Corporate & Allied Laws

Directors
Meaning of the Term Director: Sec. 2(13) Includes person occupying the position of a director by whatever name called The definition Is based on function, whether or not he is lawfully appointed The main criteria for a person to be a director is based on his office, functions performed and duties discharged Shadow Director Person in whose directions or instructions the board is accustomed to Act Board is not exercising its own discretion but blindly acts on instructions or directions ~ on a regular & repetitive basis Sec. 7 ~ if directions are on professional capacity ~ its not treated to be a director Only Individuals as directors No Body Corporate, APO can be appointed as directors (Sec. 253) Position of Director They are appointed by Shareholders, only they can remove the directors Have overall control & supervision BOD will exercise all powers other than those exercised in GM Powers of directors can be restricted by articles Directors should exercise reasonable care, skill & diligence in performance of duties Position of Shareholders They cannot interfere in Day-2-Day management They can remove directors, appoint new ones or alter articles to restrict the directors power for future transactions

 Powers of directors ~ are exercise collectively by BOD By passing a resolution in board meeting No Director can act on behalf of the company unless powers are delegated to him Prohibition on Assignment of Office ~ Sec.312 Assignment is Void ~ No director can assign his office Directors Identification # ~ Sec.253 & Sec. 266A 266G. It is mandatory to have DIN ~ Sec. 253 Application for DIN by whom ~ Sec.266A Individuals who want to become directors Application to be made to the CG Directorship can be done pending allotment of DIN Allotment of DIN ~ Sec.266B Within 1M of Application Prohibition to obtain >1DIN Intimate the DIN by director w/n 1M of receipt ~ to company. Sec.266D Intimation of DIN by Co. to Registrar w/n 1 week of receipt of intimation from directors Penalty ~ fine upto Rs.5000 + Rs.500 per day. Sec 266G Obligations ~ quote it in return, information or particulars. Sec 266F Legal Position of Directors Directors as Agents Cases of Personal liability of Directors Acts in his own name Contracts on behalf of Co w/o using Limited or Private Limited as part of name of company Enters in an agreement by signing in personal capacity

 Important points He should exercise reasonable skill, care & diligence Even if director exceeds his authority, the contract will be binding on Co. ~ Co. will claim damages for breach of implied warranty Directors as Trustees Directors have fiduciary position towards Co. Directors as Officers Officer in default ~ WTD / MD Directors as employees If directors are in service of Company Qualification Shares ~ Sec. 270 read with Sec. 272, 273 & 283 There is no statutory requirement It will be held only if required by articles Act will not impose a burden to hold Q shs Time limit ~ w/n 2 m of appointment T/L of 2 months is absolute Articles cannot require a person to hold Q shs either before appointment (or) period < 2m (void) Director should become registered holder w/n 2m Maximum share qualification ~ Rs. 5000 or nominal value of 1 share > Rs.5K Table A Reg 66 ~ holding of 1 sh. Who will hold Q shs. ~ Every Director Exceptions Nominee director appointed by CG u/s 408 Nominee director by Financial institution SSD Director specifically exempted by articles On Date of Raising of Q shares Already qualified ~ need not obtain addl. shs. Other Provisions Holding in Joint names is permitted Mortgaging is permitted

 Beneficial ownership is not required Any kind of shares (Equity/Preference) Bearer of share warrant ~ is not deemed to be holder of Q shares. Non Applicability of Sec.270 Sec. 270 is not applicable to private companies. Can a director continue without holding qualification shares Yes, he can continue for 2 months for a public company if articles require holding Q shares. In a private Company Immediately he should obtain Q.Shs. Mode of acquiring Q shares Original Allotment Transfer of shares by existing members Purchase in open market Disqualification of Directors Sec.274 Grounds applicable to every Company Person found to be unsound mind by court of competent jurisdiction Undischarged insolvent Applied to be adjudicated as insolvent Convicted by Court : Conditions Offence involving moral turpitude Sentenced to imprisonment for 6M or more 5 yrs is not elapsed from expiry of sentenced (Moral Turpitude: Contrary to justice, honesty & good morals ~ imply wickedness of character.) Person who has not paid calls on Shares Default continues for 6 months Disqualified by court order u/s 203 Due to fraud or misfeasance in relation to Co. Disqualification will remain for max. 5 yrs Grounds Applicable to Public Co ~ 274(1g) Director in a public co. will be disqualified for 5 yrs ~ if the public Co. Does not file Annual Return / Accts. ~ for continuous 3 F.Y commencing from 1.4.1999

Fails to repay deposits/pay interest/redeem debentures /pay dividends for 1 yr or more Disqualification u/s 274 (1g) ~ Conditions Both defaulting Co. & proposed appointment should be public companies Effect: The director cannot be Appointed in any public Company Reappointed in defaulting Company Reappointed in other public Co ~ in which he is already a director Default on A/c of Non-payment From due date till expiry of 1 yr Default on A/c of non-filing Directors on the last due date of filing AA/AR Period of Disqualification Disqualification continues for 5 yrs He will be disqualified even if default is made good No Vacation of Office Either in defaulting Company or any other Co. Escape from Disqualification To Escape ~ the director should resign before disqualification is effective Additional grounds can be provided for disqualification of director in private Co.

Number of Directors Sec.252 Minimum No. of directors Public Co ~ 3 :: Private Co ~ 2 Maximum No. is determined as per articles OR is required to Inc/Dec in # of directors This increase should be w/n limits of articles Inc. in # of directors : approval by CG Approval is not req. if inc. does not exceed the # fixed by Articles first registered (or) # of directors as increased does not exceed 12. N.A for Govt. Co, Licensed u/s 25, Pvt Co.

Appointment of First Directors S.254 If directors are named in articles If directors are not named in articles Case A: Articles prescribe manner of appointment of directors Case B: Articles does not prescribe the manner of appointment ~ All Subscriber to memorandum who is individuals shall be deemed as directors ~ until they are duly appointed @ GM u/s 255. Appointment of directors voted Individually General Rule S.263 Separate resolutions are required for each appointment / reappointment of directors Exception : Single resolution can be used If before passing such resolution, another resolution is passed w/o any vote cast against it Consequences of Default Appointments are void, directors act is valid till the defect is shown to the company S.263 is Not applicable to: Private Company Company licensed u/s 25 Appointments made by Co. other than in GM. Appointment of Nominee Directors Provisions for Appointment by CG u/s 408 (or) Financial institution Not required to retire by rotation Not counted in Total # of directors Not be considered to account for 2/3rd Even if there are no provision in the articles ~ they may be appointed Their appointment may result in increase in strength of board beyond max. # of directors They need not hold qualification shares They can be removed only by authority appointing them

 Provisions for other nominee directors All provisions of co. act 1956 is applicable Articles should provide that nominee directors be appointed Appointment should not result in contravention of Sec. 255. Vacation of Office S.283 Grounds applicable to every company Unsound mind of court of competent Jurisdiction Adjudged as insolvent Applied to be adjudicated as insolvent Convicted by Court Offence involving moral turpitude Sentenced to imprisonment for 6m or more Fails to pay calls on shares > 6m Disqualified by court order U/S 203 Fraud / Misfeasance in relation to Company In contravention to S.295 Acceptance by a director ~ a loan, guarantee, security for loan, from a public company In Contravention to S.299 If director fails to disclose his concern or interest in any contract or arrangement Removed from office S.284 Fails to obtain share qualification u/s 270 Person appointed as director by virtue of his holding any office/employment ~ ceases to hold. Person absents w/o obtaining leave of absent W.E.Longer From 3 consecutive BMs Or from all BMs for continuous period of 3m Additional grounds Private company may have additional grounds Vacation is automatic No opportunity of being heard Board need not pass a resolution Board has no power to waiver any ground

Restriction of # of Directorship Sections S.275, 277 & 278 Maximum Directorship S.275 Max : 15 Companies Director already holding 15 directorship acquires new directorship S.277(1) New appointment will not take effect unless within 15 days of such appointment director should vacate earlier directorship, if not vacated ~ the new appointment becomes void New appointments increasing directorship to more than 15 S.277(2) If a person is holding 14 or less directorship and due to new appointment, the total directorship is > 15 Within 15 days of new appointment, he should choose the directorships he wishes to retain, otherwise all new appointments will become void Directorship excluded u/s 275 & 277 Private company, unlimited Co, licensed u/s 25 Co., alternate director ( S.278) Rotational & Non-Rotational Directors Applicable section 255 Directors liable to retire by rotation Period of office is liable to be determined by retirement by rotation 2/3 rd of Total # of directors will be rotational directors fraction (rounded) Articles can provide that all directors will be rotational directors & retire at every AGM Rotational directors will be appointed in GM Directors not liable to retire by rotation They are called non-rotational directors They are appointed in GM (articles can provide otherwise) Term of office is determined in GM Total # of directors It means the total # for the time being appointed as directors & not the # of directors fixed by articles Non-applicability : Private Companies

Position of WTD / MD Any director (rotational / non) can be appointed as WTD / MD IF rotational director is appointed as MD / WTD & Terms of office is fixed, he shall retire as per provisions S.255 &256 even if the terms are not expired ~ He will continue as a WTD / MD if he is reappointed after retirement. Ascertainment of Directors retiring by rotation S.256 Number of directors retiring @ AGM At first & every AGM 1/3rd of rotational directors shall retire from office Who shall retire Directors longest in office will retire first If 2/more directors are appointed on same day, they will retire by agreement or by lots Vacancy in place of retiring director Either filled by reappointing retiring director or appointing someone else (meet S.257) Adjournment of AGM IF place of retiring director is not filled (or) meeting has not resolved not to fill the vacancy Then meeting will be adjourned to same day, next week, same time & place Automatic reappointment If in the adjourned meeting the retiring director is not reappointed and meeting has not resolved not to fill the vacancy then retiring director is deemed as reappointed No automatic reappointment Resolution for reappointment was put & lost Retiring director has given written notice of unwillingness of being reappointed He is disqualified for appointment A Resolution is required for his reappointment A Resolution to contravention to S.263 is passed AGM not held ~ Consequences Calling of AGM is duty of directors Directors cannot extend the tenure of office by not holding AGM

 Therefore, they cannot continue in office after the last day on which AGM should have been held Non-Applicability ~ Private Companies Appointment by different interest group First Directors - Table A Regulation 64 Appointment by Shareholders Filling on Retirement, appointing person other than retiring director, proportional representation, small shareholder director BOD - Additional director, Casual vacancy, Alternate Director CG empowered u/s 408 3rd Parties Nominee Directors General Powers of the Board S.291 Powers of the Board are co-extensive with that of the Company It is entitled to exercise all powers & acts that the Company is entitled to do It will not exercise any powers which is required to be exercised in GM Powers exercised will be subject to provisions of Co. Act, memorandum & Art. Restriction on Board Powers Shareholders impose restrictions & conditions No restriction will invalidate the acts done by board, before the restriction was in place Supremacy of Board Board is entrusted with management of Co. Shareholders cannot interfere in D2D mgmt Power of Mgmt is vested in BOD Exception : Shareholder will exercise when Board is acting malafide Board is incompetent to act There is Deadlock in the Board Mode of Exercising Powers of Board Passing resolution at BM Passing resolution by circulation Delegating powers to the director or committee, if authorized by articles

Appointment of Person other than Retiring Director S. 257 Object Applies to any person to become director (condition: he should not be a retiring dir.) It empowers for fresh appointment of dir. Increase in the strength of BOD Eligibility He should not be a retiring director Eligible to be appointed as director @ GM Condition of S.257 should be satisfied Person eligible to give notice Give notice of own candidature Propose a candidature of another person Conditions of Section 257 Notice to be given to the Company At least 14 Days before the GM To be given at the registered office of Co. Deposited with Rs.500 Refundable if candidate is selected Procedure adopted by Company Company informs members about the proposed director Mode of sending notice Serving Individual Notice (or) Advertising in 2 newspaper T/L for serving the notice 7 days before GM Retiring Director A Director retiring by rotation Non-Applicability - Private Company Compensation for Loss of Office S.318 Compensation paid for Loss of office Consideration for retirement from office In connection with loss / retirement Compensation to ~ MD / WTD / Director Amount of Compensation Lower of : unexpired tenure (or) 3 yrs Basis: Avg. remuneration, earned in 3 yrs immediately preceeding to date of cessation Prohibition of Compensation

 Reconstruction / Amalgamation Director resigns, but is appointed as MD / Manager in reconstructed Company Director resigns voluntarily Office of director is vacated u/s 203 / 283 Director has instigated / responsible for termination Company is wound up due to negligence of director Director is guilt of fraud or breach of trust or gross negligence in conduct of affairs Proportional Representation S.265 Express powers in articles PR is not compulsory, no req. in the Act No. of Directors atleast 2/3rd Periodicity once in 3 yrs Casual Vacancy Filled u/s 262 Voting Single transferable vote Cumulative voting No removal u/s 284 Not applicable to Private Company Removal of Director S. 284 Procedure for removal Member should give Special notice of removal, w/n 14D of GM to Company Copy of Notice to be given by Co-Director Director has right to make representation Representation by director is sent to Every member 7 days before GM If not sent it should be read at the GM GM is held, Director has a right to representation in the meeting. OR should be passed for his removal Another person can be appointed only if special notice of appointing him was given Following directors cannot be removed Appointed u/s 408 / 265, Nominee Director Private Co. Director holding office for life

 Other points Member cannot be compelled to disclose reason for proposing resolution for removal Articles cannot prohibit removal Special notice need not comply with S.188 Even a single member with 1 sh. Is eligible to give special notice u/s 284 Resignation by Directors Immediate Effect w/o acceptance If articles do not have a provision for acceptance Articles allow director to resign at anytime On Acceptance IF articles require acceptance Resignation states that it will take effect on acceptance Director tendered resignation is MD/WTD/Manager Withdrawal of Resignation Once done it cannot be withdrawn except To be effective it requires acceptance Withdrawal is made before acceptance Withdrawal is made with consent of Board / Share holders / articles of Company WTD /MD/Manager cannot resign on their own will, they will have to be accepted by company Verbal resignation Sufficient provided intension to resign is clear Not effective if articles require written resignation Verbal resignation: Exception It is effective if made in GM and accepted in GM, even if articles require resignation in writing Resignation to be submitted to board or shareholders No copies need to be submitted to registrar. Executive Director / Non-Executive ED are in employment of the company E.g.. WTD / MD

Appointment by Board Additional Directors - S. 260 No Precondition ~ Board at its discretion will appoint addl. Directors Power to appoint should be authorized by articles Term of office ~ hold office till next AGM Method of Appointment Pass a Resolution Table A reg. 72 will authorize Board No CG approval is required Filling of Casual Vacancy S.262 Applicable to only public Co. When office of director ends, other than the normal course, board will fill thro CV No express powers in articles is required CV director will hold office till unexpired term of director in whose place he is appointed Filled by passing resolution in BM There are no provisions in Table A No CG approval is required S.259 Alternate Director S. 313 Applicable to All Companies During the absence of original director for a period of 3m or more from State in which BMs are held ~ an alternate director will be appointed Board should be authorised by articles and resolution @ GM He will hold office until original director returns No provisions in Table A ~ S.259 N.A Other Provisions S. 260, 262 & 313 They will be non-rotational directors If they have to be appointed as regular director provision of S.257 to be fulfilled If articles require holding Qshs ~ they should obtain them. Other Points Additional Director Limit on # of additional directors not to exceed max. strength fixed by articles They are not included in Total # of directors S.255

 Casual Vacancy If a person appointed as a director ~ does not assume office, no casual vacancy arises No casual vacancy for the efflux of time Alternate Director Automatic reappointment of original director if terms expire before he returns Appointment of AD vests with Board He is not a representative or proxy of original dir. He has same rights, duties & liabilities, all provisions of companies act are applicable His interest is independent to interest of original director for provisions of S.297, 299 & 300 Powers Exercisable only at BM S.292 Resolution at the BM S.292(1) Calls on shares Authorizing buy-back u/s 77A(2)(b) Pass resolution @ BM Buy-back shall not exceed 10%(paid up equity capital + Free reserves) No further buy-back for next 365 days Issue debentures Borrowing money other than debentures Investing funds & making loans Delegation of Powers ~ Condition Resolution to delegate to be passed in BM Powers are delegated to committee, MD, Manager, principal officer Particulars to be specified Borrowing money ~ specify the total amt to be borrowed Invest funds ~ Total amount to be invested & nature of investments Power to make loans ~ Total amount, purpose, max. amount of loan for each purpose Note: Power to make intercorporate loans & investments u/s 372A cannot be delegated

Appointment of SSD Proviso to Sec. 252(1) read with Companies (Amendment of SSD) Rules, 2001 Applicability Public Company ~ Rs.5 Cr. ~ 1000 or more small share holders (Shareholder holding shares of Rs. 20,000 or less) Appointment Suo-motu by company Notice of Small Share holders 1/10th or more small shareholders Notice to be given 14 days before the meeting & should specifiy names, address & number of shares held and folio numbers Requirements and Conditions He should be a small shareholder for max 2 Co. He cannot be appointed as WTD/MD Tenure ~ Max of 3 yrs He can be reelected, he will be non-rotational dir. Disqualification ~ S.274, S.274(1g) is N.A Vacation u/s 284 Removal with OR u/s 283 Loans to Directors S.295 Scope Loan given to specified person or guarantee or security to specified person who gives loan to any other person Specified person Director, relative, partner, firm in which such director is a partner, private company, body corporate where 25% voting power is held by such director (or) body corporate where the board is accustomed to act. CG approval is required N.A ~ Private Company, Loan by holding to subsidiary S.295 will be applicable to all book debts Loan ~ is Advance of Money i.e. financial assistance Selling flat to director ~ only a credit sales and not a loan Salary advance to wife of MD ~ if it is bonafide it is allowable No Retrospective effect

 If private co makes a loan to specified person, then converts into a public company ~ Sec. 295 is not attracted No restriction on business advance Security deposit is not considered u/s 295 Board Sanction for Certain Contracts S.297 Applicability ~ all companies Conditions to be fulfilled Contract is between Co. & specified person Contract is a specified contract Specified Contracts Contract for sale, purchase or supply of goods, material or service Contract for underwriting the subscription of shares or debentures Legal requirement Paid up capital < 1 Cr. Board Consent by passing Resolution @ BM If the Paid up capital > 1Cr. Board Consent & CG consent to be obtained Exemptions u/s 297 If contract is for purchase / sale of goods in cash @ prevailing market price Contract is for pur / sale of goods, services, material ~ there is regular trade of business and contract value < Rs. 5,000 in aggregate Banking or Insurance company Non Applicability S. 297 Purchase / Sale of immovable property Employment contracts Contract to render professional services There is no retrospective effect Contravention IF paid up share capital < 1Cr. Contract is voidable at option of Board (i.e board should take action to resind the contract) IF paid up share capital > 1Cr. Contract is void ab-initio

Disclosure of Interest by Directors S. 299 Meaning If a director is concerned or interested in a contract or arrangement, shall disclose his interest. He should disclose the nature of his interest Even if he does not disclose the nature it will not result in vacation ~ DCA Circular Mode of Disclosure When question of entering into a contract is first considered by board ~ Disclosure @ BM When a question of entering into a contract is first considered by board Director is not interested, Disclosure to be made, when the director becomes subsequently so interested A general notice should be given by the director @ the BM Expiry of notice ~ at end of FY in which it is given Exemption Disclosure is not required if the interest is < 2% of paid up share capital of the other company Disclosure is not required if interest is already known Int. dir. ~ person who can influence the judgment Consequences ~ vacate office u/s 283 Interested Director not to participate or vote S.300 Prohibitions on interested director He cannot be counted for purpose of Quorum, cannot participate in discussion & vote His vote is considered to be void Validity of contracts Contract will not become void ~ Transaction will be voidable at the option of the board, but not at the option of the other party Voting by interested director may make resolution of board void if Excluding him from the quorum would result in no quorum (or) failure of resolution Non-Applicability

 Private Co, Public Co exempted by CG Contract to indemnify against loss suffered by director, Nominee Director Contract entered where director share < 2% of paid up share capital Appointment of relative as alternate dir. Appointment of MD/WTD/Manager S. 269 Compulsory Appointment Managerial person should be appointed, if its a public co with paid up capital of > 5Cr. Requirements CG approval is required (or) it should be in accordance with provisions of Sch. XIII Managerial Remuneration S. 198, 309, 387 and Sch. XIII Remuneration to directors who are not WTD / MD CG approval is required SR is required to approve commissions Quantum of remuneration If co has MD, WTD ~ Max: 1% of Net profits, otherwise Max: 3% of Net profits. There is no minimum remuneration No rem. during loss, other than by approval from CG Sitting Fees S. 309 Payable only to ordinary directors, if it is paid to WTD/MD ~ treated as Managerial remuneration It is paid only once for a BM & not at the adjourned meeting It can be paid for committee meetings and even if there is a loss incurred Max: 20K ~ if aggregate of paid up share capital + free res. > 10Cr (or) T.O > 50Cr Other cases it is 10K Remuneration as per S.198, 309 & 387 Overall managerial remuneration should not exceed 11% of net profits

 Depreciation should be charged to arrive at net profits Quantum : 5% of net profits if there is a WTD/MD ~ otherwise it is 10% Other points Remuneration in professional capacity Guarantee commission Remuneration exceeding Ceiling limit Director not to hold OPP S. 314 Meaning Office held by director, is a OPP if he obtains from company anything by way of remuneration ~ over & above which he is entitled to Non Applicability Relative of a director or firm Appointment by CG u/s 408 Appointment as director ~ WTD/MD/non-executive directors Rendering Professional Services MD, WTD, Manager Managing Director S.2(26) Only directors can become MD of company MD is a director entrusted with substantial powers of mgmt. which are not otherwise exercisable by director Powers of adminstrative acts are not deemed to be substantial powers He will exercise the powers subject to superintendence, control and board direction MD can be appointed / reappointed for maximum period of 5 yrs Additional directors can be appointed as MD Manager S. 2(24) Manager need not be a director, but director can be appointed as manager He manages substantially the whole of affairs of the company All conditions of MD are applicable here

 Note: MD can be in max: 2 companies, CG approval is required if this should exceed condition is that company should function as single unit & common manger Restriction on Board Powers S 293 Sale of undertaking Sale, dispose or lease whole / substantially whole of undertaking GM resolution ~ a listed company can also use postal ballot Time to repay debt due by a director Investment of compensation Compulsory acquisition of undertaking No consent of shareholder is required if the compensation is invested in trust securities u/s 20 Borrowing of Money Temporary loans from banks are not considered as borrowings Money borrowed should be greater than aggregate of (Paid-up capital + Free Res.) GM resolution should specify the max. amount of the borrowings Charitable Contribution Amount on welfare of employees is not charity contributions Upto 50k in a FY no approval of shareholders / 5% of Average NP ~ 3 Preceeding FYs.

The Competition Act, 2002 Definitions Section 2 Acquisition Acquiring shares or voting rights of enterprise (or) Control over mgmt or assets of enterprise Agreement Arrangement or understanding or action in concert ~ whether or not it is formal, writing or intended to be enforceable by legal proceeding Cartel Association of producers, sellers, distributors, traders ~ who by agreement will limit, control or attempt to control ~ production, distribution, sale of goods or services Relevant geographic market A market comprising area where the conditions of competition for demand or supply of goods & services ~ are distinctly homogenous & distinguished from conditions in neighboring areas Relevant product market A Market comprising those products and services that are regarded as interchangeable or substitutable by consumer By reasons of price, intended use or characteristics Consumer Any person who buys for consideration ~ which is paid or promised to pay or partly paid or partly promised or under a system of deferred payment It includes user of such goods other than the person who buys the goods for consideration who uses the goods with the approval of such person Whether the purchase is for resale / commercial purpose / personal use. Any person who hires or avails services for consideration ~ that is paid or promise to pay or partly paid or partly promised or under a system of deferred payment It includes any beneficiary of the service, other than the person who hires the service

provided the services are availed with approval of first-mentioned person Whether hiring or availing service is for commercial purpose / personal use. Enterprise It is a person or dept. of Govt. engaged in any activity of Production, storage, supply, distribution, of goods or providing service Business of acquiring, holding, underwriting, dealing in shares, debentures or securities of a body corporate Either directly or through one or more of its units or divisions or subsidiaries either located at the same place or different place Enterprise does not include any Govt. activity related to sovereign functions of the govt. like activities of atomic energy, currency, defense & space. Competition Commission of India It will be established by the CG Head office & other office will be decided by CG time to time Characteristics Body Corporate having perpetual succession and common seal Power to contract, sue in its own name, acquire, hold & dispose property Vacancy not to invalidate the proceedings of commission S.15 No Act or proceeding of commission shall invalidate merely by Reasons of vacancy in the commission Defect in constitution or appointment of chairperson Any irregularity in the procedure of the commission

 Meetings of the Commission S. 22 The commission shall meet at such times and places and observe such rules of procedures as provided by its regulations In the absence of the chairperson, the senior most member present at the meeting shall preside at the meeting Decisions in the meeting are generally taken by majority of members present and voting In the event of equality of votes, the chairperson or in his absence the member presiding shall have a casting (second) vote Quorum : 3 members Competition Advocacy S. 49 Formulating of Competition policy The CG / SG to formulate the competition policy or any other matter, will make reference to the commission for its opinion on possible effect of such policy on competition The commission w/n 60 days of such reference should give its opinion CG / SG will take further actions as it may deem fit The opinion of commission is not binding on CG / SG Duties of the Commission Promote Competition Advocacy Creating awareness about competition issues Imparting training about competition issues Accounts and Audit S.52 Accounts & records must be proper Annual Accounts will be prescribed by CG in consultation with CAG Audit will be done by CAG, T/L will be specified by CAG, Expenses of audit will be paid by commission, CAG has same rights, privileges & authority as audit of Govt accounts

 The orders of the commission that are being appealable to the Appellate Tribunal or Supreme Court, shall not be subject to audit. The Audited accounts should be forwarded annually to the CG and Laid before each house of parliament Composition of the Commission S. 8,9 & 10 One Chairperson Vacancy / Inability to function : The Senior most member shall act as chairperson until new chairperson assumes office S.10 Member Min 2 :: Max 6 Common provisions for chairperson & members They will be appointed by CG, recommended by Selection Committee, who will consists of Chair as Chief justice of india Members: Secretary of ministry of corporate affairs, law & justice 2 Experts: having special knowledge in trade, economics, business Members are Whole time members Tenure 5 yrs, Reappointment is possible Maximum Age 65 yrs Oath of Secrecy will be administered Qualification : shall be person of ability, integrity & standing with special knowledge & professional experience of not less than 15 yrs in international trade, commerce, business, economics, law, competition law & policy, which in opinion of CG may be useful for commission Competition Fund S. 51 It is administered by the Commission Credits to the fund Government Grants, Fees Received & interest accrued on them Utilization of Fund

 Payment of salaries, allowance, admn. exp for members & CP Payment for expenses to discharge functions and for carrying out objects for which fund is constituted Power to Exempt S. 54 CG will issue notification in OG to exempt enterprises From application of the act or from any provisions of the act Period of exemption is specified in the notification Exemption is given to: Classes of enterprises in public interest and interest of security of state Any practice or arrangement arising out of an obligation assumed by india ~ under a treaty, agreement or convention Any enterprise that performs sovereign functions on behalf of CG Issuing Directions S.55 CG can issue directions on questions of policy only They are binding on the commission and should be complied by them Appellate Tribunal S. 2(ba) and 53A It means the Competition Appellate Tribunal established u/s 53A(1) Establishment CG by notification will Establish CAT AT shall hear & dispose of appeals against any directions issued by commission under this act They shall adjudicate claim for compensation that may arise from findings of Commission and pass orders for recovery of compensation Headquarter of AT will be decided by CG by notification

 Resignation, Removal & Suspension of Chair person Section 11 Chairman by notice in writing addressed to CG may resign his office Effect: Unless he is permitted by CG to relinquish his office sooner, he will continue to hold until expiry of 3 months from the date of receipt of notice or a person duly appointed as successor enters his office or expiry of his terms W.E Earlier Removal by CG on various grounds like If he is adjudged as insolvent If he is engaged in any paid employment elsewhere If he is convicted of an offence involving moral turpitude He has abused his position prejudicial to public interest If he is physically or mentally incapable Note: Prior permission of supreme court is required Appointment of Director General ~ S.16 DG ~ Appointment by CG by notification Functions of DG Conducting inquiry into contravention of the Act Performing any other functions as may be provided Other Officers ~ appointed by CG Addl, Joint, Deputy or Assistant DG They will exercise their powers and discharge their functions, subject to general control, supervision and direction of DG Salary is as per Rules of CG Qualification: Persons of integrity & outstanding ability, experience in investigation, knowledge in accts, business, law

 Power of the Commission to Regulate its own procedures S. 36 In discharge of its functions ~ the commission will be guided by principles of natural justice Powers of the Commission ~ powers of civil court Summoning & enforcing attendance of person & examining his oath. Require discovery & production of documents Receiving evidence on affidavits Issuing commissions for examination of witness or documents Requisitioning any public record or document Power to issue directions To produce books, accounts, other documents Furnish any information relating to trade in possession. Power to conduct an inquiry Commission is of the opinion that Agreement is anti-competitive agreement ~ U/S 3 Enterprise is abusing its dominant position ~ U/S 4 Enterprise is entered into a combination in contravention ~ U/S 6 AND such agreement / abuse / combination has caused an appreciable adverse effect on competition in relevant market AND it is necessary to protect, without delay, the interest of consumers and other market participants Reasonable oral hearing shall be given to the parties

 Abuse of Dominant position If an enterprise or group Directly or indirectly imposes unfair or discriminatory condition in purchase or sale of goods Limits or restricts productions of goods or provision of services Indulges of practices of denial of market access Make conclusions of contract subject to acceptance of parties of supplementary obligations ~ who have no connection on subject of contract Uses dominant position in one relevant market to enter into another market Dominant position means Position of Strength, enjoyed by one enterprise in the relevant market that enables to operate independently of competitive forces or affects competitors Inquiry into certain agreements and dominant position of enterprise S. 19 Commission will make an enquiry to determine whether provisions of S.3 / S.4 have been contravened It will make an enquiry on Own motion Receipt of information by person, consumer or consumer association or trade association Reference by CG / SG The Commission when determining an appreciable adverse effect on competition u/s 3 Creating barriers to new entrants Driving existing competition out of market Accrual of benefits to consumers Conditions that will determine if an enterprise has a dominant position Market share, size & resource of an enterprise Economic power, vertical integration, dependence on consumers Monopoly acquired by result of statute or virtue of being a government company

 Countervailing buyer power Determining the relevant market Relevant Geographical market ~ regulate trade barriers, local specification requirements, transport cost, consumer preference Relevant Product market ~ physical characteristics or end-use of goods, consumer preference, price of goods, existence of specialized producers Orders passed by Commission after inquiry into agreements or abuse of dominant position S.27 Direct any enterprise to discontinue Direct enterprise to reenter such agreement It will impose penalty It may direct that the agreements shall stand modified It may direct the enterprise to abide with such orders It will order payment of cost Penalty: Not to exceed ~ 10% of Avg. TO for last 3 preceding FY. If any anti-competitive agreement is entered by cartel, it will impose penalty on the producer, seller, distributor 3% of profits or 10% of its TO w.e.higher Combination Sec.5 Any acquisition of control, shares, voting rights or assets of one or more enterprise by one or more person Where the parties jointly hold value of > 1000 cr. Or TO > 3K cr. In india or outside ~ value of property of 500M $ (including 500Cr. In rupees) or TO > 1500M$ (incl. 500Cr of rupees) After acquisition the value is > 4000 Cr. Or TO > 12000Cr In india / outside value > 2billion $ or TO > 6billion $ Any acquisition of control will become a combination if the person directly or indirectly controls over another

enterprise engaged in production, distribution of identical or substitutable goods Mergers & Amalgamation will be a combination if the enterprise after merger has the set criteria The Foreign Exchange Management Act, 1999 Definitions Sec. 2 Foreign Currency (S.2m) Any currency other than indian currency Foreign Exchange (S.2n) Foreign Exchange means foreign currency Includes Deposits, credits & balances payable in foreign currency Draft, Travelers' cheque, LOC, BOE Expressed & drawn in indian currency ~ payable in Foreign currency Drawn outside india, but payable in indian currency Transfer (S. 2ze) It includes sale, purchase, exchange, mortgage, pledge, gift, loan or any other form of transfer of right, title, possession or lien Foreign security (S. 2o) Any security denominated or expressed in foreign currency Includes securities expressed in foreign currency even if : They are redeemed in indian currency Any form of return is payable in indian currency PRI (S. 2v) ~ Person resident in India PRI for more than 182 days during preceeding FY ~ does not include Person gone out of india or who stays outside

to take up employment outside india carrying business or vocation outside india any other purpose which indicate his intention to stay outside india for uncertain period A person who comes to india or who stays in india otherwise than To take up employment in india Carry on a business or vocation in india For other purposes, that would indicate his intention to stay in india for an uncertain period Any person or Body corporate ~ registered or incorporated in india Office, Branch / Agency in india owned / controlled by PROI Office, Branch / Agency o/s india owned / controlled by PRI Meaning of Terms: Reside in india ~ does not mean compulsive stay, it implies some kind of permanency Intention to stay outside india for uncertain period ~ if the period of stay is not certain, it cannot mean that his intention to stay is for a uncertain period Citizenship is not relevant to determine residential status

Authorised Person S. 10 to 12 Definition Section 2 Authorised person means authorised dealer, money changer, off-shore banking unit, any other person authorized u/s 10 to deal in foreign exchange or foreign securities Procedure Sec. 10 Authorised person should make application to RBI Based on the application RBI may authorize such person On authorization he will become AP

 Authorization should be in writing & subject to conditions Revocation of Authorization S.10 Revocation in public interest Revocation on grounds of contravention of act RBI is satisfied that AP did not comply with rules, act, regulation, notification, direction of order ~ Reasonable opportunity will be given Duties of AP S. 10 To comply with general / special directions from RBI He should not enter into unlawful transactions He should obtain prior permission of RBI to enter into transaction that is not in conformity with the terms To ensure compliance with Act AP should require every person to make a declaration & give required info. This declaration AP should be satisfied that they do not contravene the provisions of the act. AP should refuse in writing to undertake the transaction if Person refuses to make the declaration He makes unsatisfactory compliance AP should report to RBI if contravention is contemplated Power of RBI ~ S. 11 Power to issue directions to secure compliance of provisions Directions may requrie the AP to act or desist to act RBI may call for information to secure compliance with prov. Levy penalty if AP contravenes directions or fails to file a return with RBI Penalty should not be > 10,000 ~ continuing default penalty upto 2000

 Opportunity of being heard can be given to AP Power to inspect AP ~ S. 12 RBI may authorize an officer to inspect Purpose of inspection Obtain information with AP has failed to furnish, verify correctness of statement, securing compliance with provisions Duties of AP ~ to produce books, accounts, documents, furnish statement, provide all assistance to inspection officer Duties of Acquirer of Foreign exchange S. 12 He should use the foreign exchange for purpose mentioned in declaration Not to use for any unauthorized purpose Surrender to AP within specified time if foreign exchange could not be used for specified purpose. Current Account Transaction Sec. 2(j) & 5 Definition of Current A/c transactions S. 2(j) It means any transaction other than capital a/c transaction It includes : Payments in connection to foreign trade, current business services, ST banking & credit facilities, interest on loans & net income from investments Remittances for living expenses for parents, spouse & children residing abroad, foreign travel, education & medical care of parents, spouse & children. Provisions applicable to Current Account transactions They are freely permitted CG can impose reasonable prohibitions & restrictions Rules on Current Account Transactions Transactions for which drawal of Foreign exchange is prohibited ~ Rule 3 read with Sch. I

 Payment to travel to Nepal & Bhutan Remittances from income from lottery winnings, racing / riding, purchase of lottery tickets, banned magazines, football pools, sweepstakes etc. Payment of export commission under rupee state credit route, equity investments in JV Remittances of dividend to company to which requirements of dividend balancing is applicable Payment relating to Call Back services of telephones Remittance of interest income on funds held in Non-Resident Special Rupee (Account) Scheme Transactions permissible with approval of CG Remittance of freight of vessel chartered by PSU Multi-modal transport operators making remittance to agent Remittance of container detection charges exceeding prescribed rate by DG of shipping Adv. In a foreign print media > $10,000 exception : tourism, foreign investment, international bidding Payment of imports through ocean transport Remittance of price money or sponsorship of sports activity > $1 L except: National / international / state level sports bodies Remittances of hiring channels of transponders by TV channels Cultural tours Remittances under Technical collaboration agreements of royalty > 5% on local sales, 8% on exports and US $ 2million (lump-sale) Remittances for membership of P&IC club Transactions permissible with RBI approval Business travel, attending conference, maintenance expenses of patient going abroad, accompanying attendant Limit $25K

 Medical treatment abroad Estimate from doctor in india / abroad Private visits to a country - $10 K per F.Y Gift / Donation p.a - $5000 per F.Y Person going abroad for employment - $ 1L Remittance for consultancy services for infra. Project - $10M per project Higher education abroad 1L per academic yr Remittance for trade mark or franchise no limit Commissions to agents for sale of residential flats abroad 5% of inward remittance or $25000 (W.E. Higher) Repatriation Repatriate to India means ~ Sec. 2(y) Bringing into india realized foreign exchange and selling the foreign exchange to AP in exchange of rupees (or) holding realized amount in account with AP It includes realized amount for discharge of debt or liability Realization & Repatriation ~ S.8 If any amount of foreign exchange is due to PRI, he should take steps to realize & repatriate ~ the whole money, within period specified in manner specified by RBI Duties of PRI PRI should not refrain in doing anything which results in Cessation / reduction of proceeds (part/full) receivable by him, delaying receipt, receipt of export proceed otherwise than in specified manner General Permission U/S 3 General permission u/s 3(a) Any person can buy from post office any foreign exchange in form of postal orders General permission u/s 3(b)

 PRI will make payment in indian Rs. On behalf of PROI Hospitality expenses of a person visiting in india Payment for purchase of gold / silver ~ payment made by crossed cheque or draft Payment to a guarantor by PRI (principal debtor) Payment to non-WTD (PROI) in the form of sitting fees, commission, remuneration, travel expenses General permission u/s 3 PROI during his stay in india ~ paying in Indian Rs. PROI makes payment in foreign exchange PROI is making payment in foreign currency notes PROI paying by postal orders These provisions do not apply to transactions Entered in indian Rs. With citizen of india, Nepal or Bhutan Capital Account Transaction Sec. 6 CAT means which alters Assets or liabilities outside india of PRI or in india of a PROI It includes the following Transfer or issue of foreign security by PRI, PROI, branch office or agency in india of PROI Borrowing or lending in foreign currency Deposits between PRI & PROI Transfer of immovable property outside india Export, import or holding of currency Control over CAT ~ S.6 RBI may prohibit / restrict / regulate CAT by making regulations RBI may specify and class of transactions that are permissible or limit upto which the foreign exchange is admissable CAT that cannot be prohibited

 Amortization of loans or depreciation on direct investments Assets acquired o/s india when a person was PROI Assets acquired in india when a person was PRI Assets acquired by inheritance Regulations of CAT Permissible for PRI ~ Reg. 3 read with Sch. I Investment in foreign securities, foreign currency loans, trf. of immovable property, loans & OD (borrowing & lending), insurance policy by PRI Permissible for PROI Investment in india, Guarantee, deposits, acquisition of immovable property, remittance of capital assets o/s india Prohibited capital account transactions Chit funds, nidhi company, agricultural & plantation, real estate business that shall not include Development of townships, construction of residential premises, construction of bridges Trading in Transferable Development Rights (TDRs) Land is acquired by CG/SG without monetary compensation, the owner of land is given TDRs which is transferrable. Liberalized Remittance Scheme Eligibility To all resident individuals ~ not applicable to corporate, firms, HUF, trusts The purpose is to make remittance upto $2L per FY for capital or current a/c including gift & donations Prohibition It should be specifically prohibited under the act Remittances made to Bhutan, Nepal, Mauritius or Pakistan Countries identified by (FATF) (Financial Action Task Force) as non-cooperative countries. Countries having significant risk of committing acts of terrorism

 Restriction on Dealing in Foreign Exchange ~ S.3 No person shall deal in or transfer foreign exchange to another person who is not an authorised person ~ S.3(a) No person shall receive otherwise through an AP any payment order on behalf of PROI ~ S. 3 No person shall enter into financial transactions to trf right to acquire, asset outside india ~ S.3(d) Relaxation can be made by making a provision or general permission from RBI Export of Goods & Services ~ S. 7 Export means Taking out of india to place outside india any goods or providing any services from india to person outside india RBIs right over exporter & Export proceeds Declaration by exporter of goods Declaring true & correct particulars, full export value of goods ~ if this is not ascertainable then expected export value of goods exported Declaration by exporter of services Furnishing information to RBI To ensure that full export proceeds are realized by exporter Issue of directions by RBI To comply with requirements Procedure for Adjudication AA purpose of appointment and duties CG will appoint AA by making notification AA is appointed to adjudicate & impose penalities Reasonable opportunity will be given to the accused & w/n 1 yr. AA will dispose the compliant Cognizance of offence S.16 Only on compliant in writing made by officer authorised by CG Issue SCN Given an opportunity to accused ~ giving 10 days reasonable time

 Procedure to hold inquiry AA will consider the reply by accused AA shall fix a date for the hearing Procedure for Hearing Accused will either appear in person or take legal assistance AA shall explain the alleged contravention Accused will be given opportunity to produce documents AA will summon & enforce attendence of any person & hearing can be postpone from time to time AA will impose the penalty accordingly Imprisonment for non-payment of penalty Penalty to be paid within 90 days otherwise imprisonment upto 3 yrs if penalty exceeds Rs.1cr. Otherwise 6months Exemption from Realization & Repatriation ~ S.9 Possessing foreign exchange or coins as specified by RBI Foreign exchange acquired by employment, service, honorarium, business, trade, vocation, gift, inheritance Possession & Retention of Foreign Currency Authorised Person The AP can possess foreign currency notes or coins without limit Any other person PRI can possess coins without any limit PRI can possess & retain foreign currency notes, bank notes and foreign currency travelers' check upto US$2000 provided He went outside india and acquired foreign exchange by service, honorarium, gift or travel abroad PROI acquired foreign exchange while on visit to India.

SCRA Securities Contract (Reg.) Act, 1956 Objects of the Act To provide for regulation of stock exchanges Regulation of transaction in securities Prevent undesirable speculation & transaction in sec. Regulate buying & selling of securities outside limits of stock exchange To provide ancillary matters Extent Applies to whole of india Non-applicability Govt, RBI, local authority, corporation, exempted by CG Definitions Spot Delivery Contract S.2(i) Any contract that provides for Actual delivery of securities & payment of price for securities Either on the day of the contract or next day The actual period taken in post shall be reduced if Parties do not reside in the same town Securities are dispatched or money is remitted through post Contract in which Securities are transferred by depository From one beneficiary account of owner to another Listing of Securities S.21, 22A & 22F Every Company will make an application to SE for listing securities S.21 Is SE refuses to grant permission, then it should give reasons Companies right to appeal S.22A Appeal to be filed with SAT, filed within 15 days from Receipt of order of refusal of SE or expiry of 10 weeks from closing of subscription list

 Extension: SAT can condone the delay for sufficient cause, extension shall not exceed 1 month Procedure adopted by SAT (S.22B) Issue SCN to SE SAT will dispose the appeal within 6m SAT will set aside or confirm the order and copies will be sent to the parties of appeal SE will comply with order of SAT Any aggrieved order of SAT, an appeal can be filed to supreme court Corporatisation, Demutalisation and Scheme S.2 Corporatisation ~ Sec. 2(aa) It means succession of RSE, being BOI or society, by another SE being company Incorporated for purpose of assisting, regulating or controlling business of buying, selling or dealing in securities carried on by individuals or society Demutalisation ~ Sec. 2(ab) Segregation of ownership & Management from trading rights of members of RSE, as per scheme approved by SEBI Scheme ~ Sec.2(ga) The Scheme of Corporatisation & Demutalisation will provide for Issue of shares for lawful consideration & provision of trading rights in lieu of membership cards Restriction on voting rights Transfer of property, business, assets, rights, liabilities, contracts of RSE Transfer of employee of RSE to another RSE The Corporatisation & Demutalisation of RSE is compulsory to be done before the appointed date, specified by SEBI by notification in Official Gazette

 Procedure for Corporatisation & Demutalisation ~ S.4B Every RSE shall submit a scheme for Corporatisation & Demutalisation to SEBI for approval Approval by SEBI Before approving it will make an enquiry and obtain further information from RSE in this behalf, it will grant the approval only if it is in interest of trade & public interest SEBI while approving the scheme impose restrictions Voting rights of shareholders who are stock brokers Right of shareholder or stockbroker to appoint representatives on governing board The maximum number of representatives in the governing board should not exceed 1/4th of total strength of governing board Conditions for approval ~ RSE should ensure that at least 51% of equity share capital is held by public other than shareholders having trading rights It should comply with these provisions within 12 months of order of SEBI, further extension of another 12 months can be granted by SEBI Publication of scheme By SEBI in official Gazette and publication by RSE, in 2 daily newspapers circulating in india as specified by SEBI Effect of Publication Scheme will become effective & binding on all persons & authorities (members, creditors, depositors & employees of RSE on any contract, right, power, obligation or liability in connection with RSE) Rejection of Scheme SEBI will reject if it is satisfied that it would not be in interest of trade and public interest to do so, order of rejection will be published in OG A reasonable opportunity of being heard will be given to RSE

 Clearing Corporation ~ S. 8A Clearing Corporation means A company incorporated under Companies Act 1956, for purpose Periodical settlement of contracts and differences Delivery and payment for securities Any other matter incidental or connected with above Benefits RSE will transfer all duties & functions of clearing house to Clearing corporation, but with prior approval of SEBI Clearing Corporation should make bye-laws Submit to SEBI for approval The approval will be granted only if it is in interest of trade & public interest Delisting of Securities ~ S.21A RSE can delist the securities of company on grounds prescribed under the Act RSE shall record the reasons for delisting & give reasonable opportunity for company to being heard Appeal for the Company or aggrieved investor Appeal to be filed with SAT within 15 days of decision of RSE for delisting Extension: SAT can condoe the delay for sufficient cause ~ period of extension shall not exceed 1 month Procedure adopted by SAT Issue of SCN ~ SAT will give reasonable opportunity of being heard Disposal of appeal within 6 months Order of SAT ~ set aside confirm vary Copies of SAT order to be sent to the parties SE is duty bound to comply with SAT order Special provisions for public issue & Listing of sec. Sec.17A Applies to securities in Sec.2(h)(ie) Any certificate, issued to an investor by any issuer being a special purpose distinct entity

that possess any debt or receivable, including mortgage debt, and acknowledging beneficial interest of such investor in such debt, including mortgage debt, as the case may be Conditions for public issue The eligibility criteria should be fulfilled by issuer to issue securities u/s 2(h)(ie) Before issuing the offer document to the public, the issuer should make an application to RSE for permission for such certificates If the permission for listing is not granted, the issuer should repay all moneys pay interest of 15% p.a if all money is not paid within 8 days All provisions of listing of securities applicable to public company will apply here. Recognition of a Stock Exchange Sec.3 & 4 Application for recognition Sec. 3 Application should be made by the SE to CG As per provisions of act & SCR rules, 1957, application to be made with the bye-laws Rules will have provisions relating to constitution & Management of SE It will specify the governing body, powers of office bearers, admission, qualification, suspension of members, firm being admitted to membership Bye-laws will have ~ Regulations & control of contracts Enquiry by CG CG may make an enquiry & call for additional information CG will give order of satisfaction, they will provide conditions of recognition Qualification of members Manner in which contracts are entered into Maintenance of Accounts by CA Appointment of representatives by CG

 Order will be published in official gazette Refusal to grant recognition ~ Sec. 4 CG will give opportunity of being heard Reason for refusal will be communicated in writing Additional Trading Floor It means a trading ring or trading facility offered by RSE Outside the area of operation of RSE to enable investors to buy & sell securities through such trading floor Prior approval of SEBI is required Venture Capital It is money provided by professionals who invest alongside management, in young, rapidly growing companies that have the potential to develop into economic power house. They are private partnership closely held They are also called as risk capital Stages of Venture capital assistance Seed money ~ development stage Start up capital ~ initial sales in volume Second & thrid stage assistance Follow-on financing ~ expansion programmes Angel funding VCs who invest in green shoe projects launched by unknown promoters. Consumer Finance Consumer credit Involves extending short term or medium term loans to finance purchase of commodities for personal consumption. Refinance is also covered Credit Evaluation Capacity, Capital & Character ~ first 2 point to the ability of the borrower to repay, the 3rd focuses on willingness to repay The past track record is verified, present & future earnings The worth of the individual with existing level of debts

 Powers of CG and SEBI Periodical returns relating to affairs should be furnished to SEBI Annual Report should be furnished to the CG All information & explanation that SEBI may require should be furnished by the Recognized stock exchange Information could be regarding Stock ex. Or member Every RSE should maintain BOA as prescribed by CG BOA are subject to inspection & to be preserved for 5 yrs Any inquiry can be made by SEBI on the : Affairs of Governing Body or member It can direct the RSE (governing body) to make an enquiry on affairs of the member After the inquiry SEBI can direct the Governing body to take disciplinary action on the member (fine, expulsion of member, suspension, penalty) Governing body should give effect to the directions. CG can suspend the business of a RSE It should form an opinion of an emergency Make a notification in OG with reason for suspension Suspension will be subject to conditions and it shall be not more than 7 days Period of suspension can be extended by a fresh notification in OG Contacts in derivatives are legal & valid IT should be traded in RSE, settled in a clearing house & as per the rules & bye laws. Title to Dividends Right of Registered holder : He shall have the right to receive & retain the dividend declared even if he has transferred the security Right of transferee : The registered holder shall have no right to receive dividend if the transferee has lodged documents for transfer w/n 15 days of the date on which dividend is due

 Extension of time Death Period taken by legal representative to claim dividend Loss of transfer deed period taken for replacement of deed Delay in post Actual period of delay If the company refuses to register the transfer deed in name of transferee, the transferee right against the transferor shall not be affected There will no liability of the company, if the dividend is paid to the registered holder These provisions will also be applicable to mutual fund

Board Meeting One Vote for every director at the Board Meeting Number of shares held by director is immaterial Director need not be a share holder except where Q shs are required to be held Board resolution is required by majority No. of votes cast in favor > votes cast against If there is equality of votes, the resolution will be lost unless chairman uses his casting vote Unanimous resolution for sec. 316, 386 & 372A No director can appoint a proxy, he should be present to vote in BM. Who has the authority to Call BM Any director with a requisition Based on a requisition by director, the manager or secretary can summon a BM. Similarly a director can also summon a BM Notice of BM shall be sent under authority of Co. Secretary does not have authority to call for a BM, but an improper notice given by secretary (e.g without authority) can be ratified by Board

 Notice of Board Meeting Notice should be in writing. Oral notice is not valid. It can be through post or telegram, fax or email It should be a definite notice, contingent notice is not valid No form & length of notice is specified, however it should be sent in advance 7 days is sufficient Agenda for notice is not prescribed by the act, but it is a good secretarial practice to have it with the notice. Only for transactions u/s 316(2) & 386(2) the purpose of the notice should be specified Notice should be given to the director In India Served to him anywhere in india O/s India Usual address in India Alternate Director Served to original & alternate Interested Director Yes even if he is precluded from voting notice should be served A director who waived his right to receive notice Yes, it is the duty of the company to send notice If a director mostly stays aboard it should be sent to his foreign address If notice is served in india, this will not serve and purpose and will show lack of probity & fair play on part of Company ( Kamal Kumar Dutta V. Ruby General Hos.) Notice should be sent as per the articles Notice of BM is not required Situations If Board passes a resolution in a BM fixing time, day & place of all future BMs & a copy is sent to every director. IF the company makes a provision in the articles fixing time, day & place of future BM a copy of the articles need not be sent to the directors ( Arunachalam Chettiar Firm V. Kaleeswarar mills ltd) A notice will become invalid if it is not accompanied by an agenda if it is proved that it was so given to secure absence of some directors, who have objected to the resolution passed in such BM i.e. if the objective is MALAFIDE.

 What are the consequences of omission to give notice Even if notice is not given to a single director, Resolution in BM will be void It is immaterial whether the omission to give notice was accidental or deliberate BM shall be valid if, if the director to whom notice is not given attends the BM & the absentee director does not complain for want of notice. Quorum of BM Quorum for a Private Company Quorum shall be higher of 1/3rd of Total Strength or 2 Directors ( Fraction rounded as 1) Quorum for a Public Company First Test : Higher of - 1/3rd of Total Strength or 2 directors Second Test : Applicability If the first test fails & number of interested directors are >= 2/3rd of Total strength The Quorum will be number of remaining disinterested directors not less than 2 Total Strength Board Strength as reduced by Vacant places of directors Interested Director U/s 300 If a director is interested in a contract or agreement, then he cannot be counted for the quorum or discussion or vote. Every director should be included in the Quorum However, if alternate director is appointed and both original + alternate are present, both cannot be counted But alternate director alone present can be counted in quorum Articles can only increase the quorum, but cannot reduced the quorum Quorum is required thourghout the BM, at the time of transacting each & every business. Just presence at the commencement is not enough

 If BM is held without Quorum - Void. All resolutions at the BM are void. They are incapable of subsequent ratification. (Firesotne Tyres & Rubber Co V. Synthetic & chemicals ltd) Minutes of the BM S. 193 to 195 The minutes should be prepared w/n 30 days of conclusion of BM The minutes should be signed w/n a reasonable time Each page should be initiated / signed Last page should be dated & signed Who should sign Chairman of the BM or succeeding BM Discretionary powers of Chairman The Chairman has discretionary powers to include or non-include the matter in the minutes Nothing can be included if he is of the opinion that Irrelevant or immaterial Defamatory of any person Detrimental to interest of the company Minutes shall contain a fair & correct summary of the proceedings of the meeting What is the method to prepare a minute book Minutes should not be attached to minute book by pasting or otherwise Minutes can be maintained in loose leaf provided The pages are serially numbered Safeguards are taken against falsification ie proper locking devices for security & proper control to prevent irregular removal of loose leaves. Loose leaves should be bound in books at reasonable intervals say 6 months. If these procedures are not followed DCA will refrain from taking a action against the company which maintains minutes in loose leaf. Right to Inspection of Books Director has a right to inspection of BM

 The minutes are open to inspection to members, the articles can empower the members to inspect the BM minutes. Frequency of BM S. 285 Minimum requirement : In every Calender year at least 4 BMs should be held from Jan Dec and in Each quarter atleast 1 BM should be held There are no maximum limits for BMs Exemption can be given by CG to Classes of Companies it may deem fit Exemption will be in full or part If the BM was duly called for, but was not able to be held for want of quorum (S.288), S.285 is not deemed to be contravened. In the Absence of Quorum Automatic Adjournment S. 288 If the Quorum is not present in the BM, then the BM shall be adjourned on the day prescribed by the articles IF the articles is silent : the BM shall be adjourned to same day, time & place in next week (or) if that day is a public holiday the next succeeding day, which is not a public holiday Quorum is required in the adjourned BM also S. 285 shall not be contravened if the BM was called but could not be held for want of Quorum. Adjourned BM Fresh notice of Adjourned BM is not required It is required only when Articles prescribe IF BM is adjourned for a indefinite period A resolution passed on the Adjourned BM shall be deemed to have been passed on the day of the Adjourned BM and not any earlier date. Sitting fees can be paid even if the BM was not held for want of Quorum IF a BM is adjourned and again held Sitting fees will be paid only once, as the adjourned BM is a continuation of the original BM.

 Chairman of the BMs Board will elect the Chairman for a particular period The directors present can choose one as a chairman if Board does not elect a Chairman Or the Chairman is not present w/n 5 min of BM Casting Vote is a second or deciding vote exercisable by Chairman This helps in resolving a deadlock in Board When there is equality of votes, the resolution is lost unless chairman at his own discretion uses his casting vote. The Casting vote power should be contained in the articles Table A Reg. 74 Committee of Directors A Board can pass a resolution to constitute a committee of Directors Board should be authorised by articles to do so Articles power is not required, if the Act gives the authorization to constitute the Committee The Board can at anytime revoke the powers delegated to the Committee Quorum of the committee is specified by the Board, if it is not specified the whole of the committee shall be the quorum. All those powers that the Board should exercise at the BM cannot be delegated to the committee of directors. Time, Place and Day of BM Place : BM can be held at any place (outside the city, town or village where the registered office is situated) Day : BM will be held on a day even if its a public holiday The original BM can be held on a public holiday, even a voluntarily adjourned BM can be held on a public holiday. IF a BM is adjourned for WANT of quorum, then it shall be held as per date prescribed in articles and if that day is a public holiday, then the BM will be held on a public holiday.

 If the original BM was not held due to LACK of Quorum and the articles do not prescribe the day of adjourned meeting then the BM will be held on the succeeding day, same time & place, if that day is a public holiday. Time : BM can be held at anytime, even after business hours Articles can provide that the BM should not be held on a public holiday, outside the particular state or after business hours. Passing Resolution by Circulation S. 289 Conditions for passing a resolution are : The No. of Directors present in india are >= quorum BM Resolution will be circulated in draft with necessary papers To all directors in India & at their usual address in India The Resolution will be approved by Disinterested directors in India or Majority of the Disinterested director in India or O/s India Generally all resolutions can be passed by circulation Any resolution required by Act to be passed only at BM cannot be passed by circulation (e.g. S. 262, 293A, 297, 372A, 316, 386)

Audit of Accounts: Qualification & Disqualification of Auditors: A person should be a Chartered Accountant holding COP Holder of a certificate of Part B state entitling him to act as auditor Disqualification: Body corporate Officer or employee of the company Person is a partner or employee of the officer / employee of Company Person is indebted to the company or given a guarantee, to a third person if the debt / guarantee > 1,000 Person holding a security in a company after a period of 1 year from dt. Of commencement of Co.(amendment) act, 2000 Security any instrument with voting rights A person is disqualified for appointment as auditor in a companys subsidiary or holding Co, or subsidiary of the holding company The auditor have to immediately vacate the office if the disqualification attracts ICAI By a resolution passed in GM, if the auditor recovers his fees from company on a progressive basis, even though the audit has not been completed he will not be said to be indebted to company and shall not vacate the office of auditor. Ceiling on Number of Audits S. 244(1B) The ceiling is the specified number of audits Specified number: Means not more than 20 Companies, in which not more than 10 companies should have a paid up capital of Rs. 25 lakhs or more. Following audits will be excluded to calculate this Specified Number Audit of Private Company Guarantee Company with no share capital Foreign Company Internal Audit Cooperative societies, trusts & Corporations

 Tax audit Special audit & investigations Branch audit Following audits are included Joint Audit & audit of licensed company u/s 25 Ceiling on Max. Audits: An auditor can accept maximum 30 audits including Private Companies ICAI Notification. Non observance of this ceiling will lead to professional misconduct The auditor should give a certificate to the company, before appointment as auditor, with the requirements that, if the auditor is appointed it will be within the ceiling limit of number of audits. Reappointment of Retiring Auditor S. 224(2) At every AGM the existing auditor shall retire & eligible for reappointment Retiring auditor shall not be reappointed in the following cases If he is disqualified for reappointment He has expressed his unwillingness to be reappointed Where a resolution is passed in AGM appointing someone else in his place and providing expressly that he shall not be reappointed If a notice is given for the intended resolution to appoint someone else in the place of retiring auditor, by reason of death, incapacity or disqualification the resolution cannot be proceeded with IF the AGM is not held w/n the time, will the auditor vacate his office? An auditor will hold office, from conclusion of the AGM in which they are appointed till conclusion of Next AGM Hence, an auditor will continue in office even if the AGM is not held w/n the limits as per S. 166 & 210. Rights of Auditors Right to access BOA, vouchers ~ at all times Right to obtain information & explanation ~ for performance of his duties Right to receive notice of GM & attend GM (S. 172)

 Right to speak (be heard) on any matter that concerns him as an auditor (S.231) Right to inspect branch office If accounts of branches are audited by another person The company auditor can visit the branch & access BOA Right of Lien on BOA BOA should belong to the company The documents should come to the possession of auditor with approval of Company Auditor should have done work assigned to him on those documents These books can be retained that is connected with the work on which payment is not paid. Right to receive remuneration Right to receive notice of removal & make representations First Auditors: S. 224(5) The Board will appoint the first auditors w/n 1 m from date of registration of Company IF the Board fails to appoint the first auditors, they will be appointed by members in GM OR is required. Auditor of a newly formed company cannot be appointed by the memorandum or articles ICAI Compendium of Opinions. Tenure: The first auditor will hold office until conclusion of First AGM The company need not give intimation of appointment of First auditors; similarly auditors need not inform to registrar that, they have accepted the appointment. Removal of Auditors S.224, 225 & 408 Removal of first Auditor before expiry of his term S. 224(5) Auditor is being removed before the first AGM OR is required for removal passed at the GM Special notice is not required Another person can be appointed, whose nomination is given to the members not less than 14 days before meeting Removal of subsequent auditor before expiry of his term S.224(7) Approval of CG is required, OR shall be passed in GM

 No special notice is required for removal Removal of auditor at the AGM (after expiry of term) S. 225 Previous approval of CG is not required OR will be passed Special notice is required for removal, it should state that Retiring auditor shall not be reappointed Some other person other than retiring auditor shall be appointed. Removal by CG CG will give directions to company u/s 408 for purposes of oppression & mismanagement, to remove the auditor Existing auditor should vacate w/o requiring any action for his removal Procedures of S. 225(2) & 225(3) Company will send the notice of removal to the auditor Auditor has the right to Make representations in writing to company Orally heard at the meeting Get his representation circulated among members Company is duty bound To send copies of representation to every member To state the fact that rep. is made in the notice sent to every member If the copy of representation is not sent by company, the auditor shall require that the representation be read out at the meeting Intervention by CLB by making an application by company IF the right to make a representation is being abused by auditor to secure needless publicity for defamatory matter By order of CLB, copy of rep. need not be sent to members, rep. need not be read out, Cost of application shall be paid by auditor. Audit Committee: S. 292A It is applicable to public company with paid up capital of 5 Cr. Constitution of audit committee is mandatory Composition of Audit Committee Only directors can become members. Min : 3 members

Minimum 2/3rd of Total members of the committee shall be directors other than WTD / MD Only a member of the committee can be appointed Chairman He shall be elected by the members of AC & will attend AGMs to clarify matters relating to audit. The meetings of the AC should be attended by auditor, internal auditor & director-in-charge of finance Functions of Audit Committee It will act as per the Board, ensure compliance with IC It shall hold periodic discussions with auditors on IC, Scope of audit & audit observation It will review the half yearly & annual FS before presenting to board. Powers of AC Investigation in any matter referred by Board u/s 292A Shall have Access to information in records It has a power to seek external professional advice Disclosure requirements Disclose the composition of the committee in Annual report Recommendation of Audit Committee This will be binding on board on any financial mgmt If the recommendations are not accepted, the board will record reasons and communicate to members

Duties of the Auditor Duty bound to make audit report, which will be read in GM. Audit report will be open for inspection It shall relate to B/S, P&L, documents annexed Duty to make adequate disclosures Auditor should state that in his opinion & best to his information & according to the explanation given to him the B/S & P&L A/c give the information as per the act and True & Fair state of affairs Branch auditor report is forwarded, AS is complied with, observations are in THICK or ITALIC type If the director is being disqualified from being appointed as a director u/s 274(1g)

 All matters of CARO are fulfilled Report on specific enquires Loans & advances made by co., on the basis of security are properly secured and the terms are not prejudicial to interest of company Book entries are not prejudicial to interest of the company If the sale price of shares is less than the purchase price If loans & advances are shown as deposits Personal expenses are charged to revenue If shares are allotted in cash, whether cash is received Auditor should give full information on the Qualification Duty to sign the audit report Special Audit S.233A IF the CG is of the opinion that the affairs of the company are not being managed as per sound business principles or prudent commercial practices or The company is managed in a manner that will cause serious injury or damage to trade, industry or business The financial position has endangered its insolvency There will be no opportunity of being heard The period will be specified in the order of Special audit The CG will appoint the Special auditor Either the Company Auditor or Independent CA Special auditor will have same powers & duties Report of Special Auditor All matters u/s 227 & other matters that is refereed by CG He will submit report to the CG. On submission CG will take such action, as it may deem fit If the CG has not take any action within 4 m, then it will send the copy with its comments to Co. the report will be circulated to members or read in the GM Remuneration of Special Auditor This will be fixed by CG, paid by Co., if defaulted can be collected as arrears of land revenue.

Prevention of Oppression and Mismanagement Supremacy of Majority or Majority Rule This states that the will of majority will prevail CASE : Foss V. Harbottle 2 shareholders instituted a case against directors for fraudulent & illegal transactions on behalf of the company as the directors misapplied, wasted & alienated the co. property. The suit was dismissed To avoid multiplication of suits & unproductive litigations, only parties to contract can sue, hence the rule of majority shall prevail The Co. is a separate legal entity & a democracy. Resolution passed by majority is binding on the company. Courts will not interfere in the internal management of the company Exceptions to the Majority Rule Judicial Decisions IF the funds of the company are misapplied by entering into ultra vires transaction, even a single member will sue directors for recovering damages A single member can apply to the court to grant an injunction restraining the co. from entering into the ultra vires transaction. If directors are making secret profit, then any member can comple them to payback the profits IF a SR is required majority vote is not sufficient IF the right of an individual member is infringed, the member can sue the company for enforcement of his right CASE LAWS Menier V. Hoopers Telegraph Works LTD Majority diverted profits to another company where they were majority shareholder Brown V. British Abrasive Wheel Co. The minority shares were compulsorily acquired Daniels V. Daniels Sale of land at gross value less than MV Cook V. Deeks

 Utilizing a contract belonging to company for personal gain. Exceptions under Companies Law : Dissenting Shareholders at least 10% can apply to court for cancelling variations in the class rights Dissenting shareholders can apply to court for restraining the transferee co. from acquiring their shares Requisite # of members can apply to CLB To seek relief from O&M The affairs of the company should be investigated They have a right to call EGM They have a right to circulate a resolution at the GM They can demand a poll Any member can apply to the CLB if the AGM / EGM is not held Any member can present a petition for compulsory winding up Meaning of Oppression A conduct is considered as Oppression when it is burdensome, harsh & wrongful. It involves an element of lack of probity & fair dealings to member A relief under oppression is just a remedy alternative to winding up Word Oppresive includes intent to defraud, fraud, misfeasance, other misconduct Conditions for Claiming relief from oppression S. 397 The affairs should be managed prejudical to public interest. The shareholders right to remove director u/s 284 is exercised there is no oppression The oppressed member should prove that there is oppression in his capacity as a member Where the majority directors, override the minority directors there is no relief u/s 397 The conduct of affairs must indicate a continuous wrong The degree of oppression should be so serious that there is just & equitable ground to windup the application should have these informations. This should be proved to CLB CASE LAWS: Shanti Prasad Jain Vs. Kalinga Tubes Ltd Elder Vs. Elder & Watson Ltd

 Needle Industries (India)ltd Vs. Needle Industries Newey (India) Holdings Ltd. Conditions to claim relief from Mismanagement S. 398 There should be continuity of mismanagement Due to a Material Change in the management, the affairs might be conducted prejudicial to interest of public or company Material Change : Alteration in BOD, manager, ownership of company shares Who has the right to apply u/s 397 & 398 S. 399 Company having a share capital Either 100 members or 1/10th of total members or members holding 1/10th of issued capital W.E. Lower Company without share capital 1/5th of total # of members IF the CG authorizes, then application can be made by lower number of members, provided the CG may demand a security for payment of cost to CLB Even CG can on its own make an application S. 401 Validity of members If calls are in arrears then those members cant apply Joint holders will be counted as one Beneficial owner can make an application & not the depository, where shares are held in depository system Holder of a share warrant is not eligible Preference share holder is eligible Shares should be transferred in the members name, for him to apply. Even a holder of Share certificate can make an application, not necessary that his name should be in the members register. In case of death of member, legal rep. can make an application before the transmission of shares happen The application will be valid even if the shares were sold, provided he applies before selling the shares On the date of making an application the member consented, but after that withdrew his consent Still the application is valid Rajahmundry Electric Supply Corporation V. Nageshwara rao Even a majority can claim to CLB for O&M

The CLB will give a notice of every application to the CG. CG has a right to make an representation to the CLB, which is not binding on the CLB. Powers of CLB to prevent O&M It will order regulating affairs of the company, by purchasing the shares of the member by the company, because of this if there is reduction of share capital court sanction is not required CLB can terminate any agreement with the director or manager Manager has to vacate office, not be entitled to compensation for loss of office & he cannot be a director in a co for 5 yrs CLB can terminate any third party agreement CLB can set aside any fraudulent preference made w/n 3m before date of application An interim order can be made pending final order Power to alter MOA & AOA, this alteration is valid even if it is inconsistent with provisions of Co. Act, and it will consider that resolution is passed by the Co. Appointment of Directors by CG S. 408 This provision overrides the Companies act. Application should be made by 100 members or 1/10th of members having voting rights W.E. Less CLB will make an enquiry as it may deem fit, and it should be satisfied as to the requirements Appointment of directors is necessary to maintain the state of affairs & to safeguard interest of members CG can appoint nominee directors, tenure shall not exceed 3 yrs CLB can also direct that appointment made by proportional representation instead of nominee directors, and additional directors can be appointed during such time There will not be any change in the BOD until the nominee directors are there. The directors appointed by CG need not be Retiring by rotation Counted for 2/3rd Need not obtain Q. Shs

 Can be removed only by CG. They should report to the CG regarding affairs of the company. Producer Companies Producer Person engaged in activity of primary produce Primary Produce Produce of farmers from agriculture ( animal husbandry, horticulture, forestry, forest products, re-vegetation, bee raising & farming plantation Handloom, handicraft & cottage industries By product of any of these above main product or any activity to increase the production of the above. Patronage Participating in business activity Patronage Bonus : Payment by producer company from its surplus income to members in proportion of their respective participation (Patronage) Formation of Producer Companies S. 581C An application for registration should be made by 10 or more individuals being producers (or) 2 or more producer institutions (or) combination of above with the MOA & AOA Application should be made to the Registrar of state where the registered office is situated. Conditions for incorporation: All provisions of S. 581B should be contained in the object clause; the company shall be limited by shares. The provisions of Part IX-A shall be complied with If the registrar is satisfied of the requirements, he will register & issue the certificate of incorporation w/n 30 days of receipt of doc. The producer company shall reimburse the promoters with the cost of promotion & registration. This payment should be approved by the First GM. The effect of incorporation is that the producer company will become a body corporate, limited by shares, Use the words Producer Company LTD, provisions of the act regarding private companies will be applicable. A Producer Co. is neither a public or deemed public or private company. There is no limit on the number of members of Producer Company.

Objects of Producer Company S. 581B Primary Produce of members production, harvesting, marketing, selling, export Processing produce of members preserving, drying, distilling, packaging, venting Manufacture, sale & supply of machinery, equipment or consumable Education on mutual assistance principles Services Technical consultancy, training, R&D Power Generation, transmission & distribution Revitalization of Land & Water resources Insurance of producers & primary produce Welfare measures & promoting mutuality Mutual Assistance Principles: Membership should be voluntary availed by all persons, who avail the services of producer co. & accept membership Voting rights each member 1 vote irrespective of shareholding If the producer company consists only of producer institutions, then the voting will be as per the participation of producer institution & shareholding during first year Board of Directors shall be appointed as per Part IX-A, they will be accountable to members There will be a limited return on share capital The surplus shall be distributed for Development of business Providing common facilities Patronage bonus distribution, based on the participation Education shall be provided on mutual assistance The producer Co. shall cooperate with other organizations. Management of Producer Companies S. 581O to 581X Directors Min: 5, Max: 15 IF a Society is converted into producer co. then all the directors of the society as on the transformation date, will continue till 1 yr from transformational date

 Directors shall be elected within 90 days of registration of producer Co. If a society was converted into producer co. AND 5 directors held office during conversion, then election should be conducted within 1 year. Tenure of office of director Min: 1yr , Max:5yrs The directors will be elected in the AGM, and retire as per the Articles, they will also be eligible for re-appointment. Board can opt for additional or expert directors, who cannot be more than 1/5th of Total # of directors BMs to be held are 4 per calendar yr, and at atleast 1 every Qtr It is the duty of Chief Executive to give notice of BM to every director in writing atleast 7 days before BM, less than 7 days means reasons should be recorded in writing Quorum will be 1/3rd of total strength or 3 directors & sitting fees will be paid even to additional directors Every producer co. with an average annual TO of 5Cr. In 3 consecutive FY shall have a whole-time secretary ICSI member can become secretary Failure to appoint secretary will attract fine upto Rs.500 everyday However the Producer proves the defense that secretary cannot be appointed due to its financial position or reasonable efforts are made to appoint a WTS. Conversion of ISCS into Producer Co. S. 581J A co-operative society will make an application to the registrar Enclosure SR with not less than 2/3rd of total members Names, address & occupation of directors & list of members Statement that the society is engaged as per objects of 581B Declaration by 2 or more directors certifying that particulars are correct MOA & AOA duly signed by subscribers If the registrar is satisfied he will issue the certificate w/n 30 days Effect of Registration All provisions of IX-A will be applicable, provisions of society is NA, no claim shall lie against the society due to conversion ROC will intimate the registrar of society, hence the name of the society will be deleted from the registrar

 All acts done by society before registrations shall be unaffected Members of society immediately before transformation will become members of Producer Co. All properties, assets, rights shall be transferred All concessions licenses, benefits, privilege to the society is deemed to be granted to producer co. All directors will have the right to continue for 1 yr after transformation. No director will be entitled for compensation of loss Every officer of society will become officer of producer company, he can opt not to become in which case he should resign and not entitled to any compensation All retired officers of society will have same privileges & rights Similarly, all PF & Gratuity fund will be unaffected. Reconversion of Producer Co to ISCS S.581ZS Only a producer company that was converted from ISCS can be reconverted Application should be made to High Court by members or creditors Atleast 2/3rd of members present & voting in GM Creditors: 3/4th in value of total creditors High court will direct that a meeting of members & creditors shall be held The HC will stay the commencement or continuation of any suit against the company Reconversion should be approved by 3/4th of value of members (or) creditors present & voting All Material facts (Financial position, audit report, pending of investigation, information & disclosure) should be disclosed to HC HC will sanction its reconversion, and it will be binding on members, creditors & producer co. The order of HC will be filed with ROC Within 6m of order of HC, an application to be made with MSCS for conversion from producer co. Finance, Accounts & Audit All books regarding purchases, sales, A&L shall be kept at the registered office Internal Audit shall be performed by CA

 Audit report shall have additional matters like Debts due, bad debts, A&L, any transaction contrary to Part IXA, loans given, donations or subscriptions given. For paying donations, SR is required for social & economic welfare or promoting mutual assistance Donations cannot be more than 3% of NP of preceeding FY Prohibition on making payment to political parties The producer co. shall make provisions for General reserve, if there are insufficient funds, contribution by members to GR By capitalizing the GR, bonus shares can be issued, it will be in proportion to shares held by members The Bonus shares should be recommended by Board & requires resolution in GM Loans can be granted to members with approval of Board A credit facility can be extended upto 6m The loan should be secured by some security and repayable in a period exceeding 3 m but not exceeding 7 yrs Loans to directors require approval of members in GM.

Winding Up : Grounds for Compulsory Winding up Company should pass a SR Default in filing the statutory report or holding statutory meeting Non-commencement or suspension of business for a period of 1yr Reduction in # of members below statutory min. Creditors not paid > Rs. 500 w/n 3 weeks Unsatisfied Court decree Just & Equitable grounds, no alternate remedy Winding up by Court is a discretionary power Winding up is a last resort The court will first consider the impact & consequences of winding up Denial of winding up in the following cases o The company is sound in reserves o There is a temporary cash crisis

o o o o

Considerable growth in the past Creditors would be benedited Temporary monetary financial crisis Temporary shock of economy & market

Powers of Liquidator Institute or defend any legal proceeding Power to sell properties, raise money, carry on business to windup, can claim onerous property. Endorse negotiable instruments, Use co. seal, appoint an agent to do business, inspect records & returns, receive dividend in insolvency, receive payment from estate of deceased contributory Liquidator is in a fiduciary postion, he should not make secret profits He should submit a preliminary report to the court within 6m. Defunct Company: Registrar has reasons to believe that o Company is not carrying business or has ceased to be in operation o Then Registrar will make an enquiry and w/n 1m co. should reply, if it fails o SCN will be issued which should be responded w/n 1m o Another Show cause for 3m, then the co. name will be stricken from register. o Registrar will notify in OG that co is dissolved or defunct Order of Payment of Liabilities S. 529A & 530 Overriding Preferential Payments o Workmen Compensation dues (Wages & Salaries, commission, accrued holiday remuneration, PF, gratuity) o Secured debts should be paid in full or paid proportionately due to lack of funds Preferential Payments o Wages, salaries, commission due to employees not more than 4 m during 12 m period (not to exceed 20 K for each employee)

o Accrued holiday remuneration, Compensations, PF, gratuity o Revenue, tax, cess to CG / SG w/n 12m o Investigation expenses due to CG Order of Payment o Overriding Pref. Payments o Cost & Expenses of Winding up o Preferential payments o Creditors secured by floating charge o Unsecured Creditors. Floating charge Any Floating charge created w/n 12m of commencement of winding up shall be void. Exception: Floating charge will be valid, if the company was solvent when creating it, It shall be valid to the extent of cash paid as a consideration for the charge. Interest @ 5% is allowed Contributory S. 428 & 467 Every person liable to contribute to Assets to the company at the time of winding up is called contributory. It includes holder of fully paid shares & alleged contributory There are 2 lists of Contributories List A present members List B past members who ceased to be members w/n 1 year The liability to pay the calls is primary & unconditional for present members. If present member fails, past members will be liable, but will not be liable for debt greater than 1yr from when he ceased to be a member If member dies, his legal rep. will be liable. A contributor who is a creditor cannot set-off his debt against liability of calls.