit of FS of the company
2) Comment upon or supplement such audit report
e) Any Comments given by the CAG, Company send to every person entitled to copies of audited FS's
company at the same time and in the same manner as the audit report.
f) Test Audit:
For Govt Companie or company controlled by SG or CG, CAG without prejudice to the provisions relate
apply
Audit of a/c's of Branch Office of Company [Sec 143(8)]
a) Branch Office in India:
1) Company has branch office---> a/c's audited either by

A) Companies Auditor appointed u/s 139 or

B) Any other person qualified u/s 139
b) Branch office outside India:
By A) The companies auditor or B) By an Accountant or C) Any other person duly qualified under law
c) Duties of branch auditor---> Same as Sec 143(1) To 143(4)
d) The branch auditor---> Report on the a/c's of the branch ----> send it to companies auditor---> who
considres necessary.
e) The provisions regarding reporting of fraud by the auditor---> also apllies to branch auditor.
The Provisions of this sec i.e sec143 shall mutatis mutandis apply toa) The AMA in practice conducting Cost audit u/s 148 or
b) The CS in Practice conducting secretarial audit u/s 204.
Auditor Not to render certain Services [ Sec 144 of the CA, 2013]
Prohibited Services:
Only such other services as are approved by the BOD or the audit committee as the case may be--->
include any of following
{ Whether such services are rendered directly or indirectly to the company or it's HC or SC), Namely
a) a/cing and book keeping services
b) Internal Audit
c) Design and implementation of any financial information system
d) Acturial Services
e) Investment Advisary Services
f) Investment Banking Services
g) Rendering of out sourced financial services
h) Mgt services and
i) any other kind of services as may be prescribed
Explanation: " Directly or Indirectly" shall include
i) Incase of auditor---> Himself, Relative or other connected
ii) InCase of auditor being a firm---> Itself, Partner or connected
Transition Period:
Comly sec 144 before the closure of the 1st FY after the date of such commencement.
Auditor to sign audit reports, etc [Sec 145 of CA, 2013}
i) In accordance with the provisions of sec 141(2)
ii) Which have any adverse effect on the functioning of the company---> read before the company in
company.
Auditors to attend GM { Sec 146 of the CA, 2013}
i) All notices and other communicatios relating to any GM---> To Auditors
ii) Unless exempted by the company---> Auditor shall attend by himself or through his authorised rep
auditor.
iii) Right to be heard at such meeting on any part of the business which concerns him as the auditor
Punishment for contravention [Sec 147 of the CA, 2013]
Penaulty on Company [ Sec147(1)]
> Sec 139 to Sec 146----> If contravened----> Rs.25000 to Rs.5 Lakhs
Penaulty on officers [Sec 147(1)]

> Sec 139 To Sec 146, Contravened, Every officer who is in default shall be punishable with
1) Imprisonment upto 1 yr or
2) Fine Rs 10000 to Rs. 1 Lakh or
3) Both
Penaulty on Auditor [ Sec 147(2) & (3)]
a) If Conatravenes sec 139, 143, 144 or 145----> Fine Rs.25000 to Rs.5 Lakhs
b) contravention---> knowingly or willfully ---->with an intention to deceive the company or its share
with
1) Imprisonment upto 1 yr and
2) Fine---> 1 Lakh to 25 Lakhs
c) If auditor convictedas above, he shall be liable to
1) Refund----> Remuneration received by him to the company and
2) Pay damages
CG---> will specify statutory body or authority or an officer for ensuring promt payment of damages-the CG in respect of Payment of dmages[Sec 147(4)]
Liability of Audit Firm [ Sec 147(5)]
The liability for such act shall be of the partner or partners concerned of the audit firm and of the firm
CG to specify audit of items of Cost in respect of certain companies [ Sec 148 of the CA, 2
i) CG---> Companies engaged in the production of such goods or providing such services----> Utilisati
may be prescribed----> Shall also include in the books of a/c's uner section 128
ii) CG, Before issuing such order---> Consult the regul;atory body constituted or established under suc
iii) If CG is of the opinion, That it is necessary to do so, May order---> Cost audit
iv) Cost audit----> CMA in practice---> Recommended by members
v) The Companies ( Audit and Auditors) Rules, 2014 provides that1) Companies which required to constitute Audit committee,
A) Board shall appoint individual CMAor Firm----> On recommendations of the Audit committee, Which
B) The Remuneration recommended by Audit committee---> Board will approve----> Sahare holders w
2) Companies which Not required to Constitute audit committee
> Board shall appont---> Remuneration fixed by board----> Share holder will ratify.
vi) No person appointed u/s 139----> Appointed as Cost auditor
vii) Cost auditor---> Comply cost auditing standards---> Cost aduting standards by ICWAI eith the app
viii) An audit u/s 148----> In Addition to audit u/s 143
ix) Qualifications, Disqualifications, Rights, Duties and obligations apllicable to auditors----> Apply to
x) Report submitted by cost auditor to ---> BOD of the company
xi) Within 30 days company shall file with CG along with information & explanation on every reservat
xii) If CG need further information---> Company shall give
xiii) Contravention:
Fails to comply Sec 148a) Company & Office in default----> Punishment u/s 147(1)
b) Cost auditor---> Sec 147(2) to 147(4)

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

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

Chapter-3 Appointment and Qualifications of the D

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

Number of Directors:
a) A Minimum number of Directors
A) Public Company-3 Directors
B) Private company- 2 Directors
c) OPC-1 Director
b) A Max of 15 Directors
If Compant wants to appoint > 15 Directors---> By passing SR
c) Women director:
> Such class or classes of companies----> Shall have at least 1women director [Second proviso to Sec
> According to The Companies ( Appointment and Qualification of Directors) Rules, 2014---> The follo
director
1) Every Listed Company;
2) Every other public company havingA) Paid-Up share capital of Rs.100 crore or More; OR
B) Turnover of Rs.300 Crore or more
> Company incorporated under the Act and covered U/S 149(1), Shall comply with such provisions wi
incorporation.
> Any Intermittent Vacancy of a Women director shall be filled-up by the Board at the earliest but not
months from the date of such Vacancy Which Ever is Later.
> For the purpose of this rule----> Paid up share capital or Turnover---> As on the last date of latest au
Transition Period:
> Sec 149(2) Provides----> 1 yr from the date of commencement---> To comply sec 149(1)
d) Resident Director:
> Every Company shall have at least 1 Director, Whose stay in India---> Not less than 182 Days in Pre

> The MCA General Circular No:25/2014 dated 26th June, 2014, has given clarification on applicability
calender/ Financial year.----> Sec 149(3) applicable from 1-4-2014, so first year will be calender year
days(182/365*273)----> Regarding newly incorporated companies, incorporated between 1-4-2014 To
at the incorporation stage itself or within 6 months of their incorporation.----> Companies incorporate
director from the date of incorporation itself.

e) Independent Director:
> Every listed public company shall have at least 1/3 of the total no.of directors as independent direc
Transition Period: Sec 149(5) provides----> 1 yr from the date of commencement ---> To co
> The CG may prescibe the min no.of Independent directors in case of any class or classes of public c
> Any Fraction of 1/3 shall be rounded off as one.
> According to the Companies ( Appointment and Qualification of Directors) Rules, 2014---> The follo
least 2 Directors as Independent Directors:
1) The Public Companies---> Having Paid up sha capital---> Rs. 10 Crore or More; OR
2) The Public Companies --> Having Turnover----> Rs. 100 Crore or more; OR
3) The Pyblic Companies---> in aggregate, O/S Loans, Debentures and Deposits, Exceeding Rs.50 Cro

However, Companies covered under above category----> is required to appoint a higher no.of indepen
committee, Such higher number only applicable to it.

Eg: As Per sec 177(2) of CA, 2013, The Audit committeee shall consist of a min of 3 directors with ind
to Rules - at least 2 directors, But according to sec 177(2)--- Min 3, and forming a majority, Here Sec 1

> Any Intermittent Vacancy of an Independent director shall be filled-up by the Board at the earliest b
months from the date of such Vacancy Which Ever is Later.
> However, Where a company ceases to fulfill any of 3 conditions laid down above for 3 consecutive
provisions until such time as it meets any of such conditions.

> For the purpose of above assessment----> Paid up share capital or Turnover or o/s loans,debentures
audited FS's shall be taken into a/c.

> A company belonging to any class of companies for which a higher no.of Independent directors has
shall comply with the requirements specified in such law.
f) Who can become the Independent Director [Sec 149(6)]:
> In relation to a company, as independent director means a director other than a MD or a WTD or a
criteria:
1) Who, In the opinion of the Board---> A person of integrity and possesses relevant expertise and ex
2) A) Who is or was not a promoter of the company or it's HC,SC or Associate Company; B) Who Is not
it's HC, SC or Associate company;
3) Who has or had no pecuniary relationship with the company, it's HC, SC or Associate company, or
immediately preceding FY's or during the current FY;

4) None of whose ralatives has or had pecuniary relationship or transaction with the company, it's HC
directors, amounting to 2 % or more of ot's gross turnover or total income or Rs.50 Lakh or such high
during the two immediately preceding FY's or during the Current FY;

5) Who, neither himself nor any of his relativesA) Hols or has held the position of key managerial personnel or is or has been employee of the compa
FY's immediately preceding the FY in which he is proposed to be appointed;
B) Is or has been an employee or proprietor or a partner, in any of the 3 FY's immediately preceding t
i) A firm of auditors or CS's in Practice or CMA of the company, It's HC, SC or Associate company; OR
ii) Any legal or a consulting firm that has or had any transaction with the company, It's HC, SC or Asso
gross turnover of such firm;
iii) Holds together with his relatives 2% or more of the total voting power of the company; or

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

6) Who passesses such other qualification as may be prescribed. ----> According to the Companies ( A
2014, Independent director shall possess appropriate skills, Experience an and knowledge in one or m
Marketing, Administration, Research, Corporate Governance, Technical operations or other disciplines
g) Declaration by Independent Director [ Sec 149(7)]:

Every Independent director shall 1) At 1st meeting of the Board in which he participates as a director
every FY; OR 3) Whenever ther is any change in the circumsatnces which may effect his status as an
meets the criteria of independence as provided in Sec 149(6).
h) Code for Independent Directors [Sec 149(8)]:

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

> Not more than 2 consecutive terms. However eligible for appointment after expiration of 3 yr's of c
> Provided that during the said period of 3 yr's, such independent director shall not, be appointed in
capacity, either directly or indirectly.

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

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

ii) With his consent or connivance or

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

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

> In view of the transitional period of 1 yr provided U/S 149(5), it is hereby clarified that it would be n
under the new Act, Such appointment shall be made expressly U/S 149(10)/(11) read with Schedule IV
compliance with eligibility and other prescriber conditions.

iii) Sec149(10)/(11) - Appointment of ID's for less than 5 yr's:> The person completing 'Consecutive terms of less than 10 yr's' shall be eligible for appointment on
of 3 yr's.
iv) Appointment of ID's through letter of appointment:> Appointment of ID's under the new Act would need to be formalized through a letter of appointmen
the Act ( Code for ID'd).
Manner of selection of Independent directors and maintenance of databank of independen
2013)

i) Sec 150(1)----> ID may selected form a databank containing names, Addresses and qualificaitons o
s.t the provisions contained in sec 149(5).

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

> Further, The responsibility of exercising due diligence before selecting a person as an ID from the d
company making such appointment [Provisio to sec 150(1)].
ii) The appointment of ID shall be approved by the company in GM as provided in sec 152(2). [Sec 15
iii) The data bank referred to in sub section (1), shall create and maintain data of persons willing to ac
prescribed [Sec 150(3)]
iv) The CG may prescibe the manner and procedure of selection of ID'd who fulfill the qualifications a
Creation and maintenance of databank of persons offering to become ID's :

i) Any body, Institute or association9 referred as " Athe agency", ---> Authorised by CG---> shall creat
eligible to be appointed as ID and such data bank shall be placed on the website of the MCA or on an
the CG.

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

iii) Details regarding the procedure of creation and maintenance of databank of persons offering to be
( Appointment of Directors) Rules,2014.
Appointment of directors elected by small shareholders ( Sec 151 of the CA,2013)
> A listed company may have 1 director elected by such Small shareholders in such manner and on s
> "Small Shareholders" ---> who are holding shares of nominl value of not>Rs.20000 or such other su
> The Companies ( Appointment and Qualification of directors) Rules, 2014 provides for the procedur
according to which:
i) A listed company, May upon notice of not less than
a) 1000 small shareholders; OR
b) 1/10 of the Total no.of such shareholders,
W.E.L, Have a Small shareholders director elected by the small shareholders.
However, A listed company ---> Opts to have small share holders---> Suo motu and in such a case th
apply for appointment of such director.

ii) The Small shareholders intending to propose a person as a canditate for the post of Small shar hold
before the meeting ---> Under their signature---> Specifying the name, Address, Shares held and fort
who are proposing.

However , if the being proposed does not hold shares---> the details of shares held and folio number
iii) The Notice shall be accompanied by a statement sihned by the person whose name is being propo
statinga) His DIN;
b) That he is not disqualified to become a director under the Act; and
c) His consent to act as a director of the company.
iv) Such director shall be considered as an independent director s.t, his being eligible U/S
independence in accordance with Sec 149(7) of the Act.
v) The appointment shall be s.t sec 152 except thata) Shall not be liable to retire by rotation;
b) Such director's tenure----> Shall not Exceed 3 consecutive yr's; and

c) On the expiry of the tenure, Such director shall not be eligible for re-appointment.
Vi) A peson shall not be appointed as small shar holders,' director of a company, if he is not eligible fo
the disqualifications for appointment of a director.
vii) A person appointed as small shar holers' director shall vacate the office ifa) Incurs any of the disqualifications specified in sec 164;
b) The office of the director becomes vacant in pursuance of sec 167;

c) The director cease to meet the criteria of Independence as provided in sec 149(6)
viii) No person shall hold the position of small shareholders' director in more than 2 comp
However , the second company in which he has been so appointed shall not be in a business which is
1st company.

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

The companies (Appointment and Qualification of Directors) Rules, 2014---> Every person who has be
on or before the appointment furnish to the company consent in writing to act as director in Form DIR
of appointment of an ID in the GM, An explanatory statement for such appointment, annexed to the n
the opinion of the Board, he fulfills the conitions specified in this Act for such an appointment.

Retirement by Rotation [Sec 152(6)]

a) Unless the articles provide for the retirement of all directors at every AGM, Not less than 2/3 of the
A) Be persons whose period of office is liable to determination by retirement of directors by rotation;
B) Save as otherwise expressly provided in this Act, be appointed by the company in GM.
b) The remaining directors in the case of any such company shall, in default of, and subject to any reg
appointed by the copmany in GM.
c) At 1st AGM after GM--> In which directors appointed, ----> 1/3 directors of directors who are liable
fraction---> Rounded off to the nearest.

d) The directors to retire by roatation---> Longest duration person 1st shall retire---> Became director
default of and subject to any agreement among themselves, be determined by lot.
e) At the AGM---> In which retires, The company may fill up the vacancy by appointing the retiring dir
> For the purposes of the above provisions "Total no.of directors" shall not include ID's , Whether app
being in force, on the board of a company.
For E.g: Company is having 6 Directors.---->Directors liable to retiire by rotation: 6*2/3 i.e
nearest to 1/3 is 1.
Vacancy in case of retiring director [Sec 152(7)]

a) If the vacancy ----> nto filled and meeting the meeting has not expressly resolved not to fill the va
day , Next week, at the same time and place---> if that is holiday---> next succeding working day, at
b) In that meeting also appointment not done or resolution not passed, Retiring auditor deemed to be
A) At that meeting or at the previous meeting a resolution for the re-appointment of such director has
B) The retiring director has, by a notice in writing addressed to the company or it's BOD's, expressed
c) He is not qualified or is disqualified for appointment;
D) A resolution, Whether SR or OR, is reqd for his appointment or reappointment by virtue of any prov
E) Sec 162 is applicanle to the case.
> For the purposes of sec 152, The " Retiring director" means a director retiring by rotation.
Application for allotment of DIN [ Sec 153 of the CA, 2013]
> Every Individual intending to be appointed as director of a company ---> Make application for allotm
and along with such fees as may oprescribed.

> The Companies ( Appointment and qualification of directors) Rules, 2014 Provides for the procedur
according to which:

1) Every individual, who is to be appointed as director----> make an application electronically in Form

with such fees as prescribed.

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

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

ii) Afer generation of the Provisional DIN, The CG shall procee the applications received for allotment
thereof and communicate the same to the applicant along with DIN alloted in case of approval by way
mode, within a period of 1 month from the receipt of such application.

iii) If the CG, on examinationfinds such applicaiotn to be defective or incomplete in any respect, it sha
by placingin it on the website and by email to the applicant who has filed such application, directing t
incompleteness by resubmitting the application within a period of 15 days of such placing on the web
iv) Provided that CG Shall-

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

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

vii) The DIN so allotted under these rules is valid for the life-time of the applicant and shall not be allo
> The MCA vide Notification No. S.O. 1354( E) dated 21st May,2014 delegates the powers and functio
of the CA,2013 to the Regional Director, Joint Director, Deputy Director or Assistant Director posted in
Prohibition to obtain more than one DIN (Sec 155 of the CA, 2013)
> No Individual , who has already been allotted a DIN U/S 154, Shall apply for, obtain or possess anot
Director to Intimate DIN [Sec 146 of the CA,2013]
> Every Existing Director shall, within 1 month of the receipt of DIN from the CG, intimate his DIN to t
director.
Company to inform DIN to Registrar [Sec 157 of the CA, 2013]

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

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

> If any Individual or director of a company, contravenes any of the provisions of Sec 152, 155 and 1
monthsor fine---> upto Rs.50000 and where the contravention is a continuing one, with a further fine
1st during which the contravention continues.

Cancellation or Surrrender or Deactivation of DIN

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

a) The DIN is found to be duplicated in respect of the same person provided the data related to both t
number;

b) The DIN was obtained in a wrongful manner or by fradulent means;

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

i) The term "Wrongful manner" means if the DIN is obtained on the strenth of documents which are n
furnished or on suppression of material information or on the basis of wrong certification or by makin
misrepresentation.

ii) The term "Fraudulent means' means if the DIN is obtained with an intent to deceive any other pers

c) Of the death of the concerned individual;

d) Declared as a person of unsound mind by a competent court;
e) Has been adjudicated an insolvant.

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

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

i) Download Form DIR-6 from the portal and fill in the relevant changes, attach copy of the proof of th
DIR-7 all of which shall be scanned and submitted electronically;
ii) The form shall be digitally signed by a CA in practice or a CS in practice or a Cost Accountant in Pra
iii) The applicant shall submit the Form DIR-6;
2) The CG, upon being satisfied, afer verification----> Shall incorporate the said changes and inform t
electronically or in any other mode confirming the effect of such changes in the electronic database m

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

4) The concerned individual shall also intimate the change(s) in his particulrs to the company or comp
such change.
Right of Persons other than retiring directors to stand for directorship (Sec 160 of the CA,

i) A peson who is not a retiring director in terms of sec 152 shall, subject to this Act, be eligible for ap
or some member intending to propose him as a director, has, not less than 14 days before the meetin
notice in writing under his hand signifying his canditature as a director or, as the case may be , the in
candidate for that office.

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

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

ii) However, It shall not be necessary for company to serve individual notices----> If the company adv
days before the meeting at least once in a vernacular news paper in the principal vernacular languag
company is situated, and at least once in english language in an English newspaper circulating in tha

Appointment of additional director, Alternate director and nominee director [Sec 161 of th
Additional Director [Sec 161(1)]
i) Articles may confer such power---> On it's BOD
ii) A person who fails to get appointed as a director in GM----> Cannot be appointed as an additional d
iii) Holds office---> Upto the date of the next AGM or The last date on which the AGM should have bee

Alternate Director [Sec 161(2)]

i) The BOD's may,---> If authorised by the Articles or Resolution passed by the company in GM---> Ap
(Original Director) during his absence for a period of not less than 3 months from India.
ii) A person who is holding any alternate directorship for any other director in the company cannot be
iii) No Peson shall be appointed as alternate director for an independent director unless he is qualified
the provisions of this Act.
iv) Holds office for a period permitted for original director and shall vacate the office if and when the
v) The Provision for the automatic re-appointment of retiring directors in default of another appointme
alternate director.
Nominee Director [Sec161(3)]:
> The Board may appoint any person as a director nominated by any institution in pursuance of the p
---> By the CG or the SG by virtue of it's shareholding in a Govt company, s.t the Articles of a compan
Casual Vacancy [Sec 161(4)]
i) In the case of a Public Company--->The casual vacancy may, in default of and s.t any regulations in
at a meeting of the Board.
ii) Hold only upto the date up to which the director in whose place he is appointed would have held offi
Appointment of Directors to be voted individually [Sec 162 of the CA, 2013]
i) Two or more directors of a company cannot be elected as directors by a single resolution.
ii) Thus, each director shall be appointed by a separate resolution unless the meeting 1st agreed that
resolution and no vote has been cast against such agreement.
iii) A resolution moved in contravention of this provision shall be void, whether or not objection theret
iv) A motion for approving a person for appointment, or for nominating a person for appointment as a
appointment.
Option to adopt principle of proportional representation for appointment of directors [Sec
i) Notwithstanding anything contained in the VA,2013, The articles of a company may provide for the
the directors of a company in accordance with the principle of proportional representation.
ii) Such appointments may be made once in every 3 yr's whether by the single tranferable vote or by
Single transferable vote means, a candidate gets elected if he gets the required no.of votes fixed as q
will have fair representation of the minority interest.
iii) Casual vacancies of such directors shall be filled as provided in Sec 161(4).
Disqualifications for appointment of director [Sec 164 of the CA, 2013]
i) A person cannot be appointed as director of a company in any of the following cases:
a) He is of unsound mind and stands so declared by a competent court;
b) He is an Undischarged insolvant;
c) He has applied to be adjudicated as an insolvant and his application is pending;

d) Convicted by a court of any offence----> Imprisonment not less than 6 months---> and 5 yr's has n
sentence.-----> However, If convicted of any offence and imprisonment for a period of 7 yr's or moredirector in any company

e) An order disqualifying him for appointment as a director has been passed by a court or tribunal an
f) Not paid any call in respect of any shares of the company held by him, Whether alone or jointly wit
day fixed for the payment of the call;
g) He has been convicted of the offence of dealing with related party transactions U/S 188 at any tim
h) He has not complied with Sec 152(3) which requires a director director to have a DIN U/S 154.

ii) No person who is or has been a director of a company whicha) Has not filed FS's or Annual Returns for any continuous period of 3 FY's; or
b) Has failed to mrepay the deposits or interest thereon or redeem any debentures on due date or int
failure ---> Continues for 1 yr or more,

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

iii) A Private company may by it's articles provide for any disqualifications for appointment as adirect
164(ii) as stated above.
However, The disqualifications referred to in clauses (d),( e ) and (g) of sub section (i) shall not take e
a) For 30 days from the date of conviction or order of disqualification;
b) Where an appeal or petition is prefered within 30 days as aforesaid against the conviction resulting
date on which such appeal or petition is disposed off; or
c) Where any further appeal or petition is preferred against order or sentence within 7 days, Untill suc
No.Of Directorship [Sec 165 of the CA, 2013]
i) No Person shall hold in more than 20 companies (Including Alterne Directorship) at the same time.
Provided that---> Out of limit of 20---> Max public companies are 10, HC or Sc of Public companies ar
[Proviso to Sec 165(1)]
ii) The Members of a company may, By SR, specify any lesser number of companies in which a directo
iii) Transition period for complying with Sec 165(1) in 1 yr and within this period, If any director is hold
specified limits, He shalla) Choose not more than the specified limit of companies, in which he wishes to continue to hold the
b) Resign his office as director in the other remaining companies; and
c) Intimate the choice made by him under clause (a), to each of the companies in which he was holdi
and to the Registrar having jurisdiction in respect of each such company. [Sec 163(3)]

iv) Any resignation made in pursuance of clause (b) of Sub-Sec (3) shall become effective immediatel
[Sec 163(4)]

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

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

v) He shall not achieve or attempt to achieve any undue gain or advantage either to himself or to his
is found guilty of making any undue gain, he shall be liable to pay an amount equal to that gain to th
vi) He shall not assign his office and if any assignment so made, it shall be void.
vii) If director contravenes this sec---> Fine Rs.1 Lakh to Rs.5 Lakhs.
Vacation of office of Director [Sec 167 of the CA, 2013]
i) The office of a director shall become vacant in case [Sec 167(1)]-

a) He incurs any of the disqualifications specified in Sec 164;

b) He absents himself from all the meetings of the BOD held during a period of 12 months with or wit
c) He acts in contravention of the provisions of Sec 184 relating to entering into contracts or arrangem
d) He fails to disclose his interest in any contract or arrangement in which he is directly or indirectly i
184;
e) He becomes disqualified by an order of a court or the tribunal;
f) He is convicted by a court of any offence, Whether involving moral turpitude or otherwise and sent
than six months.
> It is further provided that the office shall be vacated by the director even if he has filed an appeal a
g) He is removed in pursuance of the provisions of this Act;
h) He , having been appointed a director by vitue of his holding any office or other employment in the
office or other employment in that company.

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

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

iv) A Private Company may, by it's articles, Provide any other ground for the vacation of the office of
[Sec 167(4)]
Resignation of Director [Sec 168 of the CA, 2013]
i) A director may resign from his office by giving a notice in writing to the company.
ii) The board shall on receipt of such notice take note of the same.
iii) The Company shall within 30 days from the date of receipt of notice of resignation from a director,
information on it's website, if any.
iv) The company shall also place the fact of such resignation in the report of directors laid in the imm
v) Such director also---> Forward a copy of his resignation---> along with detailed reasons for the resi
date of resignation in Form DIR-11 along eith the prescribed fee.

vi) The resignation of a director shall take effect from the date on which the notice is received by the
in the notice, Whichever is later.
vii) Director---> who has resigned shall be liable even after his resignation for the offences which occu
viii) Where all the directors of a company resign from their offices, or vacate their offices U/S 167, The
the required no.of directors who shall hold office till the directors are appointed by the company in th
Removal Of directors [ Sec 169 of the CA, 2013] [ Except sub-sec (4)]
i) A company may, by OR, Remove a director otherthan a director appointed by the Tribunal U/S 242 o
after giving him a reasonable oppurtunity of being heard. [Sec 169(1)]

ii) It is further provided that the directors appointed on the principle of proportional representation U/
[ Proviso to Sec 169(1)]

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

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

v) The vacancy resulting from the aforesaid removal if he had been appointed by the company in GM
of another director at the same meeting at which the director is removed, Provided Special notice of t
sec (2). [Sec 169(5)]

vi) A director so appointed shall hold office for the remaining period for which the director whohas rem
removed.[Sec 169(6)]

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

viii) Nothing in this sec shall be taken to deprive a person removed under this sec of his rights to com
the premature termination of the directorship, or terms of his appointment as director or of any appoi
169(8)(a)]

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

i) Every Company shall keep at it's registered office a register containing such particulars of it's direct
prescribed and which shall include details of securities held by each of them in the company or it's HC
170(1)]

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

ii) Such register shall also be kept open for inspection at every AGM of the company and shall be mad
[Sec 171(1)(b)]

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

Prepared by Vijaya Kumar Poola Balija; email:poolavijayakumar@

My Request to Readers: When ever you are studying, Please make short notes and share it for Pu
Syllabus within time and they will succeed in their exams. (SHARE NOTES, B

Chapter 4
Appointment and Remuneration of Managerial Person

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

d) Has at any time been convicted by a court of an offence and sentenced for a period of more than 6
Schedule V to the CA, 2013---> Has prescribed additional conditions
1) He had not been sentenced to imprisonment for any period, or to a fine exceeding Rs.1000, for the
under schedule V
2) He had not been datined for any period under the conservation of foreign exchange and preventio
Provided that CG may give approval for appointment
3) Where he is a managerial person in more than 1 company, he draws remuneration from 1 or more
4) He is resident of India.
Here, resident in India includes--> Who resides in India for a continuous period of 12 months prior to
i) For taking up employment in India; or
ii) For carrying on a business or vacation in India.
Procedure of Appointment [Sec 196(4)] :
i) s.t the provisions of sec 197 and schedule V--> Appointment , terms and conditions of such appoint
the BOD at a meeting
ii) approvals given by BOD--> s.t approval of shareholders bya resolution at the next GM of the compa
iii) In case such appointment is at variance to the conditions specified in the schedule V of the CA, 20
iv) The notice convening Board or GM for considering appointment---> Shall contain--> Terms and con
interest of directors, if any.
v) A return in the prescribed form (Form No. MR.1) along with the prescribed fee shall be filed with the
Validity of acts [Sec 196(5)]:
> s.t the provisions of this Act, where an appointment of a MD, WTD or Manager is not approved by th
such approval shall deemed to be valid.
Managing Director [Sec 2(54)]:
> Sec 2(54) of the CA, 2013 defines a "MD" as a director who is entrusted with substantial powers of
i) Virtue of the articles of acompany or
ii) An agrrement with the company or
iii) a resolution passed in it's GM, or by it's BOD's,
and includes a director occupying the position of the MD, by whatever name called.
> Explanation: Substantial powers of the mgt ---> shall not be deemed to include--> when so authori
i) The power to affix the common seal of the company to any document or
ii) to draw and endorse any cheque on the a/c of the company in any bank or
iii) to draw and endorse any negotiable instrument or
iv) to sign any certificate of share or
v) to direct registration of transfer of any share
Whole Time Director [Sec 2(94)]:
> "WTD" includes a director in the whole-time employment of the company.
Manager [Sec 2(53)]:

> " Manager" means an individual who, s.t the superintendence, control and direction of the BOD's, h
of the affairs of a company, and includes a director or any other person occupying the position of a m
contract of service or not.
Overall maximum managerial remuneration and managerial remuneration in case of absen
2013]
i) Overall maximum managerial remuneration [Sec 197(1)]
a) The overall managerial remuneration to the directors including MD, WTD and Manager is summaris

S.No.
Person entitled for remuneration
provided under column (b)
(a)
(
c
)
i)
Directors incl MD,WTD and Mgr of
of
Public companies
of the profits
ii)
1 MD/WTD/Mgr
limit may be
iii)
may be

More than one MD/ WTD/Mgr

Maximum remuneration in any FY

(b)
11% of the net profits of the
Company for that FY
5% of the net profits of the
company for that year
10% of the net profits

iv)

Direcots who are neither MD nor

1 % of the net profits of the company
WTD
if there is a MD or WTD
v)
Directors who are neither MD nor
3 % of the net profits of the company
WTD
if there is no MD or WTD
b) Sec 197(8) further provides that the net profits shall be computed in the manner laid down in sec 1
shall not be deducted from the gross profits.
ii) Remuneration rendered in any other capacity [Sec 197(4)]
a) The remuneration payable to the directors of a company, including any MD or WTD or Manager, sh
provisions of this section, either
i) by the articles of the company, or
ii) by a resolution or,
iii) if the articles so require, by a SR, passed by the company in GM, and
b) The remuneration payable to a director determined aforesaid shall be inclusive of the remuneratio
any other capacity.
c) Any remuneration for services rendered by any such director in other capacity shall not be so inclu
1) the services rendered are of a professional nature; and
2) in the opinion of the nomination and remuneration committee, if the company is covered under su
director possesses the requisite qualification for the practice of the profession.
iii) Sitting fees to directors [Sec 197(5)]
a) A director may receive remuneration by way of fee for attending meetings of the Board or committ
may be decided by the Board.

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

b) If the company is not able to comply wuth such provisions of schedule V in the above case, Then p

c) In cases where Schedule V is applicable on grounds of no profits or inadequate profits, any provisio
purports to increase or has the effect of increasing the amount thereof, shall not have any effect unle
specified in that schedule and if such conditions are not being conplied, the approval of the CG had b
vi) Remuneration of Independent director [Sec 197(7)]
> Not withstanding anything contained in any other provision of this Act but s.t the provisions of this
to any stock option and may receive remuneration by way of
1) Sitting fees in terms of sec 197(5).
2) Reimbursement of expenses for participation in the board and other meetings; and
3) Profit ralated commission as may be approved by the members.
vii) Refund of excess [Sec 197(9)]

> If any director draws or receives, directly or indirectly, by way of remuneration any such sums in ex
the prior sanction of the CG, where it is reqd, he shall refund such sums to the company and until suc

> The company shall not waive the recovery of any sum refundable to it U/S 197(9) unless permitted
(viii) Disclosure by listed company [Sec 197(12)]:

a) Every listed company shall disclose in the board's report, the ratio of the remuneration of each dire
such other details as may be prescribed. The details are prescribed under the companies (Appointme
2014.

b) The board's report shall include a statement showing the name of every employee of the company
i) If employed throughout the FY, was in receipt of remuneration for that year which, in the aggregate
ii) If employed for a part of the FY, was in receipt of remuneration for any part of that year, at a rate w
per month;

iii) If employed throughout the FY or part thereof, was in receipt of remuneration in that year which, i
which, in the aggregate, is in excess of thet drawn by the MD or WTD or Manager and holds by himse
not less than 2% of the equity shares of the company.

c) The statement referred to in above para (b) shall also indicate some particulars of the above emplo
nature of employment, qualification and experience, date of commencement of employment, age, las
the company, the %age of equity shares held by the employee in the company within the meaning of
employee is a relative of any director or manager of the company and if so, name of such director or
(ix) Insurance for Indemnification [Sec 197(13)]:

a) Where any insurance is taken by a company on behalf of it's MD, WTD, Manager, CEO, CFO or CS f
respect of any negligence, default, misfeasance, breach of duty or brrach of trust for which they may
paid on such insurance shall not be treated as part of the remuneration payable to any such personne

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

> s.t the provisions of this section, any director who is in receipt of any commission from the compan
be disqualified from receiving any remuneration or commission from any HC or SC of such company s
report.

xi) Contravention [Sec 197(15)]

> If any person contravenes the provisions of section 197, he shall be punishable with fine of Rs.1 lak
Calculation of Profits (Sec 198 of the companies Act, 2013)
Profit for the pupose of managerial remuneration shall be calculated as follows:

> Profit as per P & L account for the year ended 31st March, 20---

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

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

Provided that where the amount for which any fixed asset is sold exceeds the written-down value the
as is not higher than the difference between the original cost of that fixed asset and it's written-down

e) Any change in carrying amount of an asset or of liability recognised in equity reserves including su
asset or the liability at fair value.
iii)
Sums specified in sec 198(4)
a) all the usual working charges;
b) directors' remuneration;
c) bonus or commission paid or payable to any member of the company's staff, or to any engineer, te
company, whether on a whole-time or on a part-time basis;
d) any tax notified by the CG as being in the nature of a tax on excess or abnormal profits;
e) any tax business profits imposed for special reasons or in special circumstances and notified by the
f) interest on debentures issued by the company;
g) interest on mortgages executed by the company and on loans and advances secured by a charge o
h) interest on unsecured loans and advances;
i) expences on repairs, whether to immovable or to movable property, provided the repairs are not of
j) outgoings inclusive of contributions made U/S 181;
k) depreciation to the extent specified in sec 123;

l) the excess of expenditure over income, which had arisen in computing the net profits in accordance
the cmmencement of this Act, in so far as such excess has not been deducted in any subsequent yea
profits have to be ascertained;

m) any compensation or damages to be paid in virtu of any legal liability including a liability arising fr
n) any sum paid by way of insurance against the risk of meeting any liability such as is referred to in
o) debts considered bad and written off or adjusted during the year of account.
iv)
Sums specified in sec 198(5)
a) income-tax and super-tax payable by the company under the income-tax Act, 1961, or any other ta
198(4)(d)( e )

b) any compensation, damages or payments made voluntarilu, that is to say, otherwise than in the na
of sub-sec (4) of sec 198;

c) Loss of a capital nature including loss on sale of the undertaking or any of the undertaking or any o
thereof not including any excess of the written-down value of any asset which is sold, discarded, dem
scrap value;

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

> Without prejudice to any liability incurred under the provisions of this Act or any other law for the ti
re-state it's financial statements due to fraud or non-compliance with any requirement under this Act
recover from any past or present MD or WTD or Manager or CEO (by whatever name called) who, dur
required to be restated, received the remuneration(including stock option) in excess of what would ha

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

> According to Sec 200 of the CA, 2013, not withstanding anything contained in this chapter, the CG
196, to any appointment or to any remuneration U/S 197 in respect of cases where the company has
the limits specified in this Act, at such amount or %age of profits of the company, as it may deem fit a
regard to:

a) the finacial position of the company;

b) the remuneration or commission drawn by the individual concerned in any other capacity;
c) the remuneration or commission drawn by him from any other company;
d) profession qualifications and experience of the individual concerned;
e) any other matters as may be prescribed
According to the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, f
company shall have regard to the following matters, namely:1) the financial and operating performance of the company during the 3 preceing FY's.
2) the ralationship between remuneration and performance.
3) the principle of proportionality of remuneration within the company, ideally by a rating methodolog
that of other directors on the board and employees or executives of the company.
4) whether remuneration policy for directors differs from remuneration policy for other employees an
5) the securities held by the director, including options and details of the shares pledged as at the en
Forms of, and procedure in ralation to certain applications [Sec 201 of the CA, 2013]
According to sec 201 f the CA, 2013:
i) Every application made to the CG under this chapter shall be in Form No. MR.2 and shall be accomp
ii) Before any application is made by a company to the CG under any of the sections aforesaid, there
general notice to the members thereof, indicating the nature of the application proposed to be made.

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

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

subsidiary of a listed company may without Cg approval pay remuneration to it's managerial personn
beyong ceiling specified in Sec II, Part II of Scedule V, s.t complying with the following conditions nam

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

b) The company has not made any default in repayment of any of it's debts (including public deposits
preference shares and dividend on preference shares for a continuous period of 30 days in the preced
managerial personnel.

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

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

a) Where the director resigns from his office as a result of the reconstruction of the company, or of its
bodies corporate, and is appointed as the MD or WTD, Manager or other officer of the reconstituted c
amalgamation;

b) Where the director resigns from his office otherwise than on the reconstruction of the company or
c) Where the office of the director is vacated U/S 167(1);
d) Where the company is being wound up, whether by an order of the Tribunal or voluntarily, provided
default of the director;

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

iii) The compensation payable to such MD or WTD or Manager shall not exceed the remuneration he w
the remaininder of his term or 3 yrs, whichever is shorter, calculated on the basis of the avg remuner
immediately preceding the date on which he ceased to hold such office, or where he held the office o

iv) No such payment however can be made at all if winding up of the company is commenced whethe
which he ceased to hold office, if the assets on winding up(after deducting expenses on winding up) a
capital, including premiums if any, conrtibuted by them.

v) Nothing in this section shall be deemed to prohibit the payment to a MD or WTD, or Manager, of an
company in any other capacity.
Appointment of Key Managerial Personnel [Sec 203 of the CA, 2013]
i) Who is KMP [Sec 203(1)]: Every company belonging to such class or classes of companie
following whole time key managerial personnel:a) MD, or CEO or Manager and in their absence, a WTD;
b) CS; and
c) CFO.
> According to Rule 8 of Companies (Appointment and Remuneration of Managerial Personnel) Rules,
company having a paid-up share capital of Rs. 10 crore or more shall have whole-time key manageria

> Further, as per the Companies (Appointment and Remuneration of Managerial Personnel) Amendm
covered under Rule 8 above, which has a paid up share capital of Rs. 5 Crore or more shall have a wh

> With the insertion of Rule 8 A to the above rules, it is now mandatory of every other company to ha
5 Crores or more.
ii) Prohibition on individual to be appointed as chairperson as well as MD or CEO at the sa

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

> The MCA vide notification No.S.O. 1913 dated 25th July, 2014 notifies that public companies havin
annual turnover of Rs. 1000 or more which are engaged in multiple businesses and have appointed C
companies for the purpose of the second proviso to sub-section(1) of section 203 of the said Act.
> Explanation- For the purpose of this notifica
turnover shall be decided on the basis of the latest audited BS.

iii) Conditions for appointment:

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

b) A Whole-time key managerial personnel shall not hold office in more than 1 company at the same
> Provided that nothing in the above sub section shall disentitle a key managerial pe
the permission of the Board.

iv) Transitional Period:

If the whole-time KMP is holding office in more than 1 company at the same time on the commencem
from such commencement, choose 1 company, in which he wishes to continue to hold the office of KM
v) MD or Manager in more than 1 company [3rd Proviso to section 203(3)]:
a) A company may appoint or employ a person as it's MD, if he is the MD or Manager of 1, and of not
b) Such appointment or employment is made or approved by a resolution passed at a meeting of the
the meeting.
c) It is further provided that specific notice of such meeting, and of the resolution to be moved therea
vi) Casual Vacancy [Sec 203(4)]:
If the office of any whole-time KMP is vacated, the resulting vacancy shall be filled-up by the Board at
from the date of such vacancy.
vii) Penalty for contravention [Sec 203(5)]:
a) On Company: If a company contravenes the provisions of this section, the company shall be punish

b) On director and KMP: Every director and KMP of the company who is in default shall be punishable
contravention is a continuing one, with a further fine which may extend to Rs. 1000 for every day afte

Secretarial audit for bigger companies [Section 204 of the CA, 2013]
i) Companies that are required to conduct secretarial audit:
> U/S 204(1), every listed company and a company belonging to other class of companies as may be
in terms of sec 134(3), a secretarial audit report, given by a CS in practice, in such form as may be pr

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

a) It shall be the duty of the company to give all assistance and facilities to the CS in practice, for aud
company [Sec 204(2)].

b) The BOD's, in their report prepared U/S 134(3) shall explain in full any qualification or observation
report [Sec 204(3)]
iii) Contravention [Sec 204(4)]:
If a company or any officer of the company or the CS in practice, contravenes the provisions of this se
a) The company; or
b) every officer of the company; or
c) the CS in practice,
Who is in default, shall be punishable with fine Rs. 1 Lakh to Rs. 5 Lakhs.
Functions of CS [Sec 205 of the CA, 2013]
i) Functions of the CS:
According to Sec 205(1) read with the companies ( Appointment and Remuneration of Managerial Per
include,a) to report to the Board about compliance with the provisions of this Act, the rules made thereunder
b) to ensure that the company complies with the applicable secretarial standards;
c) to provide to the directors of the company collectively and individually, such guidance as they may
and powers;
d) to facilitate the convening of meetings and attend Board, Committee and general meetings and m
e) to obtain approvals from the board, GM, the govt and such other authorities as required under the
f) to represent before various regulators, and other authorities under the Act in connection with disch
g) to assist the Board in the conduct of the affairs of the company;
h) to assist and advise the Board in ensuring good corporate governance and in complying with the c
practices; and
i) to discharge such other duties as have been specified under the Act or rules; and
j) Such other duties as may be assigned by the Board from time to time.
Here, the expression " Secretarial standards" means secretarial standards issued by the ICSI constitut
approved by the CG.

ii) According to sec 205(2) the provisions contained in sec 204 and sec 205 shall not effect the duties
company, MD or WTD under this Act, or any other law for the time being in force.
Managerial Remuneration as per Part II, Part III, Part IV of Schedule V
Part II
i) Remuneration payable by companies having profits:
s.t the provisions of sec 197, a company having profits ina FY may pay remuneration to a managerial
in sec 197.
ii) Section II- Remuneration payable by companies having no profit or inadequate profit w
Where in any FY during the period of tenure of a managerial person, a company has no profits or it's p
pay remuneration to the managerial person not exceeding the higher of the limits under (A) and (B) g
(A)
(1)
(2)
Where the effective capital is
Limit of yearly remuneration payable shall no
(i)
Negative or less than 5 crores
30 Lakhs
(ii)
5 Crores to 100 Crores.
42 Lakhs

(iii)
100 to 250 Crores
60 Lakhs
(iv)
250 Crores and above
60 Lakhs plus 0.01% of the effective cap
> Provided that the above limits shall be doubled if the resolution passed by the shareholders is a SR
Explanation- It is hearby clarified that for a period less than 1 year, the limits shall be pro-rated.
(B)

In the case of a managerial person who was not a i) security holder holding securities of the company
employee OR iii) a director of the company OR iv) not related to any director or promoter at any time
managerial person, ----> 2.5% of the current relevant profit:
> Provided that if the resolution passed by the shareholders is a SR, this limit shall be doubled:

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

ii) The company has not made any default in repayment of any of it's debts (including public deposits
continuous period of 30 days in the preceding FY before the date of appointment of such managerial
iii) a SR has been passed at the GM of the company for payment of remuneration for a period not ex
iv) a statement along with a notice calling the GM referred to in clause (iii) is given to the shareholder
I) General Information:
1) Nature of industry
2) Date or expected date of commencement of commercial production
3) In case of new companies, expected date of commencement of activities as per project approved b
4) Financial performance based on given indicators
5) Foreign investments or collaborations, if any.
II) Information about the appointee:
1) Background details
2) Past remuneration
3) Recognition or awards
4) Job profile and his suitability
5) Remuneration proposed
6) Comparative remuneration profile with respect to industry, size of the company, profile of the posit
details would be with respect to the country of his origin)
7) Pecuniary relationship directly or indirectly with the company, or relationship with the managerial p
III) Other information:
1) Reasons of loss or inadequate profits
2) Steps taken or proposed to be taken for improvement
3) Expected increase in productivity and profits in measurable terms.
IV) Disclosures:
The following disclosures shall be mentioned in the BOD's report under the heading "Corporate Gover
i) all elements of remuneration package such as salary, benefits, bonuses, stock options, pension, etc
ii) details of fixed component and performance linked incentives along with the performance criteria;
iii) Sevice contracts, notice period, severance fees;

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

Section III- Remuneration payable by companies having no profit or inadequate profit with
circumstances:
In the following circumstances a company may, without the CG approval, pay remuneration to a man
section II above:-

a) Where the remuneration in excess of the limits specified in Sec I or II is paid by any other company
or has got the approval of it's shareholders in GM to make such payment, and treats this amount as m
and the total managerial remuneration payable by such other company to it's managerial persons in
permissible limits U/S 197.

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

provided that the limits under this section shall be applicable s.t meeting all the conditions specified
conditions:i) except as provided in para(a) of this section, the managerial person is not receiving remuneration f

ii) the auditor or CS of the company or where the company has not appointed a Secretary, a secretary
creditors and term lenders have stated in writing that they have no objection for the appointment of
remuneration and such certificate is filed along with the return as prescribed U/S 196(4).
iii) the auditor ar CS or where the company has not appointed a secretary, a secretary in whole-time
payments to any creditors, and all dues to deposit holders are being settled on time.

d) a company in a SEZ as notified by Department of commerce from time to time which has not raise
in India, and has not made any default in india in repayment of any of it's debts (including public dep
continuous period of 30 days in any FY, may pay remuneration upto Rs.2 crore 40 lakhs per annum.

Section IV- Perquisites not included in managerial remuneration:

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

a)contribution to PF, Superannuation fund or annuity fund to the extent these either singly or put tog
1961;
b) grtuity payable at a rate not exceeding half a month's salary for which completed year of service;
c) encashment of leave at the end of the tenure.
2. In addition to the perquites specified in paragraph 1 of this section, an expatriate managerial perso
to the following perquisites which shall not be included in the computation of the ceiling on remunera
a) Children's education allowance:
Incase of children studying in or outside India, an allowance limited to a maximum of Rs. 12000 per m
whichever is less. Such allowance is admissible upto a maximum of 2 children.
b) Holiday passage for children studying outside India or family staying abroad:
Return holiday passage once in a yr by economy class or once in 2 yrs by first class to children and to
study or sty abroad to India if they are not residing in India, with the managerial person.
c) Leave travel concession:
`

Explanation I - For the purposes of section II of this part, "effective capital" means i) the aggregate of
application money or advances against shares); ii) amount, if any, for the time being standing to the
surpus(excluding revaluation reserve); iv) Long-Term loans and deposits repayable after 1 year(exclud
on loans unless funded, bank guarantee, etc., and other short-term arrangements) as reduced by the
investment by an investment company whose principal business is acquisition of shares, stock, deben
preliminary expenses not written off.
Explanation IIa) Where the appointment of the managerial person is made in the year in which company has been
as on the date of such appointment;

b) In any other case the effective capital shall be calculated as on the last date of the FY preceding th
person is made.
Explanation III- For the purposes of this schedule, "family" means the spouse, dependent children and
Explanation IVThe Nomination and Remuneration committee while approving the remuneration under section II or S
a) take into a/c, financial position of the company, trend in the industry,
b) be in a position to bring about objectivity in determining the remuneration package while striking a
the shareholders.
Explanation VFor the puposes of this schedule, "negative effective capital' means the effective capital which is calc
explanation I of this part is less than zero.
Explanation VI- For the puposes of this schedule:A) "Current relevant profit" means the profit as calculated U/S 198 but without deducting the excess o
4
B) "Remuneration" means remuneration as defined in clause (78) of section 2 and includes reimburse
Section V - Remuneration payable to a managerial person in two companies:
s.t to the provisions of sections I to IV, a managerial person shall draw remuneration from 1 or both c
drawn from the companies does not exceed the higher maximum limit admissible from any one of the
Part III- Provisions applicable to Parts I and II of this schedule
1. The appointment and remuneration referred to in part I and Part II of this schedule shall be s.t appr

2. The auditor or the secretary of the company or where the company is not required to appointed a s
certify that the requirement of this schedule have been complied with and such certificate shall be in
196(4).
Part IV- Exemption by the CG
The CG may, by notification, exempt any class or classes of companies from any of the requirements

Chapter 5

Meetings of Boards and its Powers

Introduction

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

> The modern practice is to confer upon the directors the right to exercise all company's powers exce
excercised by the company in GM.
Meetings of Board [Sec 173 of the CA, 2013]

Frequency of Board Meetings [Sec 173(1)]:

a) 1st Board meeting: Within 30 days of its incorporation.
b) Subsequent Board meetings: Minimum 4 meetings every year---> Gap shall not be more than 120
However, the CG may by notification, direct that these provisions will not apply in relation to any clas
relation thereto s.t such exceptions, modifications or conditions as may be specified in the notification
Participation in Board meeting [Sec 173(2)]:
a) Sec 173(2) allows directors to attend Board meetings,
1) In person, or,
2) through video conferencing, or
3) other audio visual means as may be prescribed.
b) Such audio visual means should be capable of recording and recognising the participation of the di
of such meetings along with date and time.

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

"Video conferencing or other audio visual means" means audio-visual electronic communication facili
participating ia a meeting to communicate concurrently with each other without an intermediary and

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

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

F) to ensure that participants attending the meeting through audio visual means are able to hear and
of the meeting.
However, the differently abled persons may make a request to the Board to allow a person to accomp
3) (A) The notices of the meeting shall be sent to all the directors in accordance with the provisions o
(B) The notice of the meeting shall inform the directors regarding the options available to them to
other audio visual means, alongwith all other information to enable the directors to participate throug

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

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

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

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

5) The scheduled venue of the meeting as mentioned in the notice convening the meeting, shall be d
conducted through video conferencing or other audio visual means authorized under these rules and
have been made at that place.

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

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

b) Provided that a meeting of the BODs may be called on a shorter notice (than 7 days) in order to tra
least 1 independent director, if any, shall be present at the meeting. If no independent director is pre
decisions taken at such a meeting shall be circulated to all the directors and shall be final only on a ra
if any.

c) The Companies (Meetings of Board and its poers) Rules, 2014 further provides that the notice of th
option available to them to participate through video conferencing mode or other audio visual means
enable the directors to participate through video conferencing mode or other audio visual means.

d) on receiving such a notice, a director intending to participate through video conferencing or audio
chairperson or the CS of the company. He shall give prior intimation to that effect sufficiently in advan
arrangements in this behalf.

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

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

Further, the explanation as given in the Companies (Meetings of Board and its powers) Rules, 2014 pr
through video conferencing or by other audio visual means shall also be counted for quorum, unless h
any provisions of the Act or the rules.

iii) The continuing directors may notwithstanding any vacancy in the Board; but, if and so long as the
the Act for a meeting of the board, the continuing directors or director may act for the purpose of incr
quorum, or of summoning a GM of the company and for no other purpose.

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

a) The resolution has been circulated in draft, together with the necessary papers, if any, to all the di
may be,
b) at their addresses registered with the company in India,
c) by hand delivery or by post or by courier, or through such electronic means as may be prescribed,
d) has been approved by majority of the directors or members, who are entitled to vote on the resolu
The companies (Meetings of Board and its powers ) Rules, 2014 provides that a resolution in draft form
the necessary papers for seeking their approval, by electronic means which may include E-mail or fax

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

iii) A resolution that has been passed by circulation shall have to be necessarily be noted in the next
and made part of the minutes of such meeting.
Defects in appointment of directors not to invalidate actions taken [Sec 176 of the CA, 20
i) No act done by a person as a director shall be deemed tp be invalid, notwithstanding that it was su
by reason of any defect or disqualification or had terminated by virtue of any provision contained in t

ii) Nothing in this sec shall be deemed to give validity to any act done by the director after his appoin
invalid or to have terminated.
Audit Committee [Sec 177 of the CA, 2013]
Formation of an Audit Committee:
An audit committee shall be constituted by the BOD's of:
a) Every listed company, and
b) Such other class or classes of companies as may be prescribed.
The companies (Meetings of Board and its powers ) Rules, 2014 have prescribed the follow
Audit Committee:
a) all public companies with a paid up capital of 10 crore rupees or more;
b) all public companies having turnover of 100 crore rupees or more;
c) all public companies, having in aggregate, o/s loans or borrowings or debentures or deposits 50 cr
Explanation- paidup share capital, turnover, o/s loans or borrowings or debentures or deposits---> as
statements.

"Provided that public companies covered under this rule which were not required to constitute Audit c
their Audit Committee within 1 yr from the commencement of these rules or appointment of indepen

Provided further that public companies covered under this rule shall constitute their Nomination and
commencement of these rules or appointment of independent directors by them, whichever is earlier
Composition of an Audit Committee:
>> According to Sec 177(2), the audit committee shall consist of a minimum of 3 directors with indep
>> Provide that the majority of members of audit committee including its chairperson shall be person
statements.
>> Disclosure of composition of audit committee: The composition of the Audit Committee shall be d
Transition period:
>> Within 1 year from commencement
Responsibilities of an audit Committee:
>> According to sec 177(4), every Audit Committee shall act in accordance with the terms of referen
include:
a) the recommendation for appointment, remuneration and terms of appointment of auditors of the c
b) review and monitor the auditor's independence and performance, and effectiveness of audit proce
c) Examination of the FS's and the auditors report thereon;
d) approval or any subsequent modification of transactions of the company with related parties;
e) scrutiny of inter-corporate loans and investments;
f) Valuation of undertakings or assets of the company, wherever it is necessary;
g) evaluation of internal financial controls and risk mgt systems;
h) monitoring the end use of funds raised through public offers and related matters.
Investigation by Audit Committee:

>> According to Sec 177(6), the audit committee shall have authorit to investigate into any matter in
referred to it by the Board and for this purpose shall have power to obtain professional advice from ex
contained in the records of the company.

Disclosure in Baord's report:

a) The composition of the audit committee shall be disclosed in the board's report U/S 134(3).
b) Where the Board had not accepted any recommendation of the Audit Committee, the same shall b
the reasons therefor.
Role of auditor in Audit Committee:
a) According to sec 177(5), the the audit committee is empowered to:
1) call for the comments of the auditors about:
A) Internal control systems,
B) the scope of audit, including the observations of the auditors,
C) review of FS before their submission to the Board,
b) Right to be heard in the meeting of audit committee: According to sec 177(7), the auditors of a com
a right to be heard in the meetings of the Audit Committee when it considers the auditor's report but
Penalty for contravention[Sec 178(8)]
>> Company---> 1 Lakh to 5 Lakh, and
>> Every officer of the company who is in defalt---> Imprisonment---> upto 1 yr OR fine Rs. 25000 to
Visil mechanism

Formation of vigil mechnism:

>> According to sec 177(9), a vigil mechanism shall be formed in:
a) Every listed company, and
b) such other prescribed classes of companies.
The companies (Meetings of Board and its powers) Rules, 2014 has prescribed the following classes o
1) the companies which accept deposits from the public;
2) the companies which have borrowed money from banks and public financial Institutions in excess o
Objective of formation of vigil mechanism:
a) A vigile mechanism shall be formed for directors and employees to report genuine concerns in suc

b) The vigil mechanism shall provide for adequate safeguards against victimisation of persons who us
access to the chairperson of the audit committee in appropriate or exceptional cases. It is imperative
establishment of vigil mechanism on the website of the company and in Board's report.

According to the Companies (Meetings of Board and its Powers) Rules, 2014:
1) "Persons who use such mechnism" means employees and directors who avail the vigil mechanism.

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

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

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

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

"Provided that public companies covered under this rule which were not required to constitute Audit c
their Audit Committee within 1 yr from the commencement of these rules or appointment of indepen

Provided further that public companies covered under this rule shall constitute their Nomination and
commencement of these rules or appointment of independent directors by them, whichever is earlier
Composition of nomination and remuneration committee:
a) This committee shall consist of 3 or more non-executive directors out of which not less than 1/2 sh
b) The chairman (Whether excutive or non-executive) of the company shall not chair such a committe
the committee.
c) The chairperson or in his absence, any other member of the committee authorised by him in this b
Constitution of the committee [Sec 178(2)]

>> The nomination and remuneration committee shall ---> identify persons who are qualified to beco
mgt in accordance with the criteria laid down. ----> Recommend to the Board their appointment and r
evaluation of every director's performance.

The nomination remuneration committee shall formulate the criteria for determing qualifications; pos
Recommend to the Board a policy, relating to the remuneration for the directors, Key managerial pers
According to sec 178(4), the nomination and remuneration committee shall, while formulating the po
a) the level and composition of remuneration is reasonable and sufficient to attract, retain and motiva
company successfully.
b) relationship of remuneration to performance is clear and meets appropriate performance benchma
c) Remuneration to directors, key managerial personnel and senior mgt involves a balance between fi
performance objectives appropriate to the working of the company and its goals.
It is imperative to disclose such a policy in Board's Report.
Penalty for contravention: (Sec 178(8))
>> Company---> 1 Lakh to 5 Lakh, and
>> Every officer of the company who is in defalt---> Imprisonment---> upto 1 yr OR fine Rs. 25000 to
Sections 178(5) to (6) lay down the provisions relating to the formation, constitution and
Committee as under:
Formation and constitution of stakeholder's relationship committee:
The BOD's of a company which consists of more than 1000 shareholders, debenture-holders, depositduring a FY shall constitute a stakeholders Relationship Committee.
Objective of the committee:
The stakeholders relationship committee shall consider and resolve the grivances of security holders
interest of all security holders, not merely the equity investors.
Chairperson of stakeholder's relationship committee:
It shall be headed by a chairperson who shall be a non-executive director and consist of such other m
Sec 178(7) Provides that The chairperson or in his absence, any other member of the committee auth
the company.
Sec 178(8) Provides for the penalty for contravention of any of the provisions of either sec 177 or 178
> Provided that the non-consideration of a resolution of any grievance by the stkeholders Relationshi
contravention of sec 178.

Here, for the purposes of sec 178, the expression "Senior mgt" means personnel of the company who
comprising all members of mgt 1 level below the executive directors, including the functional heads.
Penalty for contravention:
>> Company---> 1 Lakh to 5 Lakh, and
>> Every officer of the company who is in defalt---> Imprisonment---> upto 1 yr OR fine Rs. 25000 to

Powers of Board [Sec 179 of the CA, 2013]

The BOD's of a company shall be entitled to exercise all such powers, and to do all such acts and thin
> However, while excercising such power or doing such act or thing, the Board shall be s.t the provisi
memorandum or articles, or in any regulations not inconsistent therewith and duly made thereunder,

The Board shall not exercise any power or do any act or thing which is directed or required, whether u
company or otherwise, to be excercised or done by the company in GM.
No regulation made by the company in GM shall invalidate any prior act of the Board which would hav
Powers of the Board to be excercised by the Board by means of the resolution passed at a duly conve
a) to make calls on shareholders in respect of money unpaid on their shares;
b) to authorise buy-back of securities U/S 68;
c) to issue securities, including debentures, whether in or outside India;
d) to borrow monies;
e) to invest the funds of the money;
f) to grant loans or give guarantee or provide security in respect of loans;
g) to approve FS and the Board's report;
h) to diversify the business of the company;
i) to approve amalgamation, merger or reconstruction;
j) to take over a company or acquire a controlling or substantial stakw in another company;
k) any other matter which may be prescribed
> Additionally, The companies (Meetings of Board and its Powers) Rules, 2014 has prescribed certain
BOD's only by means of resolutions passed at meetings of the Board:
1) to make political contributions;
2) to appoint or remove KMP
3) to take note of appointment(s) or removal(s) of one level below the Key Mgt Personnel;
4) to appoint internal auditors and secretarial auditor;
5) to take note of the disclosure of director's interest and shareholding;
6) to buy, sell investments held by the company (other than trade investments), constituting 5 % or m
the investee company;
7) to invest or accept or renew public deposits and related matters;
8) to reviw or change the terms and conditions of public deposit;
9) to approve quarterly, half yearly and annual FS's or financial results as the case may be.
Power to delegate certain powers of the Board:
The Board may, by a resolution passed at a meeting, delegate the powers specified in points (d) to (f)
1) any committee of directors,
2) the MD,
3) the Manager or any other principal Officer of the company, or
4) the principal officer of the branch office (in the case of a branch office of the company).

>> However, the acceptance by a banking company in the ordinary cource of its business of deposits
otherwise and withdrawable by cheque; draft, order or otherwise, or the placing of monies on deposit
company on such conditions as the Board may prescribe, shall not be deemed to be a borrowing of m
banking company within the meaning of this section.

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

>> Explanation II: In respect of dealings between a company and its bankers, the exercise by the com
mean the arrangement made by the company with its bankers for the borrowing of money by way of
not the actual day-to-day operation on OD, CC or other a/c's by means of which the arrangement so m

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

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

The expression "Substantially the whole of the undertaking" in any FY shall mean 20 % or more of the
the preceding FY;
b) To invest otherwise in Trust securities the amount of compensation received by it as a result of any
c) to borrow money, where the money to be borrowed, together with the money already borrowed by
share capital and free regerves, apart from temporary loans obtained from the company's bankers in

>> The acceptance by a banking company, in the ordinary cource of its business, of deposits of mon
otherwise, and withdrawable by cheque, draft, order or otherwise, shall not be deemed to be a borrow
meaning of this clause.

"Tempary loans" means loans repayable on demand or within 6 months from the date of the loan suc
discounting of bills and the issue of other short term loans of a seasonal character, but does not inclu
expenditure of a capital nature;

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

>> Provided that, this sub section shall not be deemed to authorise the company to effect any reduc
provisions contained in this Act.

No debt incurred by the company in excess of the limit imposed by above point (c ) shall be valid of e
the loan in good faith and without knowledge that limit imposed by that clause had been exceeded.
Company to contribute to bona fide and charitable funds, etc. [Sec 181 of the CA, 2013]
i) The BOD's of a company may contribute to bonafide charitable and other funds.
ii) Prior permission of the company in GM shall be required for such contribution in case any amount t
avg net profits for the 3 immediately preceding Fys.
Prohibitions and restrictions regarding political contributions [Sec 182 of the CA, 2013]
i) Notwithstanding anything contained in any other provision of this Act, a company may contribute a
registered U/S 29A of the Representation of the people Act, 1951.
ii) The following companies are not allowed to contribute to any political party:
a) a govt company; and

b) a company which has been in existence for less than 3 Fys.

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

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

a) a donation or subsrciption or payment caused to be given by a company on its behalf or on its a/c
activity which, at the time at which such donation or subscription or payment was given or made, can
support for a political party shall also be deemed to be contribution of the amount of such donation, s
purpose;

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

souvenir, brochure, tract, pamphlet or the like, shall be deemed, to be a contribution of such amount
1) Where such publication is by or on behalf of a political party
2) Where such publication is not by or on behalf of, but for the advantage of a political party
vi) Every company shall disclose in its P&L a/c any amount or amounts contributed by it to any politic
giving particulars of the total amount contributed and the name of the party to which such amount ha

vii) If a company makes any contribution in contravention of the provisions of this section, the compa
contributed and Every officer of the company who is in default---> Puniishment-> Imprisonment -- up
contributed.

>>> The MCA vide General circular 19/2013 dated 10th dec 2013, issued a clarification on disclosure
restrictions regarding political contributions' of the CA, 2013.
> The circular says that, with the coming into force of the schem
Income Tax Act, 1961 read with Ministry of Finance Notification No.S.O.309(E) dated 31st January, 201
disclosure on part of a company of any amount or amounts contributed by it to any political parties U
> The Ministry hereby clarifie

to an 'Electoral Trust Company' for contributing to a political party or parties are not required to make
be sufficient, if the Accounts of the company disclose the amount released to an Electoral Trust Comp
or amounts directly to a political party or parties will be required to make the disclosures laid down in

(iii) Electoral trust companies will be required to disclose all amounts received by them from other c
disclose the amount or amounts contributed by them to a political party or parties as required by sec

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

i) The BOD's of any company or any person or authority excercing the powers of the BOD's of a comp
anything contained in sections 180, 181 & Sec 182 or any other provision of this Act or in the memora
the company, contribute such amount as it thinks fit to the National Defence Fund or any other Fund
defence.

ii) Every company shall disclose in its P & L a/c the total amount or amounts contributed by it to the F
the FY to which the amount relates.
Disclosure of interest by director [Sec 184 of the CA,2013]
Sec 184 is applicable on all directors of the company and all types of companies.
When to disclose:
Every director shall:
a) At the 1st meeting of the Board in which he participates as a director, and

b) Thereafter, at the 1st meeting of the Board in every FY, or

c) Whenever there is any change in the disclosures already made, then at the 1st Board meeting held
What to disclose:
Every director shall disclose his concern or interest in any company or companies or bodies corporate
include the shareholding, in such manner as may be prescribed.

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

>> Whenever any director of a company who is in any way, whether directly or indirectly, concerned
proposed contract or arrangement entered into or to be entered into shall disclose the nature of his c
which the contract or arrangement is discussed and shall not participate in such meeting. Following a

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

a) with a bdy corporate in which such director or such director in association with any other director,
corporate, or is a promoter, manager, CEO of that body corporate; or
b) with a firm or other entity in which, such director is a partner, owner or member, as the case may b

However, Where any director who is not so concerned or interested at the time of entering into such
concerned or interested after the contract or arrangement, he shall, if he becomes concerned or inter
into, disclose his concern or interest forthwith when he becomes concerned or interested or at the 1s
concerned or interested.

Consequences of non disclosure:

a) Voidable at the option of the company:
A contract or arrangement entered into by the company without disclosing or with participation by a
directly or indirectly, in the contract or arrangement, shall be voidable at the option of the company.
b) Penalty:
If a director of the company contravenes the provisions of sec 184(1) or Sec 184(2)---> Punishment-->
Lahk oe with both.
No restriction on directors:
Nothing in Sec 184 shall be taken to prejudice the operation of any rule of law restricting a director of
any contract or arrangement with the company.
Exception:
Sec 184 shall not apply to any contract or arrangement entered into or to be entered into between 2
company or 2 or more of them together holds or hold not more than 2% of the paid-up share capital i
Loan to directors, ect. [Sec 185 of the CA, 2013]
No company shall, directly or indirectly, advance any loan, including any loan represented by a book
whom the director is interested or give any guarantee or provide any security in connection with any
Exceptions:
The above restriction does not apply In the following circumstances:
a) the giving of any loan to a MD or WTD1) as part of the conditions of service extended by the company to all its employees; or
2) pursuant to any scheme approved by the members by a SR; or
b) a company which in in the ordinary cource of its business provides loans or gives guarantees or se
of such loans an interest is charged at a rate not less than the bank rate declared by the RBI.

The expression "to any other person in whom director is interested" meansa) any director of the lending company, or of a company which is its HC or any partner or relative of a
b) any firm in which any such director or relative is a partner;
c) any pvt company of which any such director is a director or member;
d) any body corporate at a GM of which not less than 25% of the total voting power may be excercise
such directors, together; or

e) any body corporate, the BOD's, MD or Manager, whereof is accustomed to act in accordance with t
director or directors, of the lending company.
Penalty for contravention:
If any loan is advanced or a guarantee is given or provided in contravention of the provisions of sec 1
a) On Company: Rs. 5 Lakh to Rs. 25 Lakhs.
b) On defaulting director and the other person to whom any loan is advanced or guarantee or security
taken by him or the other person:
Imprisonment- Upto 6 months, or
Fine- Rs. 5 Lakhs to Rs. 25 Lakhs, or
Both
Thus, penalty is leveiable only on the company or director or person to whom the loan is given or gua
persons who are knowingly a party to default has been kept outside the ambit of penalty clause of se
The Companies (Meetings of Board and its Powers) Rules, 2014 has exempted the following from the
the subsidiary company for its principle business activities.
1) Any loan made by HC to its wholly owned SC or any guarantee given or security provided by a HC
exempted from the requirements under this sec; and

2) Any guarantee given or security provided by a HC in respect of loan made by any bank or financial
requirements under this sec.
Loan and Investment by Company [Sec 186 of the CA, 2013]
This section is applicable on both public as well as private company.
According to sec 186(1), without prejudice to the provisions contained in this Act, a company shall un
not more than 2 layers of investment companies:
However, the provisions of sub-section (1) shall not affect,a) a company from acquiring any other company incorporated in a country outside India if such other
layers as per the laws of such country;

b) a SC from from having any investment subsidiary for the purposes of meeting the requirements un
under any law for the time being in force.
According to sec 186(2) of the CA, 2013, no company shall directly or indirectlya) give any loan to any person or other body corporate;
b) give any guarantee or provide security in connection with a loan to a any other body corporate or p
c) acquire by way of subscription, purchase or otherwise, the securities of any other body corporate,
exceeding i) 60% of its paid-up share capital, free reserves and securities premium a/c or ii) 100% of
whichever is more.
Prior approval for exceeding limit [Sec 186 (3)]:
Prior approval by means of a SR passed at a GM shall be necessary where the giving of any loan or gu
exceeds the limits specified above.

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

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

a) where the aggregate of the loans and investment so far made, the amount for which guarantee or
corporate along with the investment, loan, guarantee or security proposed to be made or given by th
investment or loan shall be made or guarantee shall be given or security shall be provided unless pre

Explanation- For the purpose of this rule, it is clarified that it would sufficient compliance if such SR is
this section.

b) A resolution passed at a GM in terms of Sec 186(3) to give any loan or guarantee or investment or
186(2) shall specify the total amount upto which the BOD's are authorises to give such loan or guaran
acquisition:

> Provided, that the company shall disclose to the members in the FS the full particulars in accordanc
Disclosure to members [Sec 186(4)]:
It is necessary for the company to disclose to the members in the FS the full particulars of:
a) Loan given,
b) investment made or guarantee given or security provided,
c) the purpose for which the loan or guarantee or security is proposed to be utilized by the recipient o
Unanimous resolution [Sec 18695)]:

Any investment shall be made or loan or guarantee or security given by the company only after when
of the Board with the consent of all the directors present at the meeting. The prior approval of the pu
term loan is subsisting shall also be obtained.

> However, prior approval of a PFI shall not be required whrere the aggregate of the loans and invest
or security so far provided to or in all other bodies corporate, along with the investments, loana, quar
not exceed the limit as specified in sec 186(2) and ther is no default in repayment of loan instalments
conditions of such loan to the PFI.

Further, no company, which is registered U/S 12 of the SEBI, 1992 and covered under such class or cl
inter-corporate loan or deposits exceeding the prescribed limit and such company shall furnish in its F

>> According to the companies (Meetings of the Board and its Powers) Rules, 2014, no company regi
under such class or classes of companies which may be notified by the CG in consultation with the SE
in excess of the limits specified under the regulations apllicable to such company, pursuant to which
SEBI.
Rate of interest on loan:
A loan under this sec shall not be given at a rate of interest lower than the prevailing yield of 1 year,
tenure of the loan. [Sec 186(7)]
No loan till default is subsisting:

No company which is in default in the repayment of any deposits accepted before or after the comme
thereon, shall give any loan or give any guarantee or provide any security or make an acquisition till

Maintenance of register: Every company giving loan or giving a guarantee or providing security or ma
register which shall contain such particulars and shall be maintained in such manner as may be presc
According to the Companies (Meetings of Board and its Powers) Rules, 2014:

a) Every company company giving loan or giving guarantee or providing security or making an acquis
incorporation, maintain a register in Form MBP 2 and enter therin seperately, the particulars of loans
acquisitions made as aforesaid.

b) The entries in the register shall be made chronologically in respect of each such transaction within
providing security or making acquisition.

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

d) The entries in the register (either manual or electronic) shall be authenticated by the CS of the com
Board for the purpose.
e) The register can be maintained either manually or in electronic mode.
f) The extracts from such register maintained may be furnished to any member of the company on pa
Articles of the company which shall not exceed 10 Rs. For each page.

>> The MCA vide General Circular No. 15/2014 dated 9th june, 2014 has clarified that registers main
1956, may continue as per requirements and the new format vide Form MBP 2 shall be used for partic
2014.

Register to be kept at Registered office:

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

>> According to the Companies (Meetings of Board and its powers) Rules, 2014, the expression "busi
regard to a NBFC registered with the RBI, "business of giving of any loan to a person or providing any
availed by any person in the ordinary cource of its business".
b) to any acuisition1) made bya NBFC registered under chapter IIIB of the RBI Act, 1934 and whose principal business is
> Provided that exemption to NBFC shall be in respect of its investment and lending activities;
2) made by a company whose principal business is the acquisition of securities;
3) of shares alloted in pursuance of sec 62(1)(a) [Sec 186(11)]
Power of CG to make Rules:
The CG may make rules for the purposes of this section. [Sec 186(12)]
Penalty:

If a company contravenes the provisions of section 186, the company shall be punishable--> Rs.2500
who is in default---> punishment-> Imprisionment -- upto 2 year and fine Rs.25000 to Rs. 100000. [S
For the purposes of sec 186,

a) the expression "investment company" means a company whose primcipal business is the acquisiti
b) the expression "infrastructure facilities" means the facilities specified in schedule VI.
Investments of company to be held in its own name [Sec 187 of the CA, 2013]
All investments made or held by a company in any property, security or other asset shall be made an
However, the company may hold any shares in its SC in the name of any nominee or nominees of the
the no.of members of the SC is not reduced below the statutory limit.

Nothing in this section shall be deemed to prevent a companya) from depositing with a bank, being the bankers of the company, shares or securities for the collect
b) from depositing with, or transferring to, or holding in the name of, the SBI or a scheduled bank, be
in order to facilitate the transfer of therof:

>> Provided that if within a period of 6 months from the date on which the shares or securities are tr
company in the name of, the SBI or a scheduled bank as aforesaid, no transfer of such shares or secu
practicable after the expiry of that period, have the shares or securities re-transferred to it from the S
again hold the shares or securities in its own name; or

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

Where in pursuance of clause (d) of sub-section (ii), any shares or securities in which investments hav
own name, the company shall maintain a register which shall contain such particulars as may be pres
by any member or debenture-holder of the company without any charge during business hrs s.t such
articles or in GM impose.

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

a) Every company shall, from the date of its registration, maintain a register in Form MBP3 and enter
investments in shares or other securities beneficially held by the company but which are not held in i
the reasons for not holding the investments in its own name and the relationship or contract under w
person.

b) The company shall also record whether such investments are held in a 3rd party's name for the tim
c) The register shall be maintained at the registered office of the company. The register shall be prese
of the CS of the company or if there is no CS, any director or any other officer authorised by the Board
d) The entries in the register shall be authenticated by the CS of the company or by any person autho
Related Party Transaction[Sec 188 of the CA, 2013]
Contracts with related parties which are covered U/S 188 [Sec 188(1)]:
Except with the consent of the BOD's given by a resolution at a meeting of the Board and s.t such con
enter into any contract or arrangement with a related party with r.ta) sale, purchase or supply of any goods or materials;
b) selling or otherwise disposing of, or buying, property of any kind;
c) leasing of property of any kind;
d) availing or rendering of any services;
e) appointment of any agent for purchase or sale of goods, materials, services or property;
f) such related part's appointment to any office or place of profit in the company, its SC or associate c
g) Underwriting the subscription of any securities or derivatives thereof, of the company:
However, no contract or arrangement, in the case of a company having a paid-up share capital of not
exceeding such sums, as may be prescribed, shall be entered into except with the prior approval of th

>>> According to the Companies (Meetings of Board and its Powers) Rules, 2014 except with the prio
not enter into a transaction or transactions, where the transaction or transactions to be entered into,1) as contracts or arrangements with r.t clauses (a) to ( e) of Sec 188(1), with criteria as mentioned b

A) sale, purchase or supply of any goods or materials, directly or through appointment of agent, exce
Crore, w.e.l, as mentioned in clause (a) and clause (e ) respectively of Sec 188(1);
B) selling or otherwise disposing of, or buying, property of any kind, directly or through appointment
or Rs.100 crore, w.el, as mentioned in clause (b) and clause ( e) respectively of Sec 188(1);

C) leasing of property of any kind exceeding 10% of the net worth of the company or 10% of the turn
mentioned in clause (c ) of Sec 188(1);
D) availing or rendering of any services, directly or through appointment of agent, exceeding 10% of
mentioned in clause (d) and clase ( e) respectively of Sec 188(1);

Explanation- It is hereby clarified that the limits specified in sub-clauses (i) to (iv) shall apply for trans
individually or taken together with the previous transactions during a FY.

2) is for appointment to any office or place of profit in the company, its SC or associate company at a
mentioned in clause (f) of Sec 188(1); or

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

>>> The MCA vide General Circular No. 30/2014 dated 17th July, 2014 has clarified the scope of seco
188(1) requires that no member of the company shall vote on a SR to approve the contract or arrang
member is a related party. it is clarified that 'related party' referred to in the second proviso has to be
arrangement for which the said SR is being passed. Thus, the term 'ralated party' in the abive contex
related party in the context of the contract or arrangement for which the said SR is being passed.

>>> According to the Companies (Meetings of Board and its Powers) Rules, 2014, where any director
related party, such director shall not be present at the meeting during discussions on the subject mat
arrangement.

Transaction to be at arm's lenth prices:

Nothing as provided above shall apply to any transactions entered into by the company in its ordinary
not on arm's length basis.
Explanationa) the expression "office or place of profit" means any office or place1) Where such office or place is held by a director, if the director holding it receives from the compan
the remuneration to which he is entitled as director, by way of salry, fee, commission, perquisites, an

2) Where such office or place is held by an individual other than a director or by any firm, pvt compan
private company or body corporate holding it receives from the company anything by way of remune
free accomodation, or otherwise;

b) the expession "arm's length transaction" means a transaction between 2 related parties that is con
conflict of interest.
Related party transaction to be mentioned in board's report [Sec 188(2)]:
Every contract or arrangement entered into under sub section (i) above, shall be referred to in the co
with the justification for entering into such contract or arrangement.
Related party transaction can be voidable at the option of the board [Sec 188(3)]:
A contract or arrangemet shall be viadable at the option os the Board:
a) Where any contract or arrangement is entered into by a director or any other employee, without ob
in the GM as required U/S 186(1), and

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

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

Sec 188(4) provides that without prejudice to anything contained in sec 188(3), it shall be open to the
employee who had enterd into such contract or arrangement in contravention of the provisions of this
result of such contract or arrangement.

Penalty for contravention[Sec 188(5)]:

Any director or any other employee of a company, who had entered into or authorised the contract or
sec shall,a) in case of listed company,--Punishment-- Imprisonment upto 1 yr or fine--Rs.25000 to Rs. 5 Lakhs,
b) in case of any other company,--> Punishment--- fine Rs.25000 to Rs.5 Lakhs.
Related Party- with reference to a company, means-

i) a director or his relative;

ii) a KMP or his relative;
iii) a firm, in which a director, Manager or his relative is a partner;
iv) a pvt company in which a director or manager or his relative is a member or director;
v) a public company in which a director or manager is a director and holds along with his relatives, m
vi) any body corporate whose BOD's, MD or Manager is accustomed to act in accordance with the adv
manager;
vii) any person on whose advice, directions or instructions a director or manager is accustomed to ac
>Provided that nothing in sub-clauses (ci) and (vii) shall apply to the advice, directions or instructions
viii) any company which isA) a holding, subsidiary or an associate company of such company; or
B) a subsidiary of a HC to which it is also a subsidiary;
ix) such other person as may be prescribed.
>> Rule 3 of the companies (specification of definitions details) Rules, 2014 provides that for the pur
Act, a director other than an independent director or KMP of the HC or his relative with reference to a

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

The MCA vide General Circular No. 30/2014 dated 17th July, 2014 has clarified that contracts entered
compliances U/S 297 of the CA, 1956, which already came into effect before the commencement of s
approval under the said sec 188 till the expiry of the original term of such contracts. Thus, if any mod
2014, the requirements U/S 188 will have to be complied with.

Register of contracts or arrangements in which directors are interested [Sec 189 of the CA
Maintenance of register of contracts or arrangements [Sec 189(1)]:
Sec 189 of the CA, 2013 makes it mandatory for all companies to keep one or more registers giving s
arrangements as required under:
a) Sec 184(2) [interested director] or
b) sec 188 [related party].
Registers to be signed [Sec 189(1)]:
The register shall be prepared in such manner and containing such particulars as may be prescribed a
updated register or registers shall be placed before the next meeting of the Board and signed by all t
Such register shall be prepared in such manner and contain such particulars as may be prescribed. [S

According to the Companies (Meetings of Board and its Powers) Rules, 2014, such company shall, from
Form MBP 2 and enter the particulars sof loans and guarantees given, securities provided and acuisit
made shronologically in respect of each such transaction within 7 days of making such loan or giving
Disclosure to be made by director or KMP [Sec 189(2)]:

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

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

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

>> According to the Companies (Meetings of Board and its Powers) Rules, 2014, such fee will be as p
maximum of Rs. 10 for each page.
Register to be produced at AGM [sec 189(4)]:
The register shall also be produced at the commencement of every AGM of the company and shall rem
the meeting to any person having the right to attend the meeting. Thus, even a proxy has the right to
Exceptions [Sec 189(5)]:
Nothing contained in sec 189(1) shall apply to any contract or arrangementa) for the sale, purchase or supply of any goods, materials or services if the value of such goods and
exceed Rs. 5 Lakh in the aggregate in any year; or
b) by a banking company for the collection of bills in the ordinary cource of its business.
Penalty [Sec 189(6)]:

Every director who fails to comply with the provisions of this sec and the rules made thereunder shall
Contract of employment with MD or WTD's [Sec 190 of the CA, 2013]
Every company shall keep at its registered office.a) Where a contract of service with a MD or WTD is in writing, a copy of the contract; or
b) Where such a contract is not in writing, a written memorandum setting out its terms.
The copies of the contract or the memorandum shall be open to inspection by any member of the com
Penalty for default:
The company shall be liable to a penalty of Rs.25000 and every officer of the company who is in defa
defalt.
The provisions of this sec shall not apply to a pvt company.
Payment to director for loss of office, etc., in connection with transfer of undertaking, pro
Sec 191 lays down elaborate provisions for regulating payment of compensation to directors for loss o
undertaking, property or shares.
These provisions apply to all companies.
According to sub-sec (1), no director of a company shall, in connection with
a) the transfer of the whole or any part of any undertaking or property of the company; or
b) the transfer to any person of all or any of the shares in a company being a transfer resulting from1) an offer made to the general body of shareholders.
2) an offer made by or on behalf of some other body corporate eith a view to a company becoming a
3) an offer made by or on behalf an individual with a view to his obtaining the right to exercise, or con
voting power at any GM of the company; or

4) any other offer which is conditional on acceptance to a given extent, receive any payment by way
for retirement from office, or in connection with such loss or retirement from such company or from th
the transferees of shares or from any other person, not being such company, unless perticulars as ma
proposed to be made by such transferee or person, including the amount thereof, have been disclose
has been approved by the company in GM.

>> However, nothing in sub sec (1) shall effect any payment made by a company to a MD or WTD or
for loss of office or as consideration for retirement from office or in connection with such loss or retire
[Sub-Sec (2)].

If the above payment is not approved for want of quorum either in ameeting or an adjorned meeting,
approved.

Where a director of acompany receives payment of any amount in contravention of sub-sec (1) or the
the meeting, the amount so received by the director shall be deemed to have been received by him i
If a director of the company contravenes the provisions of this sec---> Punishment--fine Rs. 25000 to
Nothing in this sec shall be taken to prejudice the operation of any law requiring disclosure to be mad
sec or such other like payments made to a director.
According to the Companies (Meetings of Board and its Poers) Rules, 2014,
1) No director of a company shall receive any payment by way of compensation in connection with an
the following particulars are disclosed to the members of the company and they pass a resolution at a
a) name of the director;
b) amount proposed to be paid;
c) event due to which compensation become payable;
d) date of Board meeting recommending such payment;

e) basis for the amount determined;

f) reason or justification for the payment;
g) manner of payment-whether payable in cash or otherwise and how;
h) sources of payment; and
i) any other relevant particulars as the Board may think fit.
2) Any payment made by a company by way of compensation for the loss of office or as a considerati
such loss or retirement, to a MD or WTD or Manager of the company shall not exceed the limit as set

3) No payment shall be made to the MD or WTD or Manager of the company by way of compensation
retirement from office (other than notice pay and statutary payments in accordance with the terms of
applicanle) or in connection with such loss or retirement if-

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

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

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

>> Explanation: Pending notification of Sec 247(1) of the Act and finalisation of qualifications and exp
debentures, securities ect. Will be conducted by an independent merchant banker who is registered w
a minimum experience of 10 yers.

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

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

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

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

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

Where OPC limited by shares or by guarantee enters into a contract with the sole member of the com
company shall, unless the contract is in writing, ensure that the terms of the contract or offer are con
meeting of the BOD's of the company held next after entering into contract. However, if contracts are
of its business then such ensurance shall not be necessary.

The company shall inform the Registrar about every such contract entered into by the company and r
within a period of 15 days of the date of approval by the BOD's.
Prohibition on forward dealings in securities of company by director or KMP [Sec 194 of th

No director of a company or any of its KMP shall buy in the company, or in its HC, SC or Associate com
a) aright to call for delivery or a right to make delivery at a specified price and within a specified time
amount of relevant debentures; or

b) a right, as he may elect, to call for delivery or to make delivery at a specified price and within a sp
specified amount of relevant debentures.
If a director or any KMP of the company contravenes the above provisions, such director or KMP shall
with fine --Rs. 1 Lakh to Rs.5 Lakh, or with both.

Where a director or other KMP acuires any securities in contravention, he shall along with fine and im
surrender the same to the company and the company shall nor register the securities so acuired in hi
dematerialised from, it shall inform the depository not to record such aquisition and such securities, i
names of the transferors.

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

a) an act of subscribing, buying, selling, dealinh or agreeing to subscribe, buy, sell or deal in any secu
company either as principal or agent if such director or KMP or any other officer of the company is rea
price sensitive information in respect of securities of company; or

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

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