Web viewEvery company shall keep and maintain proper books of account and other relevant books and...

CA FINAL 1

SUMMARY / CHAPTER ROUND UPACCOUNTS OF COMPANIES

Every company shall keep and maintain proper books of account and other

relevant books and papers (financial statement) which give a true and fair view of

the state of the affairs of the company (including branch offices) and explain all the

transactions.

Such books shall be kept on accrual basis and according to the double entry

system of accounting. The books may also be kept in electronic mode.

There shall be a proper system for storage, retrieval, display or printout of the

electronic records as the Audit Committee or Board may deem appropriate and

such records shall not be disposed of or rendered unusable, unless permitted by

law.

Such books are to be kept at the registered office of the company. But they may be

kept at such other place in India as the Board of Directors may decide, but the

company shall, within seven days thereof, file with the Registrar a notice in writing

giving the full address of that other place.

Where a company has a branch office in India or outside India, it shall be valid if

proper books of account relating to the transactions are kept at that office,

provided proper summarised returns periodically are sent by the branch office to

the company at its registered office.

The books of account and other books and papers maintained by the company

within India shall be open for inspection at the registered office or at such other

place by any director during business hours.

Hence, a Director can inspect accounts personally or through an agent duly

authorised by a Power of Attorney or otherwise, provided that the agent

undertakes that the information shall not be used by him personally apart from the

principal’s purpsose. But, in case of foreign financial information, it cannot be done

through agents and must be sought by the director himself.

AMIT KARIA [email protected] 7798183106 / 9029210069

mailto:[email protected]

CA FINAL 2

The books of account of every company relating to a period of not less than eight

financial years immediately preceding a financial year, or where the company had

been in existence for a period less than eight years, in respect of all the preceding

years together with the relevant vouchers shall be kept in good order.

The financial statements shall comply with the accounting standards as notified

and shall be in the specified forms.

The Board of Directors shall lay before every annual general meeting, the financial

statements for the financial year.

Where a company has subsidiaries, it shall also prepare a consolidated financial

statement of the company and of all the subsidiaries.

The company shall also attach a separate statement containing the salient

features of the financial statement of its subsidiary / subsidiaries in prescribed

form. (‘Subsidiary’ here shall include associate company and joint venture) - Form

AOC – 1

Where financial statements do not comply with the accounting standards, the

company shall disclose the deviation from the accounting standards, the reasons

for such deviation and the financial effects, if any, arising out of such deviation.

The Central Government may prescribe the standards of accounting or any

addendum thereto, as recommended by the Institute of Chartered Accountants of

India, in consultation with and after examination of the recommendations made by

the National Financial Reporting Authority (NFRA). Till the time NFRA is

constituted, the Government shall consider the recommendations of the National

Advisory Committee on Accounting Standards constituted under Section 210 of

1956 Act.

The financial statement (including consolidated financial statement) shall be

approved by the Board of Directors before they are signed on behalf of the Board

at least byChairperson of the companyORtwo directors out of which one shall be

managing directorANDCEO / CFO / CS (wherever appointed).



CA FINAL 3

There shall be attached to statements laid before a company in general meeting, a

report by its Board of Directors, which shall include specified particulars.

A copy of the financial statements (including consolidated), auditor's report and

every other document required to be annexed or attached, which are to be laid

before a company in its general meeting, shall be sent to every MEMBER, every

DEBENTURE TRUSTEE, and other entitled persons.These shall be sent not less

than twenty-one days before the date of the annual general meeting.

In case of listed company, detailed accounts need not be sent, if the copies of the

documents are made available for inspection at its registered office during working

hours for a period of twenty-one days before the date of the meeting and a

statement containing the salient features of such documents in the prescribed

form, is sent not less than twenty-one days before the date of the meeting unless

the shareholders ask for full financial statements.

A copy of the financial statements and all the documents which are required to be

attached, duly adopted at the annual general meeting, shall be filed with the

Registrar within thirty days of the date of annual general meeting in prescribed

manner.

Where the financial statements are not adopted at annual general meeting, such

unadopted financial statements along with the required documents shall be filed

with the Registrar within thirty days of the date of annual general meeting and the

Registrar shall take them in his records as PROVISIONAL till the financial

statements are filed with him after their adoption in the adjourned annual general

meeting for that purpose.

The financial statements adopted in the adjourned annual general meeting shall be

filed with the Registrar within thirty days of the date of such adjourned annual

general meeting with such additional fees as prescribed.

Where the annual general meeting of a company for any year has not been held,

the financial statements along with the documents required to be attached duly



CA FINAL 4

signed along with the STATEMENT OF FACTS AND REASONS FOR NOT

HOLDING THE ANNUAL GENERAL MEETING shall be filed with the Registrar

within thirty days of the last date before which the annual general meeting should

have been held.

Prescribed class of companies shall be required to appoint an internal auditor, who

shall either be a chartered accountant or a cost accountant, as may be decided by

the Board to conduct internal audit of the functions and activities of the company.

Every company having net worth of rupees five hundred crore or more, or turnover

of rupees one thousand crore or more or a net profit of rupees five crore or more

during any financial year shall constitute a Corporate Social Responsibility

Committee of the Board.

The Board's report shall disclose the composition of the Corporate Social

Responsibility Committee.

The Board of every specified company shall after taking into account the

recommendations, approve the Corporate Social Responsibility Policy and

disclose contents in its report and also place it on the company's website.

The company shall give preference to the local area and areas around it where it

operates, for spending the amount earmarked for Corporate Social Responsibility

activities.

THE BOARD SHALL ENSURE THAT THE COMPANY SPENDS, IN EVERY

FINANCIAL YEAR, AT LEAST TWO PER CENT OF THE AVERAGE NET

PROFITS OF THE COMPANY MADE DURING THE THREE IMMEDIATELY

PRECEDING FINANCIAL YEARS, IN PURSUANCE OF ITS CORPORATE

SOCIAL RESPONSIBILITY POLICY.



CA FINAL 5

AUDIT AND AUDITORS

Every company shall, at the first annual general meeting, appoint an individual or a

firm as an auditor of the company.

The auditor shall hold office from the conclusion of that meeting till the conclusion

of its sixth annual general meeting and thereafter till the conclusion of every sixth

meeting.

Before any appointment is made, the written consent of the auditor to such

appointment, and a certificate from him or it that the appointment, if made, shall be

in accordance with the conditions as may be prescribed, shall be obtained from the

auditor.

The company shall inform the auditor concerned of his / its appointment, and also

file a notice of such appointment in Form ADT – 1, with the Registrar within fifteen

days of the meeting in which the auditor is appointed ( “Appointment” includes Re-

appointment).

No listed company / specified company shall appoint or re-appoint:

an individual as auditor for more than one term of five consecutive years;

and

anaudit firm as auditor for more than two terms of five consecutive years.

Provided that an individual who / audit firm which has completed its term shall not

be eligible for re-appointment as auditor in the same company for five years from

the completion of such term (COOLING PERIOD)

No audit firm having a common partner or partners to the other audit firm, whose

tenure has expired in a company immediately preceding the financial year, shall be

appointed as auditor of the same company for a period of five years.



CA FINAL 6

The first auditor of Government Company shall be appointed by Comptroller and Auditor General of India (CAG) within sixty days from the date of

registrationand in case CAG does not, then Board of Directors of the company

shall appoint such auditor within the next thirty days; and in the case of failure of

the Board, it shall inform the members of the company who shall appoint such

auditor within the sixty days at an extraordinary general meeting, who shall hold

office till the conclusion of the first annual general meeting.

The first auditor of a company, other than a Government company, shall be

appointed by the Board of Directors within thirty days from the date of registration

of the company.

In case of failure of the Board to appoint such auditor, it shall inform the members

of the company, who shall within ninety days at an extraordinary general meeting

appoint such auditor and such auditor shall hold office till the conclusion of the first

annual general meeting.

Any casual vacancy in the office of an auditor shall be filled by the Board of

Directors within thirty days, but if such casual vacancy is as a result of the

resignation of an auditor, such appointment shall also be approved by the

company at a general meeting convened within three months of the

recommendation of the Board and he shall hold the office till the conclusion of the

next annual general meeting.

Where at any annual general meeting, no auditor is appointed or re-appointed, the

existing auditor shall continue to be the auditor of the company.

The auditor appointed may be removed from his office before expiry of his term

only by a special resolution of the company, after obtaining previous approval of

CG by making application in Form ADT–2. Provided that auditor concerned shall

be given a reasonable opportunity of being heard.



CA FINAL 7

The application shall be made to CG within 30 days of the Board Resolution. The

company shall hold general meeting within 60 days of approval by the Central

Government.

Board Resolution (BR) – Central Government (CG) – Special Resolution (SR)

The auditor who has resigned shall file within 30 days from the date of resignation,

a statement in the Form ADT-3 with the company and the Registrar, and in case of

Government company, the auditor shall also file such statement with the CAG,

indicating the reasons and other facts as may be relevant with regard to his

resignation.

A person shall be eligible for appointment as an auditor of a company only if he is

a chartered accountant. Provided that a firm whereof majority of partners practising

in India are qualified for appointment as aforesaid may be appointed by its firm

name to be auditor of a company.

The following persons shall not be eligible for appointment as an auditor of a

company, namely: (a) a body corporate other than limited liability partnership

registered under LLP Act, 2008; (b) an officer or employee of the company; (c) a

person who is a partner, or who is in the employment, of an officer or employee of

the company;

(d) a person who, or his relative or partner: (i) is holding any security of or interest

in the company or its subsidiary, or of its holding or associate company or a

subsidiary of such holding company (Provided that the relative may hold security

or interest in the company of face value not exceeding one lakh rupees as

prescribed under Companies [Audit and Auditors] Rules, 2014) (ii) is indebted to

the company, or its subsidiary, or its holding or associate company or a subsidiary

of such holding company, in excess of rupees 5 lakhs; or (iii) has given a

guarantee or provided any security in connection with the indebtedness of any



CA FINAL 8

third person to the company, or its subsidiary, or its holding or associate company,

in excess of Rupees 1 lakh;

(e) a person or a firm who, whether directly or indirectly, has business relationship

(any commercial transaction) with the company, or its subsidiary, or its holding or

associate company or subsidiary of such holding company or associate company

as may be prescribed; (f) a person whose relative is a director or is in the

employment of the company as a director or key managerial personnel; (g) a

person who is in full time employment elsewhere or a person or a partner of a firm

holding appointment as its auditor, if such persons or partner is at the date of such

appointment or reappointment holding appointment as auditor of more than twenty

companies; (h) a person who has been convicted by a court of an offence

involving fraud and a period of ten years has not elapsed from the date of such

conviction; (i) any person whose subsidiary or associate company or any other

form of entity, is engaged as on the date of appointment in consulting and

specialised services as provided in section 144.

The remuneration of the auditor of a company shall be fixed in its general meeting

or in such manner as may be determined therein. Provided that the Board may fix

remuneration of the first auditor appointed by it.

The accounts of the branch office shall be audited by t he company auditor; or any

other person qualified for appointment as an auditor of the company; or where the

branch office is outside India, either by the company’s auditor or by an

accountant / duly qualified person in accordance with the laws of that country.

The auditor shall sign the auditor’s report or sign or certify any other document of

the company in accordance with the specified provisions and the qualifications,

observations or comments on financial transactions or matters, which have any

adverse effect on the functioning of the company mentioned in the auditor’s report

shall be read before the company in general meeting and shall be open to

inspection by any member of the company.



CA FINAL 9

CG may direct that the audit of cost records of specified companies (with respect

to net worth or turnover) shall be conducted in the manner specified in the order. It

shall be conducted by a Cost Accountant in practice who shall be appointed by the

Board on such remuneration as may be determined by the members.

APPOINTMENT AND QUALIFICATIONS OF DIRECTORS

A director is a person who is elected and authorised by the shareholders of a

company to manage and direct the affairs of a company.

No body corporate, association or firm shall be appointed as a director of any

company, and only an individual shall be so appointed.

No director shall assign his office to any other person.

The Directors stand in a fiduciary capacity towards the company which imposes a

duty on them, to act on behalf of a company with good faith, care and skill and due

diligence. The transactions entered into by them must be proper and fair.

Every company shall have a Board of Directors consisting of individuals as

directors and shall have: (a) a minimum number of three directors in the case of a

public company, two directors in the case of a private company, and one director in

the case of a One Person Company; and (b) a maximum of fifteen directors.

Every company shall have at least one director who has stayed in India for a total

period of not less than one hundred and eighty-two days in the previous calendar

year.

A listed company may have one director elected by such small shareholders (SSD) in such manner and with such terms and conditions as may be prescribed.

"Small Shareholder" means a shareholder holding shares of nominal value of not

more than twenty thousand rupees or such other sum as may be prescribed.

If there is no provision in Articles for appointment of first directors, then the

subscribers to the memorandum who are individuals shall be deemed to be the

first directors of the company until the directors are duly appointed.



CA FINAL 10

No person shall be appointed as a director of a company unless he has been allotted the Director Identification Number (DIN).

A person appointed as a director shall not act as a director unless he gives his

consent (Form DIR.12) to hold the office as director and such consent has been

filed with the Registrar within thirty days of his appointment in such manner as may

be prescribed.

Unless the articles provide for the retirement of all directors at every annual

general meeting, not less than two-thirds of the total number of directors of a public company shall be rotational directors.

At the first annual general meeting of a public company held next after the date of

the general meeting at which the first directors are appointed & at every

subsequent annual general meeting, one-third of such rotational directors, or if

their number is neither three nor a multiple of three, then, the number nearest to

one-third, shall retire from office.

The directors to retire by rotation at every AGM shall be those who have been

longest in office since their last appointment, but as between persons who became

directors on the same day, those who are to retire shall, in default of and subject to

any agreement among themselves, be determined by lot. At the annual general

meeting at which a director retires, the company may fill up the vacancy by

appointing the retiring director or some other person thereto.

If the vacancy of the retiring director is not so filled-up and the meeting has not expressly resolved not to fill the vacancy, the meeting shall stand adjourned till

the same day in the next week, at the same time and place, or if that day is a

national holiday, till the next succeeding day which is not a holiday, at the same

time and place.

Hence, the meeting may also decide that the vacancies shall not be filled.

A person, who is not a retiring director shall be eligible for appointment as director

at any general meeting, if he, or some member intending to propose him as a

director, has served a notice on the company.AMIT KARIA [email protected] 7798183106 / 9029210069


CA FINAL 11

Such notice shall be left not less than fourteen days before the meeting, at the

registered office signifying the candidature as a director, along with the deposit of

one lakh rupees or such higher prescribed amount.

This deposit shall be refunded to such person or the member, if the person

proposed gets elected as a director or gets more than twenty-five per cent of total

valid votes cast either on show of hands or on poll on such resolution.

A person shall not be eligible for appointment as a director of a company, if he is of unsound mind and stands so declared by a competent court; he is an

undischarged insolvent; he has applied to be adjudicated as an insolvent and his

application is pending, he has been convicted by a court of any offence, whether

involving moral turpitude and sentenced in respect thereof to imprisonment for not

less than six months and a period of five years has not elapsed from the date of

expiry of the sentence, an order disqualifying him for appointment as a director has

been passed by a Court or Tribunal and the order is in force; he has not paid any

calls in respect of any shares of the company held by him, whether alone or jointly

with others, and six months have elapsed from the last day fixed for the payment

of the call; he has been convicted of the offence dealing with related party

transactions, he has not complied with provisions relating to Director Identification

Number (DIN). No person who is or has been a director of a company which: (a) has not filed

financial statements or annual returns for any continuous period of three financial

years; or (b) has failed to repay the deposits accepted by it or pay interest thereon

or to redeem any debentures on the due date or pay interest due thereon or pay

any dividend declared and such failure to pay or redeem continues for one year or

more, shall be eligible to be re-appointed as a director of that company or

appointed in other company for a period of five years (5 YEARS) from the date

on which the said company fails to do so.

If a person, functions as a director even when he knows that the office of director

held by him has become vacant, he shall be punishable with imprisonment for a AMIT KARIA [email protected] 7798183106 / 9029210069


CA FINAL 12

term which may extend to one year or with fine which shall not be less than one

lakh rupees but which may extend to five lakh rupees, or with both.

Where all the directors of a company vacate their offices, the promoter or, in his

absence, the Central Government shall appoint the required number of directors

who shall hold office till the directors are appointed by the company in the general

meeting.

Articles may confer on its Board of Directors the power to appoint any person as

an additional director at any time who shall hold office up to the date of the next

annual general meeting or the last date on which the annual general meeting

should have been held, whichever is earlier.

The Board of Directors may if authorised by Articles or by a resolution passed by

the company in general meeting, appoint a person to act as an alternate director

for a director during his absence for a period of not less than three months from

India. Provided that no person shall be appointed as an alternate director for an

independent director unless he is qualified to be appointed as an independent

director.

The Board may appoint any person as a director nominated by any institution in

pursuance of the provisions of any law for the time being in force or of any

agreement or by the Central Government or the State Government by virtue of its

shareholding in a Government company or due to investigation etc.

In the case of a PUBLIC COMPANY, if the office of any director appointed by the

company in general meeting is vacated before his term of office expires in the

normal course, the resulting casual vacancy may be filled by the Board of Directors

at a meeting of the Board. Provided that any person so appointed shall hold office

only up to the date up to which the director in whose place he is appointed would

have held office if it had not been vacated.

The articles of a company may provide for the appointment of not less than two-

thirds of the total number of the directors of a company in accordance with the

principle of proportional representation, whether by the single transferable vote or AMIT KARIA [email protected] 7798183106 / 9029210069


CA FINAL 13

by a system of cumulative voting or otherwise and such appointments may be

made once in every three years.

An independent director in relation to a company, means a director other than a

managing director or a whole-time director, who is a person of integrity and

possesses relevant expertise and experience; who is not related to the company in

any of the prescribed manners.

An independent director may be selected from a data bank containing names,

addresses and qualifications of persons who are eligible and willing to act as

independent directors, maintained by any body, institute or association, as notified

by the Central Government, having expertise in creation and maintenance of such

data bank and put on their website for the use by the company making the

appointment of such directors.

No person shall hold office as a director, including any alternate directorship, in

more than twenty companies at the same time. Provided that the maximum number of public companies in which a person can be appointed as a director

shall not exceed ten.

A director of a company shall act in good faith in order to promote the objects of

the company for the benefit of its members as a whole, and in the best interests of

the company, its employees, the shareholders, the community and for the

protection of environment.

At a general meeting of a company, a motion for appointment of two or more

persons as directors of the company by a single resolution shall not be moved

unless a proposal to move such a motion has first been agreed to at the meeting

without any vote being cast against it. (UNANIMOUS APPROVAL – 100%).

A director may resign from his office by giving a notice in writing addressed to the

company and the Board shall on receipt of such notice take note of the same and

the company shall intimate the Registrar within 30 days in specified form (FORM DIR-12).



CA FINAL 14

The resignation of a director shall take effect from the date on which the notice is

received by the company or the date, if any, specified by the director in the notice,

whichever is later. Provided that the director who has resigned shall be liable even

after his resignation for the offences which occurred during his tenure.

A company may, by ordinary resolution (51%), remove a director, not being a

director appointed by NCLT or nominee director, before the expiry of the period of

his office after giving him a reasonable opportunity of being heard.

A special notice shall be required of any resolution, to remove a director under this

section, or to appoint somebody in place of a director so removed, at the meeting

at which he is removed. (atleast 14 days notice)

Every company shall keep at its registered office a register containing such

particulars of its directors and key managerial personnel as may be prescribed,

which shall include the details of securities held by each of them in the company or

its holding, subsidiary, subsidiary of company's holding company or associate

companies.



CA FINAL 15

APPOINTMENT AND REMUNERATION OF MANAGERIAL PERSONNEL

Managing Director means "a director who is entrusted with substantial powers of

management which would not otherwise be exercisable by him and includes a

director, by whatever name called". He is an ordinary director entrusted with

special powers

A company, may have more than one managing director. They may be the

Managing Director (Finance), Managing Director (Administration) etc.

A whole-time director, as the name implies, is a director who functions whole-time

for the company. It implies a director in the whole-time employment of the

company. There is no restriction under the Act as to the number of whole-time

directors.

Since whole-time director means a director of a company who is in whole-time

employment with the company, therefore an individual cannot be appointed as a

whole-time director of more than one company.

If a company intends to appoint an individual, who is not a director, as its

managing or whole-time director, then he shall have to be first appointed by the

Board as an Additional Director under Section 161(1).

If a person while he was the additional director, had been appointed as the

managing or whole-time director, the latter appointment also ceases

simultaneously with the cessation of his directorship at the commencement of the

annual general meeting.

But, if he is re-elected as full-fledged director at the annual general meeting and

thereby continues as a director of the company, he shall continue as a managing

or whole-time director also for the period for which he is so elected by the annual

general meeting.

Manager means an individual who, subject to the superintendence, control and

direction of the Board of Directors, has the management of the whole of the affairs

of a company.



CA FINAL 16

A COMPANY SHALL NOT APPOINT AT THE SAME TIME, BOTH A MANAGING

DIRECTOR AND A MANAGER.

A company can have only one manager. The logic behind this is that only one

individual can have the management of the whole, or substantially the whole of the

affairs of a company.

No company shall appoint or re-appoint any person as its managing director,

whole-time director or manager for a term exceeding five years at a time.No re-

appointment shall be made earlier than one year before the expiry of his term.

No company shall appoint or continue the employment of any person as managing

director, whole-time director or manager who: is below the age of twenty-one years

or has attained the age of seventy years; is an undischarged insolvent or has at

any time been adjudged as an insolvent; has at any time suspended payment to

his creditors or makes, or has at any time made, a composition with them; or has

at any time been convicted by a court of an offence and sentenced for a period of

more than six months.

SCHEDULE V - PART I contains the CONDITIONS TO BE FULFILLED FOR THE

APPOINTMENT OF A MANAGING OR WHOLE-TIME DIRECTOR OR A

MANAGER WITHOUT THE APPROVAL OF THE CENTRAL GOVERNMENT

TOTAL MANAGERIAL REMUNERATION PAYABLE BY A PUBLIC COMPANY,

TO ITS DIRECTORS, INCLUDING MD / WTD / M – MAX 11 % OF NET PROFITS

FOR THAT FINANCIAL YEAR.

MAXIMUM REMUNERATION TO MD / WTD / M

MD or WTD or Manager (1) Max 5 % of NP

MD or WTD or Manager

(more than 1)

Max 10 % of NP

MAXIMUM REMUNERATION TO NON MP (who are not MD / WTD / M):AMIT KARIA [email protected] 7798183106 / 9029210069


CA FINAL 17

If there is any MD or WTD or M Max 1 % of NP

No MD or WTD or M Max 3 % of NP

Every director is entitled to receive sitting fees for each meeting of the Board or

committee thereof, attended by him; if the Articles allow such payment. But, a

managing director, whole time director or manager shall not be paid any sitting

fees. (Maximum Sitting Fees – Rs 1,00,000 – one lakh per meeting)

The remuneration payable to the directors shall be inclusive of the remuneration

payable to him for the services rendered by him in any other capacity. But any

remuneration for services rendered by any such director in other capacity shall not

be so included if the services are professional & the director possesses the

requisite qualifications.

If any director draws or receives, directly or indirectly, by way of remuneration any

such sums in excess of the limit prescribed by this section or without the prior

sanction of the Central Government, where it is required, he shall refund such

sums to the company and until such sum is refunded, hold it in trust for the

company. The company shall not waive the recovery of any sum refundable unless

permitted by the Central Government.

Where in any financial year during the currency of tenure of a managerial person,

a company has no profits or its profits are inadequate, it may, without Central

Government approval, pay remuneration to the managerial person not exceeding

the specified limits based on Effective Capital or current relevant profits.

Where a company is required to re-state its financial statements due to fraud / non-

compliance of Act / any rules, the company shall recover from any past or present

MD / M / WTD, who, during the period for which the financial statements are

required to be re-stated, received the remuneration (including stock option) in

excess of what would have been payable to him as per restatement of financial

statements.



CA FINAL 18

Every listed company and other specified companies shall annex with its Board's

report made in terms of Section 134, a secretarial audit report, given by a company

secretary in practice, in such form as may be prescribed.



CA FINAL 19

POWERS OF THE BOARD, CONTRACTS, ARRANGEMENTS AND MEETINGS The Board of Directors of a company shall be entitled to exercise all such powers,

and to do all such acts and things, as the company is authorised to exercise and

do.

No act done by a director shall be deemed to be invalid, even though subsequently

it was found that his appointment was invalid by reason of any defect or

disqualification or termination.

The Board of Directors (BOD) shall exercise the following powers on behalf of the

company by means of RESOLUTIONS PASSED AT MEETINGS OF THE BOARD,

namely:- (a) to make calls on shareholders in respect of money unpaid on their

shares; (b) to authorise buy-back of securities under section 68; (c) to issue

debentures or other securities, whether in or outside India; and other specified

powers.

The Board of Directors of a company shall exercise four powers only with the

consent of the company by a special resolution, namely: ( a ) SALE OR LEASING

OR DISPOSAL OF WHOLE UNDERTAKING / SUBSTANTIAL PART, ( b )

INVESTMENTS OTHER THAN TRUST SECURITY, ( c ) BORROWINGS

EXCEEDING NET-WORTH, ( d ) REMISSION / EXTENSION OF TIME TO A

DIRECTOR.

The Board of Directors of a company may contribute to bona fide charitable and

other funds. But prior permission of the shareholders shall be required for such

contribution in case any amount the aggregate of which, in any financial year,

exceed five per cent of its average net profits for the three immediately preceding

financial years.

A company, other than a Government company and a company which has been in

existence for less than three financial years, may contribute any amount directly or

indirectly to any political party.



CA FINAL 20

The aggregate of the amount which may be so contributed by the company in any

financial year shall not exceed seven and a half per cent of its average net profits

during the three immediately preceding financial years.

The Board of Directors of any company or the shareholders in general meeting,

may contribute such amount as it thinks fit to the National Defence Fund or any

other Fund approved by the Central Government for the purpose of national

defence.

Generally, the members cannot interfere with the powers vested in the Board. If

they are dissatisfied with the directors, then their remedy is to remove them as per

law. But so long as the Board exists and powers are vested in it by the Articles, the

directors are entitled to exercise those powers without interference by the

shareholders. There are some exceptional situations in which the general body of

shareholders is competent to act even in matters delegated to the Board. Some of

these situations include: Directors acting malafide, Incompetent Board (all directors

interested or disqualified or resigned etc.), Deadlock in the Board.

Every director shall at the first board meeting in which he participates as a director

and thereafter at the first board meeting of every financial year disclose his

concern or interest in any company or body corporate, firms, or other association

of individuals which shall include the shareholding and other interest. Such

disclosure shall also be required whenever there is any change in the disclosures

already made and must be done at the first board meeting held after such change.

NO COMPANY SHALL, DIRECTLY OR INDIRECTLY, ADVANCE ANY LOAN TO

ANY OF ITS DIRECTORS OR TO ANY OTHER PERSON IN WHOM THE

DIRECTOR IS INTERESTED OR GIVE ANY GUARANTEE OR PROVIDE ANY

SECURITY IN CONNECTION WITH ANY LOAN TAKEN BY HIM OR SUCH

OTHER PERSON.



CA FINAL 21

No company shall directly or indirectly: give any loan to any person or other body

corporate; give any guarantee or provide security in connection with a loan to any

other body corporate or person; and acquire by way of subscription, purchase or

otherwise, the securities of any other body corporate, exceeding sixty per cent of

its paid-up share capital, free reserves and securities premium account or one

hundred per cent of its free reserves and securities premium account, whichever is

more. Where the giving of any loan / guarantee / security / acquisition exceeds the

limits, prior approval by means of a special resolution shall be necessary.

All investments made or held by a company in any property, security / other asset

shall be made and held by it in its own name. But the company may hold any

shares in its subsidiary company in the name of any nominee or nominees of the

company, if it is necessary to do so, to ensure that the number of members of the

subsidiary company is not reduced below the statutory limit.

Except with the consent of the Board of Directors given by a resolution at a

meeting of the Board, no company shall enter into any contract or arrangement

with a related party with respect to: sale, purchase or supply of any goods or

materials; availing or rendering of any services; underwriting the subscription of

any securities or derivatives thereof, of the company, selling or otherwise

disposing of, or buying, property of any kind, leasing of property of any kind,

appointment of any agent for purchase or sale of goods, materials, services or

property; such related party's appointment to any office or place of profit(OPP) in

the company, its subsidiary company or associate company.

Every company shall keep one or more registers giving separately the particulars

of all contracts or arrangements to which Section 184 and all contracts with related

parties, in prescribed manner and containing prescribed particulars.

After entering the particulars, such register or registers shall be placed before the

next meeting of the Board and signed by all the directors present at the meeting.



CA FINAL 22

Every PUBLIC company shall keep at its registered office, a copy of contract of

service with a managing or whole-time director or if there is no such formal

contract, then a written memorandum setting out its terms.

No company shall enter into an arrangement by which: a director of the company

or its holding, subsidiary or associate company or a person connected with him

acquires or is to acquire assets for consideration other than cash, from the

company; or the company acquires or is to acquire assets for consideration other

than cash, from such director or person so connected. It can be done only with the

prior approval by a resolution of the company in general meeting.

Where OPC enters into a contract with the sole member of the company who is

also the director of the company, then the contract shall be in writing. If it is not in

writing, then at least the terms should be contained in a memorandum or are

recorded in the minutes of the first meeting of the Board of Directors of the

company held next after entering into contract.

No director of a company or any of its key managerial personnel shall buy in the

company, or in its holding, subsidiary or associate company: (a) a right to call for

delivery or a right to make delivery at a specified price and within a specified time,

of a specified number of relevant shares or a specified amount of relevant

debentures; or (b) a right, as he may elect, to call for delivery or to make delivery

at a specified price and within a specified time, of a specified number of relevant

shares or a specified amount of relevant debentures.

No person including any director or key managerial personnel of a company shall

enter into insider trading.

Every company shall hold the first meeting of the Board of Directors within thirty

days of the date of its incorporation and thereafter hold a minimum number of four

meetings of its Board of Directors every year in such a manner that not more than

one hundred and twenty days shall intervene between two consecutive meetings

of the Board.



CA FINAL 23

The participation of directors in a meeting of the Board may be either in person or

through video conferencing or other audio visual means, as may be prescribed,

which are capable of recording and recognising the participation of the directors

and of recording and storing the proceedings of such meetings along with date and

time.

The matters not to be dealt with in any meeting held through video conferencing or

other audio visual means include the approval of the annual financial statements;

the approval of the Board’s report; approval of the prospectus; Audit Committee

Meetings for consideration of accounts; and approval of the matter relating to

amalgamation, merger, demerger, acquisition and takeover.

A meeting of the Board shall be called by giving not less than seven days' notice in

writing to every director at his address registered with the company and such

notice shall be sent by hand delivery or by post or by electronic means. But it may

be called at shorter notice to transact urgent business subject to the condition that

at least one independent director, if any, shall be present at the meeting.

In case of absence of independent directors from such a meeting of the Board,

decisions taken at such a meeting shall be circulated to all directors and shall be

final only on ratification thereof by at least one independent director, if any.

One Person Company (OPC) shall be deemed to have complied with the

provisions if at least one meeting of the Board of Directors has been conducted in

each half of a calendar year and the gap between the two meetings is not less

than ninety days. This shall not apply to such OPC in which there is only one

director on its Board of Directors.

The quorum for a Board Meeting shall be one-third of its total strength or two

directors, whichever is higher, and the participation of the directors by video

conferencing or by other audio visual means shall also be counted for the

purposes of quorum.



CA FINAL 24

If the number of directors is reduced below the quorum fixed by the Act, then

continuing directors or director may act for the purpose of increasing the number of

directors to that fixed for the quorum, or of summoning a general meeting of the

company and for no other purpose.

Where at any time there are interested directors, then the number of directors who

are not interested directors and present at the meeting, being not less than two,

shall be the quorum during such time. Otherwise the Board shall be taken as

incompetent board.

Where a meeting of the Board could not be held for want of quorum, then, unless

the articles of the company otherwise provide, the meeting shall automatically

stand adjourned to the same day at the same time and place in the next week or if

that day is a national holiday, till the next succeeding day, which is not a national

holiday, at the same time and place.

No resolution shall be deemed to have been duly passed by the Board or by a

committee thereof by circulation, unless the resolution has been circulated in draft,

together with the necessary papers, if any, to all the directors, or members of the

committee, as the case may be, at their addresses registered with the company in

India by hand delivery or by post or by courier, or through such electronic means

as may be prescribed and has been approved by a majority of the directors or

members, who are entitled to vote on the resolution.

The Board of Directors of every listed company and other prescribed companies

shall constitute an Audit Committee, which shall consist of a minimum of three

directors with independent directors forming a majority. Provided that majority of

members of Audit Committee including its Chairperson shall be persons with ability

to read and understand, the financial statement.

The Audit Committee may call for comments of the auditors about internal control

systems, observations of the auditors and review of financial statement before their

submission to the Board and may also discuss any related issues.



CA FINAL 25

The Directors report shall disclose the composition of an Audit Committee and

where the Board had not accepted any recommendation of the Audit Committee,

the same shall be disclosed in such report along with the reasons for that.

Every listed company or specified companies shall establish a vigil mechanism for

directors and employees to report genuine concerns in such manner as may be

prescribed. It shall provide for adequate safeguards against victimisation of

persons who use such mechanism and make provision for direct access to the

chairperson of the Audit Committee in appropriate or exceptional cases. The

details of establishment of such mechanism shall be disclosed by the company on

its website, if any, and in the Board's report.

The Board of Directors of every listed company and other specified companies

(same as Audit Committee), shall constitute the Nomination and Remuneration

Committee consisting of three or more non-executive directors out of which not

less than one half shall be independent directors. Provided that chairperson of the

company may be appointed as a member of the Nomination and Remuneration

Committee but shall not chair such Committee.

NRC shall formulate the criteria for determining qualifications, positive attributes

and independence of a director and recommend to the Board a policy, relating to

the remuneration for the directors, key managerial personnel and other employees.

The Board of Directors of a company which consists of more than one thousand

shareholders, debenture-holders, deposit-holders and any other security holders at

any time during a financial year shall constitute a Stakeholders Relationship

Committee consisting of a chairperson who shall be a non-executive director and

such other members as may be decided by the Board.

It shall consider and resolve the grievances of security holders of the company.

The chairperson of the committee or; in his absence, any other authorised member

of the committee shall attend the general meetings of the company.



CA FINAL 26

PRODUCER COMPANIES The members of producer companies have to be ‘primary producers’, being

engaged in an activity related to the primary produce.

It means produce of farmers, arising from agriculture including animal husbandry,

horticulture, floriculture, pisciculture, forestry, bee raising, handloom, handicraft,

cottage industries etc.

Active Member means a member who fulfils the quantum and part of patronage

of the producer company as required by the articles;

Limited Return means the maximum dividend as may be specified by the

articles;

Patronage means the use of services offered by the producer company to its

members by participation in its business activities.

Patronage Bonus means payments made by a producer company out of its

surplus income to the member in proportion to their respective patronage;

Withheld price means part of the price due and payable to any member for

goods supplied to the producer company, and withheld by the producer company

for payment on a subsequent date.

A producer company can be formed by: any ten or more individuals, each of them

being a producer, or any two or more producer institutions, or a combination of ten

or more individuals and producer institutions.

Every Producer Company shall use the words ‘Producer Company Limited’ at the

end of its name.

A person, who has any business interest which is not in conflict with the business

of the producer company, shall become a member.

The Articles may provide for the manner in which voting rights shall be exercised

by the members.

Every member shall, on the share capital contributed, receive only a limited

return. However, every such member may be allotted bonus shares.



CA FINAL 27

The surplus if any, remaining after making provision for payment of limited return

and reserves may also be disbursed as patronage bonus, amongst the members,

in proportion to their participation in the business of the producer company.

Any society having objects in more than one state (Inter State Co operative

society) may make an application to the Registrar for registration as a producer

company.

Upon registration, the society shall be transformed into a producer company and

thereafter shall be governed by the provisions of this Part to the exclusion of the

previous law. No person shall have any claim against the company by reason of

such conversion or transformation.

All the properties and assets of the inter-State co-operative society as on the

transformation date, shall vest in the Producer Company.

All the directors in the inter-State co-operative society before the incorporation of

the producer company shall continue in office for one year from the transformation

date.

Any producer company, being an erstwhile inter-State co-operative society,

formed and registered under this Part, may make an application after passing

necessary resolution, to the High Court for its re-conversion to the inter-State co-

operative society.

Every producer company shall have at least 5 directors and not more than 15 directors. In case of Inter-State Cooperative Society incorporated as a producer

company, such company may have more than 15 directors for one year from the

date of its incorporation as a producer company.

Election of Directors shall be conducted within 90 days from the date of

registration of the producer company. In case of Inter-State Co-operative Society,

the election shall be held within a period of one year, provided at least 5 directors

hold office on the date of transformation into a Producer Company.



CA FINAL 28

The period of office of a director shall be not less than one year and not

exceeding five years. The directors retiring by rotation in accordance with the

articles shall be eligible for re-appointment as a director.

The Board may also co-opt for one or more expert directors or additional

directors, which cannot exceed 1/5th of the total number of directors. The expert

directors shall not have the right to vote in the election of chairman but shall be

eligible to be elected as chairman if it is provided by the articles.

Every producer company shall have a full time Chief Executive, appointed by the

Board from amongst persons other than members. He shall be entrusted with

substantial powers of management as the Board may determine. The position of

the Chief Executive is comparable to that of the Managing Directors in companies

other than producer companies.

Every producer company having an average annual turnover exceeding five crore

rupees in each of three consecutive financial years shall have a whole-time

secretary, who possesses membership of the Institute of Company Secretaries of

India (ICSI), constituted under the Company Secretaries Act, 1980.

Every producer company shall hold an annual general meeting in a year, provided

the time gap between one annual general meeting and another, should not be

more than fifteen months. The Registrar of Companies may permit an extension

of three months.

If the producer company in which a director has made a default in repayment of

any advances or loans taken from any company or institution or any other person

and such default continues for 90 days, the office of such director shall become

vacant.

The share capital shall consist of equity shares only.

The shares of a member of a producer company shall not be transferable. A

member may, after obtaining the previous approval of the Board, transfer the

whole or part of his shares at par value.



CA FINAL 29

The nominee shall, on the death of the member, become entitled to all the rights

in the shares of the producer company and the Board of that Company shall

transfer the shares of the deceased member to his nominee.

Every producer company shall have internal audit of its accounts carried out, at

specified intervals as given in the Articles, by a chartered accountant.

A producer company may by passing a special resolution, make donation or

subscription for promoting social and economic welfare of the producer member

or producers or general public; or promoting the mutual assistance principles.

Provided that the aggregate amount in any financial year shall not exceed 3% of

the net profit in the financial year immediately preceding the financial year in

which the donation or subscription was made.

No producer company shall make any contribution or subscription or make

available any facilities, directly or indirectly, to any political party or for any political

purpose to any person.

Every producer company shall maintain a general reserve in every financial year.

In a case where the producer company does not have sufficient funds in any

financial year for transfer to maintain the reserves as may be specified in articles,

the contribution to the reserve shall be shared amongst the members in

proportion to their patronage in the business of that financial year.

The Board may provide financial assistance to members by way of: credit facility

for a period not exceeding six months; or loans and advances against security

repayable within a period exceeding three months but not exceeding seven years.

The loans and advances to any director or relative shall be given only after

approval of members in the general meeting.

The general reserves of any producer company shall be invested to secure the

highest returns available from approved securities, fixed deposits, bonds issued

by the Government etc.



CA FINAL 30

Any producer company may subscribe to share capital of, or enter into any

agreement with any body corporate by passing a special resolution, for the

purpose of promoting its objects.

If a producer company fails to commence business within one year of its

registration or ceases to transact business with the members or if the Registrar is

satisfied, after making enquiry that the producer company is not carrying any of its

objects specified in Section 581B, he shall make an order striking off the name of

the producer company, which shall thereupon cease to exist forthwith.

Any member of a producer company, who is aggrieved by an order made under

this Section, may appeal to the Company Law Board (Tribunal) within sixty days

of the order.



CA FINAL 31

PREVENTION OF OPPRESSION AND MISMANAGEMENT Management of companies is based on majority rule. Generally, the decision of

majority is rule for minority. But this rule may sometimes be misused. Until the

commencement of the Companies Act, 1956, the only remedy available to an

oppressed minority was to petition to the Court to wind up the company on the

ground that it was "just and equitable" so to do.

The winding up remedy is, however, not advantageous to petitioning

shareholder(s).

Section 397 provides that members who complain that affairs of the company are

being conducted in a manner oppressive to any member or members may apply to

the CLB for appropriate relief.

Section 398 provides that members may complain that affairs are being conducted

in a manner prejudicial to public interest / interest of the company.

Section 399 provides, however, that a single member is not entitled to make an

application.

The Central Government can also apply / authorise member(s) to make an

application under Section 397 / 398, though the requisite conditions given above

are not satisfied.

Persons can make application only if they have paid all calls and other sums due

on their respective shares.

If the applicant’s name was struck off after the application, it would not affect the

application. The subsequent withdrawal of application by the member will not

matter.

Even an application made by the majority shareholders alleging oppression or

mismanagement is not invalid. The majority must prove before the CLB that the

making of application is justified by the prevailing circumstances. The majority may

be oppressed if a minority, by physical force or other wrongful act, oust the majority

Under Section 397, the Company Law Board can end the oppression in respect of

which complaint has been received. Section 397 is not preventive. AMIT KARIA [email protected] 7798183106 / 9029210069


CA FINAL 32

The object of section 397 of the Act is to ensure that although it may be justified to

wind-up the company, the company may be saved and the matters complained of

may be brought to an end

Under Section 398, the CLB would interfere on its being satisfied that by reason of

any material changes in the management or control of the company, it is likely that

the affairs of the company will be conducted in a manner prejudicial to the public

interest or to the interest of the company. Section 398 is preventive.

The material change in the management or control will be deemed to have taken

place in circumstances which include, alteration in Board of Directors, replacement

of manager, change in the ownership of shares and similar other cases.

Section 408 has vested some powers in the Central Government to prevent

oppression or mismanagement. It may appoint such number of persons to be

directors as specified by CLB, to safeguard interests of the company /

shareholders / public interest, for a period not exceeding three years at one time

as it may think fit.

The Central Government may require these directors or additional directors to

report to it from time to time with regard to the affairs of the company.

The Central Government may state a case against any of the managerial

personnel of a company and refer it to CLB with a request that CLB may inquire

and record a finding whether or not he is fit and proper person to hold the office of

director / other office.

If the findings of CLB are against the respondent, then the Central Government

shall remove him from office. The person against whom order of removal from

office is made must not hold the office of a director or any other office connected

with the conduct and management of affairs of the company for a period of 5 years

from the date of the order of removal.



CA FINAL 33

COMPROMISES, ARRANGEMENTS AND AMALGAMATIONS "Arrangement" includes reorganisation of the share capital of the company by

the consolidation of shares of different classes, or by the division of shares into

shares of different classes or, by both those methods." The word ‘Arrangement’

has a very wide meaning and is wider than the word 'Compromise'.

‘Compromise’ means an amicable agreement between parties to a controversy

to settle their differences by making mutual concessions. It implies some element

of accommodation on each side. For compromise, each party should be willing to

make necessary concessions.

The term "Reconstruction" has no definite legal meaning. It covers any form of

internal reorganisation of the company’s affairs. It includes reorganisation,

arrangement, amalgamation, etc., and thus is a very wide term. Demerger also

involves reconstruction.

Demerger is used to describe the act of hiving of a unit or division of a business

out of two or more of them by sale.

In order to facilitate a reconstruction or amalgamation under Section 391 of

Companies Act, 1956, it is frequently desirable or necessary for the company first

to effect a compromise or arrangement with its creditors or any class of them

or/and members or any class of them.

The Court may order a meeting of the creditors or class of creditors or the

members or class of members, as the case may be, to be called, held and

conducted in such manner as the Court directs.

The Court shall give such directions only if it is satisfied that the scheme is

reasonable. It can modify the scheme so that it becomes workable.

Notice of the meeting shall be sent by post to members or creditors. It shall

contain the terms of the compromise or arrangement, effect, material interest of

the directors, interest of the debenture trustees, if any.

If at the meeting, a majority in number representing three-fourths in the value of

the creditors or members, present and voting either in person or by proxy, agree AMIT KARIA [email protected] 7798183106 / 9029210069


CA FINAL 34

to any compromise or arrangement, it is, if sanctioned by the Court, binding on all

the creditors / class or on members / class, as the case may be. Such majority of

members must also be the members representing three-fourths in the value of

members present and voting at the meeting.

An order of the Court shall not be effective until a certified copy of the same has

been filed with Registrar. A copy of order is also required to be annexed to every

copy of Memorandum of Association issued after the certified copy of the order

has been filed with the Registrar.

Before giving sanction, Court must be satisfied that class of creditors or members

has been fairly represented by those who attended, and that statutory majority in

approving the scheme is acting bonafide in the interest of the class it represents.

A scheme can be rejected only if it is unfair.

The Court can order the winding up, if it is satisfied that the compromise or

arrangement is unworkable.

The Court may make an order under Section 394, to facilitate schemes of

reconstruction and amalgamation when an application is made to the Court under

Section 391 for sanction of an arrangement involving transfer of whole / part of

the property of one company called "Transferor Company" to another company

called "Transferee Company".

A transferor company includes any body corporate whether or not a company

under the Companies Act, while a 'transferee company' comprises only a

company within the meaning of this Act.

The companies need not have any provision in the objects clause to amalgamate,

as it is not an object, but it is a power to amalgamate.

The transfer of property shall be automatic, without requiring execution of any

document as per order of the Court. But there cannot be automatic transfer of

services, as it is not property. AMIT KARIA [email protected] 7798183106 / 9029210069


CA FINAL 35

A company may acquire business and control of another company not by

amalgamation but by acquisition of a majority of shares in that company. The

consideration for acquisition may be paid either in cash or shares or both.

The scheme or contract must then be approved by the holders of not less than

90% in value of the shares concerned within four months from the date of the offer

(by the transferee company). Any shares of the transferor company, if already

held by the transferee company shall not be considered for limit of 90%.

When these conditions have been satisfied, the transferee company may give

notice in the prescribed manner to any dissenting shareholder, expressing its

desire to acquire his shares. If due notice is given, the transferee company is

entitled and bound to acquire these shares on the terms approved by the majority,

unless the dissenting shareholder applies to the Court within one month from the

date of the notice and Court orders otherwise.

Where in the public interest, it appears to the Central Government, that

amalgamation of two companies is essential, it may, through notification provide

for amalgamation of two companies into a single company with such constitution,

property, powers, rights, interests, authorities and privileges and with such

liabilities, duties and obligations as specified. "Public Interest" has not been

defined, but it is a wide expression including economic welfare of the community

and welfare of labour.

The books and papers of a company which has been amalgamated with or whose

shares have been acquired by another company cannot be disposed of without

prior permission of the Central Government.

The Central Government may appoint a person to examine the books and papers

in order to ascertain whether they contain any evidence of commission of an

offence in connection with promotion or formation or management of the affairs of

the company or in the course of amalgamation or acquisition of its shares.



CA FINAL 36

INSPECTION, INQUIRY AND INVESTIGATION

Where on a scrutiny of any document filed or information received by him, the

Registrar is of the opinion that any further information or explanation or documents

is / are necessary, he may by a written notice require the company to furnish in writing such information / explanation or produce such documents within

specified time.

It shall be the duty of the company & officers to do so. Where it relates to any past

period, the officers who had been in the employment for such period, if so called

upon by the Registrar through a notice served on them in writing, shall also furnish

such information or explanation to the best of their knowledge.

If no or inadequate information / explanation is furnished or if the Registrar is

satisfied that an unsatisfactory state of affairs exists in the company, he may, by

another written notice, call on the company to produce further books of account, books, papers and explanations as he may require. He may also carry out such

inquiry as he deems fit after providing the company a reasonable opportunity of

being heard.

The Central Government may, if it is satisfied that the circumstances so warrant,

direct inspection of books and papers of a company by an inspector appointed by

it for the purpose. CG may also authorise any statutory authority to carry out the

inspection of books of account of a company or class of companies.

The Registrar / Inspector shall, after the inspection / inquiry, submit a report in

writing to the Central Government along with a report including a

recommendation that further investigation into the affairs of the company is

necessary or not giving his reasons in support.

Where Registrar / Inspector has reasonable ground to believe that the books and papers of a company, or relating to key managerial personnel or auditor or PCS,

are likely to be destroyed, mutilated, altered, falsified or secreted, he may

enter & search, the places where such books or papers are kept and seize such

books and papers as necessary after allowing the company to take copies of, or AMIT KARIA [email protected] 7798183106 / 9029210069


CA FINAL 37

extracts from, such books or papers at its cost. This power can be exercised only

after obtaining an order from the Special Court to be constituted under

Companies Act, 2013.

The books shall be returned as soon as practicable but not later than one hundred and eightieth day after such seizure, to the company.

The Central Government may appoint one / more persons as Inspectors to investigate into the affairs of the company and to report thereon in such manner

as the Central Government may direct.

The Central Government shall establish an office to be called the SERIOUS FRAUD INVESTIGATION OFFICE to investigate frauds relating to a company. It

shall be headed by a Director and shall have such number of experts from the

following fields having ability, integrity and experience in specified areas.

Where any case has been assigned to Serious Fraud Investigation Office for

investigation, no other investigating agency of Central Government or any State

Government shall proceed with investigation.

In case any such investigation has already been initiated, it shall not be proceeded

further with and the concerned otheragency shall transfer the relevant documents and records in respect of such offences under this Act to Serious

Fraud Investigation Office.

On receipt of the investigation report, the Central Government may, after

examination of the report, direct the Serious Fraud Investigation Office to initiate

prosecution against the company and its officers or employees, who are or have

been in employment of the company or any other person directly or indirectly

connected with the affairs of the company.

No firm, body corporate or other association shall be appointed as an inspector.

An inspector appointed may, and if so directed by the Central Government

shall,submit interim reports to that Government, and on the conclusion of the

investigation, shall submit a final report to the Central Government.



CA FINAL 38

If, from an inspector's report, it appears to the Central Government that any person

has, been guilty of any offence for which he is criminally liable, the Central Government may prosecute such person for the offence and it shall be the duty

of all officers and other employees of the company or body corporate to give the

Central Government the necessary assistance in connection with the prosecution.

If any company or other body corporate is liable to be wound up under this Act and

it appears to the Central Government from any such report that it is expedient so to

do by reason of any prevailing circumstances, then Central Government may

cause a petition to be made for the winding up of the company on the ground

that it is just and equitable that it should be wound up.

Where the report made by an inspector states that fraud has taken place and any

director, key managerial personnel, other officer of the company or any other

person or entity, has taken undue advantage or benefit, whether in the form of any

asset, property or cash etc., the Central Government may file an application before

the Tribunal for appropriate orders with regard to disgorgement of such asset, property, or cash, as the case may be, and also for holding such director, key

managerial personnel, officer or other person liable personally without any

limitation of liability.



CA FINAL 39

WINDING UP Winding-up is a proceeding by means of which the dissolution of a company is

brought about and in the course of which its assets are collected and realised and

applied in payment of its debts.

Winding up is the first stage in bringing about a lawful end to the life of a

company, whereby the assets are realised, liabilities are paid off and the surplus,

if any, is distributed among the members. Dissolution is the final stage whereby

the existence of the company is withdrawn by law.

The liquidator appointed by the company or the Court carries out the winding up

proceedings, but dissolution comes after the liquidator has completed the

proceedings.

In the case of a winding- up, the liquidator is the representative of the company on

behalf of which he is appointed, but in case of dissolution, he cannot represent a

person which is not in existence.

In winding up, creditors can prove their debts due from the company, but it is not

possible on the dissolution of the company.

There are three modes of winding up: (1) Winding up by the Court (Compulsory

Winding up), (2) Voluntary winding up; and (3) Winding up subject to the

supervision of the Court.

It is not a right of a person to seek an order for winding up of the company, but it is just a discretionary power on the court to pass an order of winding up in appropriate situations.

Where a resolution has been passed by the company for voluntary winding-up, the winding- up of the company shall be deemed to have commenced at

the time when the resolution was passed.

The winding- up by the Court is deemed to commence at the time of the presentation of the petition for the winding-up.



CA FINAL 40

The liquidator is appointed to satisfy the debts and obligations and to distribute

the surplus assets amongst the members, of a company in liquidation. The Official

Liquidator is appointed by the Central Government.

The legal position of an Official Liquidator is that he is pubic servant and an officer

of the Court.

After a winding-up petition has been presented, but before a winding-up order has

been issued, the Court may appoint the Official Liquidator as the provisional

liquidator.

The appointment of provisional liquidator is temporary and continues till the

appointment of the Official Liquidator.

The appointment becomes important as there must be some person to take

proper custody of the company's property and protecting the interest of the

creditors by ensuring that the debts and obligations are met properly.

A provisional liquidator is generally not appointed, unless the necessity for such an appointment is shown and unless it is proved that the property of the company needs be taken possession of immediately.

If a petition for winding-up is presented on "just and equitable" ground, then the Court

may refuse to make an order of winding-up if it is of the opinion that some other

remedy is available to the petitioners and that they are acting unreasonably in

seeking winding-up.

Where the petition is presented on the ground of default in delivering the statutory

report or in holding the statutory meeting, the Tribunal may direct that the report be

delivered or the meeting be held instead of making the winding up order

Where winding- up order has been made or the Official Liquidator has been

appointed as provisional liquidator by the Court, a statement as regards the affairs

of the company in the prescribed form shall be delivered to the Official Liquidator.



CA FINAL 41

It is required to be made and verified by one or more of the directors and by a

person who, at the date of winding-up order or the appointment of the liquidator, is

the manager, secretary or other chief officer of the company.

The above statement is required to be submitted within 21 days of the winding- up

order or within such extended time, not exceeding three months, as may be fixed by

the Official Liquidator or Court for special reasons.

The statement of affairs must be open to inspection by any one stating himself in

writing to be a creditor or contributory. Also he is entitled to a copy thereof or as

extract there from.

There are two kinds of voluntary winding up: Members’ voluntary winding up and

Creditors’ voluntary winding up.

A winding up in the case of which a declaration of solvency has been made and

delivered by the Directors is referred to as "a members' voluntary winding up" and a

winding up in the case of which a declaration has not been so made and delivered

is referred to as "a creditors' voluntary winding up". The main difference between

members’ voluntary winding up and creditors winding up is that in case of the

former, the directors are able to guarantee the solvency of the company whereas in

case of the latter, they are not in a position to do so.

When a company has by special or ordinary resolution resolved to wind up

voluntarily, the Court may make an order that the voluntary winding up shall

continue, subject to the supervision of the Court and with such liberty for creditors,

contributories and others to apply to the Court, and on such terms and conditions

as the Court thinks fit.

The application for such intervention is made by the creditor, contributory or the

voluntary liquidator, when there are irregularities in the winding up.

"Contributory" means a past or present member. It means every person liable to

contribute to the assets of a company in the event of its being wound up, and

includes holders of shares which are fully paid.



CA FINAL 42

In the case of a company limited by shares, any past or present member is not

required to contribute in excess of the amount, if any, unpaid on the shares in respect

of which he is liable as such member.

The names of the present members are entered in List ‘A’ contributories, whereas

those persons who ceased to be members within the preceding one year are

entered in List ‘B’ contributories.

In the case of a company limited by guarantee, a past or present member is not

required to contribute an amount which is in excess of the amount undertaken to be

contributed by him to the assets of the company in the event of its being wound up.

In the case of a company limited by guarantee but having a share capital, every

member is liable, in addition to the guaranteed amount, to contribute to the extent of

any sum unpaid on any shares held by him as if the company were a company

limited by shares.

The liability of a contributory arises ex lege (by law) and not ex contractu (by any

contract)

In the winding-up of a company, the following shall be paid in priority to all other

debts:- workmen's dues and debts due to secured creditors.

Any action taken by a company within six months before commencement of

winding up like a transfer of its property or payment to a creditor in preference to

other claims which will defraud the lawful claims of the creditors is known as

fraudulent preference.

Any transfer of movable / immovable property or delivery of goods by a company

shall be void against the liquidator, if such transfer or delivery is made within one

year before the presentation of the winding-up petition by or subject to the

supervision of Court or the passing of a resolution for the voluntary winding-up.

A floating charge created within 12 months of the commencement of winding-up is

invalid. It shall be valid to the extent of any cash paid to the company at the time



CA FINAL 43

or subsequent to the creation of, and in consideration for, the charge together with

interest on the amount at 5% per annum or other prescribed rate.

COMPANIES INCORPORATED OUTSIDE INDIA

Foreign company is a company or body corporate incorporated outside India

which: has a place of business in India whether by itself or through an agent,

physically or through electronic mode; and conducts any business activity in India

in any other manner.

Place of business includes a share transfer office. A liaison office can also be

considered as place of business. A hotel can also be treated as a place of

business, if representatives of the company visit and stay in a hotel for purchase of

machinery etc.

Where not less than fifty per cent of the paid-up share capital, whether equity or

preference or partly equity and partly preference, of a foreign company is held by:

one or more citizens of India or one or more companies or bodies corporate

incorporated in India, or one or more citizens of India and one or more companies

or bodies corporate incorporated in India, whether singly or in the aggregate, then

such company shall comply with the provisions of this Chapter and such other

provisions of this Act as may be prescribed with regard to the business carried on

by it in India as if it were a company incorporated in India.

Every foreign company shall, within thirty days of the establishment of its place of business in India, deliver to the Registrar for registration specified

documents including a certified translation thereof in the English language.

(Form FC-1). The application shall also be supported with an attested copy of approval from the

Reserve Bank of India under Foreign Exchange Management Act or Regulations,

and also from other regulators, if any, approval is required by such foreign

company to establish a place of business in India or a declaration from the



CA FINAL 44

authorised representative of such foreign company that no such approval is

required.

Any document which any foreign company is required to deliver to the Registrar

shall be delivered to the Registrar having jurisdiction over New Delhi.

Where any alteration is made or occurs in the documents delivered to the

Registrar under this section, the foreign company shall, within thirty days of such alteration, deliver to the Registrar for registration, a return containing the

particulars of the alteration in the prescribed form (Form FC-2) Every foreign company shall, in every calendar year make out a financial

statement - balance sheet and profit and loss account of its Indian business

operations as per Schedule III or as near thereto as possible for each financial

year; get them audited by a practicing Chartered Accountant in India or a firm /

limited liability partnership of practicing chartered accountants. The time limit is six months from the close of the financial year of the foreign company. On a

special reason being shown, the Registrar may extend the time limit for maximum three months.

Every foreign company shall prepare and file, within a period of sixty days from the

last day of its financial year, to the Registrar annual return in Form FC.4 along with

such fee as provided in the Companies (Registration Offices and Fees) Rules,

2014 containing the particulars as they stood on the close of the financial year.

Every foreign company shall conspicuously exhibit on the outside of every office

or place where it carries on business in India, the name of the company and the country in which it is incorporated, in letters easily legible in English characters,

and also in the characters of the language or one of the languages in general use

in the locality in which the office or place is situated.

Any process, notice, or other document required to be served on a foreign

company shall be deemed to be sufficiently served IF ADDRESSED TO ANY PERSON WHOSE NAME AND ADDRESS HAVE BEEN DELIVERED TO THE REGISTRAR UNDER SECTION 380 AND LEFT AT, OR SENT BY POST TO,



CA FINAL 45

THE ADDRESS WHICH HAS BEEN SO DELIVERED TO THE REGISTRAR OR BY ELECTRONIC MODE.

No person shall issue, circulate or distribute in India any prospectus offering to

subscribe for securities of a company incorporated or to be incorporated outside

India, whether the company has or has not established, or when formed will or will

not establish, a place of business in India, unless the prospectus is dated and

signed, and contains the prescribed particulars.

No person shall issue any prospectus in India, unless before the issue, a copy

thereof is delivered to the Registrar.

“Indian Depository Receipt” (‘IDR’) means any instrument in the form of a

depository receipt created by a Domestic Depository in India and authorized by a

company incorporated outside India making an issue of such depository receipts.

No company incorporated or to be incorporated outside India, shall make an issue

of Indian Depository Receipts (IDRs) unless such company complies with the

conditions mentioned under this rule, in addition to the Securities and Exchange

Board of India Regulations and any directions issued by the Reserve Bank of

India.

Any failure by a foreign company to comply with the provisions shall not affect the

validity of any contract, dealing or transaction entered into by the company or its

liability to be sued in respect thereof.

But the company shall not be entitled to bring any suit, claim any set-off, make any

counter-claim or institute any legal proceeding in respect of any such contract,

dealing or transaction, until the company has complied with the provisions of this

Act applicable to it.



CA FINAL 46

E-GOVERNANCE Ministry of Corporate Affairs (MCA), Government of India had initiated the MCA-

21 project. It was started to enable an easy and secure access to the MCA

services which suited the corporate and the professionals and the public at large.

The documents relating to the company like MOA, AOA and charge documents

which were previously maintained in paper form across various ROC offices are

now converted and available in electronic format because of MCA-21 project.

An e-form is just a re-engineered conventional form. It is a document in

electronic format for filing with MCA through the Internet.

A first time user has to register with MCA to use the various services. For

registration, he has to provide personal information and then choose User ID and

password. This will be required every time he accesses the services of My-MCA

portal.

A Digital Signature is an electronic signature duly issued by Certifying Authority

that shows the authenticity of the person signing the electronic form. Every user

who is required to sign an E-Form for submission with MCA requires Digital

Signature. The persons who generally require Digital Signature are company

representatives & professionals.



CA FINAL 47

SPECIAL COURTS

The Central Government may, for the purpose of providing speedy trial of offences

under this Act, by notification, establish Special Courts, which shall consist of a

single judge who shall be appointed by the Central Government with the

concurrence of the Chief Justice of the High Court within whose jurisdiction the

judge to be appointed is working.

A person shall not be qualified for appointment as a judge of a Special Court

unless he is, immediately before such appointment, holding office of a Sessions

Judge or an Additional Sessions Judge.

Every offence under this Act except the offences involving serious fraud referred to

in Section 212 shall be deemed to be non-cognizable.

The Central Government shall also maintain a panel of experts to be called as the

Mediation and Conciliation Panel consisting of a certain number of experts having

qualifications as may be prescribed for mediation between the parties during the

pendency of any proceedings before the Central Government or the Tribunal or the

Appellate Tribunal under this Act.

The Central Government or the Tribunal or the Appellate Tribunal may also,

suomotu refer any matter to such number of experts from the Mediation and

Conciliation Panel as it deems fit.

The Mediation and Conciliation Panel shall follow prescribed procedure and

dispose of the matter referred to it within a period of three months from the date of

such reference and forward its recommendations to the Central Government or the

Tribunal or the Appellate Tribunal, as the case may be.

Any party aggrieved by the recommendation of the Mediation and Conciliation

Panel may file objections to the Central Government or the Tribunal or the

Appellate Tribunal, as the case may be.

The Central Government may appoint generally, or for any case or any specified

class of cases in any local area, one or more persons, as company prosecutors for



CA FINAL 48

the conduct of prosecutions under this Act and the persons so appointed as

company prosecutors shall have all the powers and privileges on Public

Prosecutors as per the Code of Criminal Procedure, 1973.

The court imposing any fine under the Act may direct that the whole or any part

thereof shall be applied in or towards payment of the costs of the proceedings, or

in or towards the payment of a reward to the person on whose information the

proceedings were instituted.

“Compound” means “to settle a matter by a money payment, in lieu of other

liability”. The compounding of an offence is a settlement mechanism, by which,

one is given an option to pay money in lieu of his prosecution, thereby avoiding a

prolonged litigation.

If the offence is not compoundable, then permission of the Court shall also be

required. If the company or the officer in default apprehends that an offence has

been committed, an application can be made for compounding of offence to the

Registrar of Companies even before a show cause notice is received and the

offence can be compounded by the Central Government, even before launching

any prosecution.

If the offence is compounded, the Registrar should not file any prosecution for the

offence.

An offence is compoundable by the Regional Director where the maximum

amount of fine is up to Rs 50,000/- . An offence is compoundable by the

TRIBUNAL (Company Law Board) where the fine exceeds Rs 50,000/-.

An application for compounding of offence should be made to the Registrar of

Companies who shall forward the same to the Regional Director or to the

TRIBUNAL (Company Law Board) as the case may be.



CA FINAL 49

MISCELLANEOUS PROVISIONS

Where the Central Government is a member of a Government company, the

Central Government shall cause an annual report on the working and affairs of

that company to be: (a) prepared within three months of its annual general

meeting where the comments given by the Comptroller and Auditor-General of

India and the audit report is placed; and (b) laid before both Houses of Parliament

together with a copy of the audit report and comments upon or supplement to the

audit report, made by the Comptroller and Auditor-General of India.

Where in addition to the Central Government, any State Government is also a

member of a Government company, that State Government shall cause a copy of

the annual report to be laid before the House or both Houses of the State

Legislature together with a copy of the audit report and the comments upon or

supplement to the audit report.

The Central Government may appoint such Registrars, Additional, Joint, Deputy

and Assistant Registrars as it considers necessary for the registration of

companies and discharge of various functions under this Act, and the powers and

duties that may be exercisable by such officers shall be such as may be

prescribed.

Any document reproducing or derived from returns and documents filed by a

company with the Registrar on paper or in electronic form or stored on any

electronic data storage device or computer readable media by the Registrar, and

authenticated by the Registrar or any other officer empowered by the Central

Government in such manner as may be prescribed, shall be deemed to be a

document for the purposes of this Act and the rules made thereunder.

The Central Government may also provide in the rules made under Section 398

and 399 that the electronic form for the purposes specified in these sections shall

be exclusive, or in the alternative or in addition to the physical form.



CA FINAL 50

The Central Government may provide such value added services through the

electronic form and levy such fee thereon as may be prescribed.

All the provisions of the Information Technology Act, 2000 relating to the electronic

records, including the manner and format in which the electronic records shall be

filed, shall apply in relation to the records in electronic form.

Any document, required to be submitted/ filed / registered / recorded, shall be

submitted, filed, registered or recorded within the time specified in the relevant

provision on payment of prescribed fee.

Provided that any document / fact / information may be submitted, filed, registered

or recorded, after the time specified in relevant provision within a period of two

hundred and seventy days from the date by which it should have been submitted,

filed, registered or recorded, on payment of prescribed additional fee.

All fees, charges, and other sums received by any Registrar, Additional, Joint,

Deputy or Assistant Registrar or any other officer of the Central Government in

pursuance of any provision of this Act shall be paid into the public account of India

in the Reserve Bank of India.

The Central Government may, by order, require companies generally, or any class

of companies, to furnish such information or statistics with regard to their / its

constitution or working, as specified in the order.

"Nidhi" means a company which has been incorporated as a Nidhi with the object

of cultivating the habit of thrift and savings amongst its members, receiving

deposits from, and lending to, its members only, for their mutual benefit, and

which complies with rules prescribed by the Central Government for such class of

companies.

The Central Government may direct that any of the provisions of this Act shall not

apply, or apply with exceptions, modifications and adaptations as specified in that

notification, to any Nidhi company.



CA FINAL 51

NIDHI RULES, 2014 provide that itshall be a public company and shall have a

minimum paid up equity share capital of five lakh rupees.

No Nidhi shall issue preference shares. Every Company incorporated as a “Nidhi”

shall have the last words ‘Nidhi Limited’ as part of its name.

As per Section 447, "Fraud" includes any act, omission, concealment of any fact

or abuse of position committed by any person with intent to deceive, to gain

undue advantage from, or to injure the interests of, the company or its

shareholders or its creditors or any other person, whether or not there is any

wrongful gain or wrongful loss.

Any person who is found to be guilty of fraud, shall be punishable with

imprisonment for a term which shall not be less than six months but which may

extend to ten years and shall also be liable to fine which shall not be less than the

amount involved in the fraud, but which may extend to three times the amount

involved in the fraud. Provided that where the fraud in question involves public

interest, the term of imprisonment shall not be less than three years.

If a company / officer commits an offence punishable either with fine or with

imprisonment and where the same offence is committed for the second or

subsequent occasions within a period of three years, then, that company and

every officer thereof who is in default shall be punishable with twice the amount of

fine for such offence in addition to any imprisonment provided for that offence.

If any person(s) carry on business under any name / title, of which the word

"Limited" or "Private Limited" or any contraction or imitation thereof is / are the last

word(s), that person(s) shall be punishable with fine which shall not be less than

five hundred rupees but may extend to two thousand rupees for every day for

which that name or title has been used.

The Central Government may, by an order published in the Official Gazette,

appoint as many officers, not below the rank of Registrar, as adjudicating officers



CA FINAL 52

for adjudging penalty under the Act in the prescribed manner. It shall also specify

their jurisdiction in the order.

The adjudicating officer may impose the penalty on the company and officer in

default stating any non-compliance / default under the relevant provision.

Any person aggrieved by an order may prefer an appeal to the Regional Director

having jurisdiction in the matter.

Where a company is formed & registered under this Act for a future project or to

hold an asset or intellectual property and has no significant accounting

transaction, such a company or an inactive company may make an application to

the Registrar for obtaining the status of a dormant company. The Registrar shall

initiate the process of striking off the name of the company if the company

remains as a dormant company for a period of consecutive five years.

Where any application required to be made to Central Government under this Act

is not made within the specified time, then Government may, for reasons to be

recorded in writing, condone the delay. Similarly, where any document required to

be filed with the Registrar under this Act is not filed within the time specified

therein, the Central Government may, for reasons to be recorded in writing,

condone the delay.

The Central Government shall cause a general annual report on the working and

administration of this Act to be prepared and laid before each House of Parliament

within one year of the close of the year to which the report relates.

If in any proceeding for negligence / default / breach of duty / misfeasance /

breach of trust against an officer of a company, it appears to the court that he may

be liable, but that he has acted honestly & reasonably, and that having regard to

the circumstances, he ought fairly to be excused, then the court may relieve him,

either wholly or partly, from his liability. Provided that in a criminal proceeding, the

court shall have no power to grant relief from any civil liability which may attach to

an officer in respect of such negligence, default, breach of duty, misfeasance or

breach of trust.AMIT KARIA [email protected] 7798183106 / 9029210069


CA FINAL 53

Any money or security deposit made by an employee of a company under the

terms of his contract of services, must be kept or deposited by the company within

15 days from the date of deposit in a Post Office Savings Bank Account or in a

special account to be opened with the State Bank of India or a Scheduled Bank.



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