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REGISTERED No. D. 221

The Gazette of India

EXTRAORDINARY

PART II—Section 2

PUBLISHED BY AUTHORITY

No. 58A ] NEW DELHI, THURSDAY, NOVEMBER 15, 1973/KARTIKA 24, 1895

Separate paging is given to this Part in order that it may be filed

as a separate compilation

LOK SABHA

The following Report of the Joint Committee on the Bill further to amend the Companies Act, 1956, the Securities Contracts (Regulation) Act, 1956 and the Monopolies and Restrictive Trade Practices Act, 1969 was presented to Lok Sabha on the 15th November, 1973: —

COMPOSITION OF THE COMMITTEE

Shri Nawal Kishore Sharma—Chairman.

MEMBERS

Lok Sabha

2. Shri Syed Ahmed Aga

3. Shri Bedabrata Barua 4. Shri H. K. L. Bhagat 5. Shri Somnath Chatterjee 6. Shri Tridib Chaudhuri 7. Shri Khemchandbhai Chavda 8. Shri C. Chittibabu 9. Shri S. & Damant

10. Shri Madhu Dandavate

11. Shri G. C. Dlxit 12. Shrimati V. Jeyalakshmi 13. Shri .Popatlal M . Joshi

(868/1 )

REPORT OF THE JOINT COMMITTEE

1. the Chairman of the Joint Committee to which the BUI* further to amend the Companies Act, 1956, the Securities Contracts (Regulation) Act, 1956 and the Monopolies and Restrictive Trade Practices Act 1969 was referred, having been authorised to submit the report on their be- half, present their report with the Bill, as amended by the Committee annexed thereto.

2. The Bill was introduced in Lok Sabha on the 11th August, 1972. The motion for reference of the Bill to a Joint Committee of the Houses was moved in Lok Sabha by Shri K. V. Raghunatha Reddy, the then Minister of Company Affairs on the 23rd August, 1972 and was adopted.

3. Rajya Sabha concurred in the said motion on the 26th August 1972.

4. The message from Rajya Sabha was reported to Lok Sabha on the 29th August, 1972.

5. The Committee held 38 sittings in all.

6. The first sitting of the Committee was held on the 2nd September, 1972 to draw up their future programme of work. The Committee decided to invite memoranda from various Chambers of Commerce and Industry, associations, organisations, individuals, etc., interested in the subject matter of the Bill, and also decided to issue a Prses Communique ir this behalf fixing the 20th September, 1972 as the last date for receipt of memoranda. The Chairman was authorised to decide, after examin- ing the memoranda received from various associations, organisations, etc., as to which of them should be called upon to give oral evidence before the Committee.

7. 130 memoranda on the Bill were received by the Committee from -various associations, organisations, individuals, etc.

8 At their second sitting held on the 27th September, 1972, the then Minister of Company Affairs (Shri K. V. Raghunatha Reddy) explained In detail the implications of the various provisions of the BUI. At this sitting the Committee also decided to extend the time for the submission <>f memoranda upto the 10th October, 1972 In view of the requests from several associations, organisations, etc.

9 At their 13th sitting held on the 13th December, 1972, the Com- mittee decided to hold their sittings at Calcutta and Bombay from the MM?4ft January, 1973 and 22nd to 24th January, 1973 respectively to

•PuBUahed ta the Gazette of India Extraordinary. **rt U, Wetta 2. dated

the lHh Augutt, 1072.

hear oral evidence of the represented es of various associations, organi- sations, etc.

10. The Committee heard evidence given by the representatives of various Chambers of Commerce and Industry, associations, organisations, etc. at their sittings held at Delhi on the 28Ji and 29th September, 1972; from 23rd to 28th October and from 11th to 13th December, 1972, at Calcutta from the 1st to 4th January, 1973, at Bombay from the 22nd to 24th January, 1973 and at Madras from the 13th to 16th June, 1973.

11. The report of the Committee was to be presented to the House by the 13th November, 1972. The Committee were granted four exten- sions of time—the first extension on the 13th November, 1972 upto the 23rd February, 1973, the second extension on the 22nd February, 1973 upto the 30th July, 1973, the third extension on the 27th July, 1973 upto the 5th September, 1973 and the fourth extension on the 30th August, 1973 upto the 16th November, 1973.

12. At their twenty-first sitting held on the 7th February, 1973, the Committee decided that (i) the evidence given before them might be laid on the Table of both the Houses; and (ii) two copies each of the memoranda received by the Committee from various associations, organi- sations, etc. might be placed in the Parliament Library after the presen- tation of the Report, for reference by the Members of Parliament.

13. At their sitting held on the 10th July, 1973, the Committee de- cided to take up general discussion on each clause of the Bill prior to taking up clause-by-clause consideration of the Bill. Accordingly, the Committee at their sittings held from the 10th to 13th and 21st July, 1973, held a general discussion on the amendments proposed in relation to the various clauses of the Bill. Shri H. R. Gokhale, Minister of Law, Justice and Company Affairs also explained his tentative reactions with regard to the various suggestions made by the Members of the Committee in relation to the various clauses of the Bill.

14. The Committee considered the Bill clause-by-clause at their sitt- ings held from the 15th to 18th October, 1973.

-15. The Committee considered and adopted the Report on the 8th November, 1973.

16. The observations of the Committee with regard to the principal changes proposed in the Bill are detailed in the succeeding paragraphs.

17. Clause 2—[Sub-clau"e(i)]: —

(a) The sub-clause seeks to insert a new clause (18A) in section 2 of the principal Act denning the meaning of expression "group". The Committee feel that in order to achieve the object of the pro- posed provision, the definition should be made more comprehensive BO that the cases where two or more individuals, associations, firms or bodies corporate, or any combination thereof, are in a position to exercise control could also be covered. The definition has been amended accordingly.

(b) In view of the insertion of the definition of "group", the Com- mittee feel that it is advisable to provide for a forum for the decision on any doubt or dispute as to whether two or more Individuals, associations, firms or bodies corporate or any combination thereof do or do not constitute a "group". Accordingly, an explanation to the definition of "group" has been added.

Sub-clause (Hi).—The definition of the expression "Secretary has been modified to make it harmonious with the provisions of clause 30 (original- ly clause 29) of the Bill (new section 383A). Other amendments made are of consequential nature.

18. Clause 3.—By clause 3, two new sections were sought to be intro- duced by the Bill namely, sections 4A and 4B. Section 4B contains a wider definition of the expression "same management". Since that expression has already been defined in sub-section (IB) of section 370 and the defini- tion of "same management", as contained in sub-section (IB) of section 375* of the Companies Act, 1956, has been adopted in the Monopolies and Restrictive Trade Practices Act, 1969, the Bill sought to omit sub-section (IB) from section 370 and also sought to make a consequential amendment in the Monopolies and Restrictive Trade Practices Act, 1969, so that the wider definition of "same management", as contained In section 4B, may be available for the determination of inter-connection of companies to which the Monopolies and Restrictive Trade Practices Act, 1969 applies.

The' Committee feel that the new definition of "same management" Is so wide that it is likely to restrict the operations of small and medhim- sized companies and is also likely to retard formation of capital and im- pede inter-corporate investments which are needed for the sturdy growth 6i the corporate sector. The Committee, therefore, feel that, so far as the definition contained in sub-section (IB) of section 370 is concerned, that dfennitlbri should be retained so that that definition may continue to apply lo the companies governed by the Companies Act, 1956. But so far as the companies governed by the Monopolies and Restrictive Trade Practices Act, i'9tS9, are concerned, they should be governed by the wider definition of "same management" and, consequently, the wider definition of "same management", as contained in section 4B, should be transferred to the Monopolies and Restrictive Trade Practices Act, 1969. New section 4B has, therefore, been omitted from clause 3 and clause 43 of the Bill (originally clause 39) has been amended to include therein the wider definition of "same management".

19. New Clause 4.—In view of the proposal to transfer to the Company Law Board some of the powers which were so long exercised by the Courts, the Committee feel that the strength of the Company Law Board might be raised to nine so that the matters in relation to which the powers of the court are proposed to be transferred to the Company Law Board might be disposed of expeditiously by one or more Benches formed by the Board. In order to enable the Company Law Board to discharge its quasi-judicial functions it is also necessary to clothe it with the powers of a civil court to enforce the attendance of witnesses and production of documents, etc., and also to provide for punishment for its contempt. The Committee also recommend that it should be ensured that persons having adequate legal qualifications and experience are appointed as members of the Company Law Board to discharge its quasi-judicial |K>wers.

New clause 4 has, accordingly, been inserted by the Committee to pro- vide for the above matters.

20. Clauses 5, 9, 13 and 14 [Original clauses 4, 8, 11 and 12].—These clauses seek to transfer to the Central Government the powers to decide certain matters which are at present decided by the Courts. A point was raised before the Joint Committee that, since these powers are of a quasi- judicial nature, they should not be exercised by the Central Government. The Committee, therefore, feel that instead of conferring these powers on the Central Government, these powers should be conferred by the statute itself on the Company Law Board to enable it to exercise such powers quasi-j udicially.

These clauses have been amended accordingly.

21. Clause 6 {Original clause 5]—(a) Sub-clause (i) .—According to existing section 43A(1), where one or more bodies corporate hold not less than twenty-five per cent of the paid-up share capital of a private com- pany, such private company becomes a public company. The sub-clause, as introduced, proposes to reduce the said percentage from twenty-five to ten. The Committee feel that the reduction of the percentage of share- holding to ten is likely to hamper the formation and growth of private li* mited companies in the small scale sector, especially in the rural areas, and, therefore, the provisions of section 43A(1) should not be disturbed. The Committee further feel that private companies which are less capital intensive but have a considerable consumer and employee interest because of its high turnover^ should be brought within the ambit of deemed public companies irrespective of its paid-up share capital. The Committee, there- fore, recommend that a private company, irrespective of its paid up _r.hare capital, shall become a public company if it has an average annual turn- over of one crore rupees or more. The Committee have, therefore, inserted new sub-section (1A) after sub-section (1) of section 43A, to achieve these objectives.

(b) Sub-clause (ii).—The Bill, as originally introduced, sought to provide that a private company holding ten per cent, or more of the paid- up share capital of a public company will be deemed to be a public com- pany. The Committee feel that the fixation of the percentage at ten is likely to hamper the growth and formation of capital of public companies. The Committee, therefore, recommend that the percentage be increased to twenty-five. The sub-clause has been amended accordingly. A conse- quential change in the number of the sub-section has been made,

(c) Sub-clause (in) .—The Committee feel that a private company in which the entire share capital is held by another private company need not become a public company. The sub-clause has, therefore, been omitted in order that the exemptions under section 43A as it stands may continue to be in force.

(d) Sub-clause (iv) [Renumbered as sub-clause (iii)].—The amend- ments are of a consequential nature. The Committee feel that private com- panies which do not have an average annual turnover of rupees one crore or more should file with the Registrar a certificate to that effect.

(e) New sub-clause (iv) .—The Committee feel that every private company having share capital should file with the Registrar, alongwith

the annual return, a certificate signed by both the signatories of the annual return, stating that since the date of the annual general meeting with reference to which the last annual return was submitted, or in the case of a first return, since the date of the incorporation of the private com- pany it did not hold twenty-five per cent, or more of the paid-up share capital of one or more public companies.

A new sub-section (9) has been added to Section 43A accordingly.

(f) The Committee have inserted an 'Explanation" including therein definitions of the expressions "relevant period" and "turn-over" so that there may not be any difficulty with regard to the interpretation of those expressions.

22. Clause 7 [Original clause 6].-—This clause seeks to insert new sec- tions 58A and 58B.

(i) Sub-section (2) of the proposed section 58A provides that no com- pany shall invite or accept any deposit except after the publication of an advertisement specifying therein the financial condition, management structure and other particulars of the company. The Committee feel that such advertisement should not be necessary for the acceptance of deposit from the directors or share-holders of the company. It would be enough if acceptance by a company of deposits is made in accordance with the rules made by the Central Government after consultation with the Reserve Bank of India. So far as invitation by a company of deposits from the pub- lic is concerned, such invitation should, however, be made in accordance with the rules made by the Central Government under sub-section (1) and such invitation shall not be made exoept after the publication in the prescribed form and in the prescribed manner of an advertisement including therein the financial position of the company.

(ii) The Committee feel that the deposits which have so far been accepted by the companies may have been either utilised by them or invested in long-term securities and, as such, the companies may not be in a position to refund the deposits within thirty days from the com- mencement of the Amending Act. Consequently, if the provisions as contained in the Bill introduced in Lok Sabha are maintained, most of the companies may be forced to take loans from nationalised or other banks for the repayment of the deposits and such loans may put undue strain on the financial position of the companies. The Committee, therefore, feel that the provisions with regard to refund of deposits should be liberalised and, accordingly, the Committee recommend that—

(a) pre-Amending Act deposits, which were accepted by com- panies in accordance with the directions made by the Reserve Bank under Chapter IIIB of the Reserve Bank of India Act, 1934, should be allowed to continue in accordance with the terms of such deposit. But no such deposit shall be renew- ed, after the expiry of the term thereof, unless the deposit is such that it could have been accepted by the company if the rules made by the Central Government under sub-section (1) were in force at the time when the deposit was accepted by the company.

1897 LS—2

(b) pre-Amending Act deposits, which, were accepted by com- panies in contravention of the aforesaid directions made by the Reserve Bank, should, however, be refunded in accord- ance with the terms of such deposit. But where such depo- sits arc not refundable earlier, they should be refunded in a phased manner, namely, one-third of such deposit should be refunded before the 1st day of April, 1974; another one- third should be refunded before the 1st day of April, 1975 and the balance should be refunded before the ^lst day of April, 1976. Such refund will, however, be without prejudice to any action which may be taken under the Reserve Bank of India Act, 1934, for the acceptance of the deposit in contra- vention of directions made by the Reserve Bank of India.

(c) post-Amending Act deposits, which are accepted in contra- vention of the rules made by the Central Government under sub-section (1), should be refunded within thirty days from the date of acceptance of such deposits or within such further time, not exceeding thirty days, as the Central Government may, on sufficient cause being shown by the company, allow.

(iii) The Committee feel that, where there has been an omission or failure to refund any deposit in accordance with the provisions indicat- ed above, a fine should be imposed on the company for such contraven- tion and the amount of the fine shall not be less than twice of the amount in relation to which the refund has not been made and out of the fine, if realised, an amount equal to> the amount of the deposit, which has not been refunded, will be paid by the court trying the offence to the depositor, and, on such payment, the liability of the company to make the refund shall stand discharged. Further, where there has been an omission or failure to make any refund of the deposit in ac- cordance with the previsions indicated above, every officer of the com- pany who is knowingly guilty of the omission or failure or who has knowingly or wilfully authorised such omission or failure shall be pun- ishable with imprisonment for a term which may extend to five years and shall also^ be liable to fine.

(iv) The Committee feel that the provisions of the Companies Act, 1956 relating to prospectus should, as far as practicable, apply to an advertisement referred to in section 58A. Accbrdingly. section 58B, as sought to be introduced by the Bill, has been redrafted.

23. New clause 10.—The Committee feel that the distinction made by the existing Act between the preference shares Issued by a public company before and after the commencement of the Companies Act, 195R. should be removed and all the preference shares should be placed on the same footing, so that nn extra voting right is enjoyed bv the preference shares which arc issued before the 1st day of April, 1956. Ac- cordingly, section 90 of the principal Act has been substituted bv a new section,

24. Clause 12 [Original clause 10].—The clause Introduces new sec- tions 108A to 108H.

I. New section 108A.—The amendments made in this section are of a consequential nature.

II. New section 108B.— (i) This section stipulates restriction on the transfer of shares. The Committee feel that provisions of section 108B should not affect the liquidity of shares and the period of restriction on the transfer of shares might be limited to sixty days and where any transfer to the proposed transferee i.s not approved by the Central Gov- ernment, it would be open to the company to give a fresh intimation with a proposal to transfer the share to any other transferee. Sub- section (2) has been amended accordingly.

(ii) Amendment in sub-section (3) of section 108B is of a clarl- ficatory nature.

(iii) The Committee feel that the payment of market value of shares should be made forthwith where there is no dispute as to the market value or the market value has been mutually agreed upon. But where there is a dispute as to the market value, the value as estimated, by the Central Government or the corporation shall be paid forthwith and the balance may be paid within thirty days from the date of determination of the market value by the court. Accordingly, a new sub-section (4) has been Inserted in section 108B.

(iv) The Committee feel that since section 108B provides for res- triction on the transfer of shares, it is not necessary to make the ac- quirer punishable. Clause (c) of sub-section (6) of section 108B lms, therefore, been omitted.

Other amendments in this section are of drafting nature.

III. New section 108C—Section 108C stipulates restriction on the transfer of shares of foreign bodies corporate having an established place of business in India in cases where holding of shares is ten per cent, or more of the nominal share capital of the foreign company concern- ed, except with the previous approval of the Central Government. The Committee feel that the approval of transfer of shares should not be efused unless It is prejudicial to the public interest. The Committee Iso feel that the scope of the section should be limited to transfer of oldings of shares by bodies corporate and should not cover transfers of Adding by individuals.

Clause (ii) of sub-section (1) has been amended accordingly.

Other amendments made are of verbal nature.

IV. New section 108D.—This section freezes the voting right in res- pect of the shares or block of shares in relation to which any direction has been made by the Central Government. The Committee feel that the voting rights should not be frozen for all time to come.

Accordingly, sub-section (4) has been added to section 108D which provides that, on the re-transfer of the shares to the seller, he shall have voting and other rights in respect of the shares provided that he has refunded the purchase money to the purchaser.

V. New section 108E.—The Committee feel that if the approval of the Central Government under section 108A or 108C is not granted Within sixty days, it should be presumed to have been given.

A new section 108E has been inserted accordingly.

VI. New section 108H.—The Committee considers it advisable to confine the operation of the scope of proposed sections 108A etc. to companies covered by Part A of Chapter III of the Monopolies and Res- trictive Trade Practices Act, 1960 in view of their particular bearing upon the aspect of concentration of economic power. Section 108H has been substituted to give effect to this view.

25. Clause 15 [Original clause 13].—A point was raised in the Joint Committee that, in view of the provisions of section 187C, the com- panies may be dragged into court for the determination of the person to whom the dividend is to be paid; and, as a result of such litigation, payment of dividends may be indefinitely delayed. The Committee feel that with a view to allaying these apprehensions, it might be clarified that the obligation of the companies to pay dividends will become dis- charged if dividends are paid to the registered shareholders in accord- ance with the provisions of section 206.

A new sub-section (7) to section 187C has been added according-

ly-

26. Clause 17 [Original clause 15].—This clause seeks to insert new sec- tion 204A which provides for imposition of restrictions on persons who had functioned in the distant past as managing agents or secretaries and treasurers to any office of profit in the company. The Committee are of the opinion that such restrictions should be imposed only on those persons who had functioned as managing agents or secretaries and trea- surers after the 15th August, 1960.

The clause has been amended accordingly.

27. New clause 18.—Sub-section (3) of new section 205A imposes certain restrictions on the declaration of dividends from accumulated profits. A point was raised in the Joint Committee that this provision may encourage the distribution of the entire profits for a year by way of dividends and such distribution may be detrimental to the interests of the company as well as of its shareholders. The Committee feel that a certain percentage of the profits, not exceeding ten, may compulsori- ly be transferred to the reserves which would be both beneficial to the company and the shareholders because such reserves would be avail- able to the company for ploughing them back for the expansion of the activities of the company and would also be available for declaration of dividends in a lean year, subject to the rules as may be made by the Central Government as envisaged in the proposed section. The clause provides for the above matters. A proviso has been added to make it clear that voluntary transfer of a higher percentage of profits to the reserves are not prohibited by the proposed sub-section but such trans- fer will have to be made in accordance with the rules made by the Cen- tral Government.

28. Clause 19 [Original clause 161.—This clause, as introduced, re- auired that a companv should transfer the entire amount of the divi- dends to a special dividend account within seven days from the date of declaration of the dividend. It was pointed out to the Joint Com- mittee that this provision was very harsh and might lead to various

difficulties. The Committee was also informed that since, under the Act, the companies had forty-two days' time to pay the dividends, the provision requiring them to deposit the entire amount of dividends to a special account within seven days was an unreasonable one. The Com- mittee, therefore, feel that only the amount which remains unpaid af- ter the expiry of forty-two days from the date of declaration of divi- dends may be transferred to the special dividend account and the in- terest accruing on such amount should enure to the benefit of the share- holders to whom the dividends remain unpaid and may be paid to them in proportion to the amount due to them.

The clause has been amended accordingly.

29. Clauses 21 and 22 [Original clauses 18 and 19].—The amendments made are of drafting and verbal nature.

30. Clause 23 [Original clause 20].—(i) The Committee are of the opinion that in view of the proposed ceiling on the number of audits to be undertaken by an auditor, it is necessary that every company while appointing an auditor under sub-section (1) of section 224 shall obtain a certificate from the auditor to the effect that the appointment or re- appointment, if made will be in accordance with the limits specified by sub-sections (IB) and (1C).

A proviso to sub-section (1) of section 224 has been added accord- ingly.

'

(ii) New sub-section (IB) proposed to be inserted in section 224 provides for the rotation of audit work amongst the auditors. This was done with a view to bringing about a dissociation of auditors from groups of companies so that they may not have any temptation to shield the shortcomings of the managements from the shareholders. It was also done with a view to achieving a more equitable distribution of audit work amongst the different auditors so that the younger sections of the audit profession may have better chances of advancement in the pro- fession.

The evidence which was adduced before the Joint Committee, how- ever, established that the system of rotation might be evaded very easily and that such rotation would not serve the purpose for which .the provi- sions were conceived.

The Committee have considered this matter in all its aspects and feel that a ceiling on the number of audits would achieve the objects which' the Government had in view when the Bill was introduced. Since com- panies are of different sizes, the ceiling will be meaningful only if it is fixed in such a way that both the number and the size of the companies are taken into account in determining the ceiling. The Committee are of the view that a ceiling at twenty companies might be put; such a ceiling will sufficiently serve to break the evil of continued association of chartered accountants practising as auditors, singly or in firms, with groups of companies, as such groups generally consist o fmuch more than 20 companies. Out of these 20 companies, not more than ten should be companies having paid-up share capital of Rs. 25 lakhs or more. In £he qase of firms of auditors, the Committee feel that the ceiling may be

20 per partner of the firm so that firms may not get an advantage over the individual auditors. The fixation of the number of audits per part- ner of the firm may encourage large firms to retain their advantage of size by taking in more partners. Thus, opportunities may grow for the members of the accountancy profession of becoming partners of audit- ing firms. Where, however, any partner of a firm of auditors is also a partner in any other firm or firms of auditors, the overall ceiling in relation to such partner will also be 20, so that he may not be able to get an extra advantage by becoming a partner in more than one firm of auditors and thereby defeat the purpose of the provisions contemplated in the Bill. The clause has been amended accordingly.

31. Clause 24 [Original clause 21].—The clause seeks to insert new section 224A providing that in the case of a company in which not less than twenty-five per cent of the subscribed share capital is held by a public financial institution or a nationalised bank or a general insurance company, or in any combination thereof, the appointment or re-appoint- ment of an auditor shall have no effect unless approved by the Central Government. The Committee feel that the Government should not be overburdened with the responsibility for giving approvals. The Com- mittee, therefore, feel that in such cases the appointment or re-appoint- ment of an auditor should be made by the company by a special resolu- tion.

The clause has been amended accordingly.

32. Clause 25 [Original clause 22].—By this clause, a proviso to sub- section (1) of section 233B is sought to be added which provides that if the Central Government is of opinion that sufficient number of Cos+ Accountants within the meaning of the Cost and Works Accountants Act, 1959 are in practice and are available, for conducting the audit of cost accounts, the Government may by notification in the Official Gazette direct that on and from such date as may be specified, no Char- tered Accountant within the meaning of Chartered Accountants Act, 1949 shall conduct the audit of cost accounts of any company.

The Committee feel that cost audit should be conducted only by qualified cost accountants. Therefore, the proposed amendment could be made more positive by providing that if the Central Government Is of opinion that sufficient number of co-it accountants are not available, the Government may, by notification, direct that for a specified period of time, chartered accountants who fulfil the prescribed qualification may also conduct the audit of cost accounts of any company.

The proviso has been amended accordingly.

33. Clause 26 [Original clause 23].—The amendment is of a clariflca-

tory nature.

34. Clause 27 [Original clause 24].—This clause seeks to insert new section 294AA empowering the Central Government to prohibit the appointment of sole selling agents in certain cases. The Committee feel that the prohibition may be limited, to a period to be fixed by the Central Government so that on the expiry of the specified period, it may be open to the Central Government to review the whole matter.

Sub-section (1) has been amended accordingly.

35. Clause 28 [Original clause 25].—-By this clause, a proviso to sub- section (1) of section 297 is being added to provide that in the case of companies having paid-up share capital of not less than rupees twenty- five lakhs, no contract in which the directors are interested shall be entered into without the approval of the Central Government. Tha Committee feel that if such a provision is made, it may cause avoidable inconvenience to many companies, particularly the small an>d medium- sized companies and incidentally increase unduly the work-load for the Government in having to deal with a large number of applications for its approval. The limit has, therefore, been increased to rupees one crore.

The proviso has been amended accordingly.

36. Clause 29 {Original clause 26].—The amendments made are of a drafting nature.

37. Original clauses 27 and 28.—These clauses have been omitted consequent on the changes made in clause 3 of the Bill.

38. Clause 30 [Original clause 29].—The amendments made are of a drafting nature.

39. Clause 33 [Original clause 32].—The Central Government is em- powered to notify that the provisions of the Act, as may be specified by it, shall apply to foreign companies in which, one or more citizens of India hold a certain percentage of shares. The Committee feel that, in order to enable the Central Government to know the shareholdings of the Indian citizens, it is necessary to require foreign companies to sub- mit their annual returns to the Registrar of Companies. The provisions of section 209A and sections 234 to 246 should be made applicable only to the Indian business of a foreign company.

The clause has been amended accordingly.

40. Clause 3& [Original clause 34].—The Committee feel that a ceiling with regard to audit work should also apply to Government companies.

The clause has been amended accordingly.

41. Clause 36 [Original clause 35].—The amendment is of a drafting nature.

42. New clause 37.—This clause has been inserted in order to confer upon the Company Law Board, powers to accord approval, etc., subject to conditions, and to prescribe fees in relation to approval, sanction con- sent, confirmation etc.

43. New clauses 39 and 40.—The Committee on Subordinate Legisla- tion of both Houses of Parliament have approved a revised model clause for the laying, before Parliament, of rules, etc. made by the Central Government under Central Acts. These clauses have been inserted with a view to amending sub-section (3) of sections 641 and 642 of the Act with a view to bringing these sections in conformity with the revised model clause approved by the abovementioned Committees.

44. New clause 43.-- This clause reproduces, with suitable modifica- tions, new section 4B which was sought to be inserted by clause 3 of the Bill.

45. Clause J--According to the clause as introduced in the Lok Sabha, the amending Act would come into force on the date on which it is assented to by the President . Since the Bill envisages the framing of rules in consultation with the Reserve Bank of India in relation to certain matters, and also the prescription of fees etc., the Committee feel that it may not be possible for the Central Government to frame the rules before assent is given by the President to the Amending Act. In the circumstances, the Committee recommend that the Central Government might be empowered to bring the Amending Act into force on such date as that Government may, by notification in the Official Gazette, appoint.

The clause has been amended accordingly.

46. Enacting Formula.—The amendment made is of a formal nature,

47. The Committee recommend that the Bill, as amended, be passed.

NAWAL KISHORE SHARMA, NEW DELHI;

Chairman,

November 15, 1973.

Joint Committee,

"ttartika 24. 1895" (Saka).

MINUTES OF DISSENT

I

I cannot fully agree with the report of the Joint Committee on the Companies (Amendment) Bill, 1&72.

If any radical changes in the existing Companies Act are to be imple- mented effectively, it is absolutely necessary that structural Changes are introduced in the Boards of Directors and managements of companies, so that these Boards can represent the interests of labour, consumers and shareholders.

It is also necessary to give proportional representation to the share- holders on the Boards of Directors, when a group of shareholders repre- senting a voting power of at least ten per cent, demands such a represen- tation.

Unfortunately the Companies (Amendment) Bill, 1972 and the report of the Joint Committee thereon have not even touched those sections of the Companies Act which deal with the constitution of the Boards of Directors and management.

To prevent the collusion between the auditors and the companies with- out depriving the companies of the expertised knowledge of experienced auditors, it is necessary to introduce a joint audit system providing for the appointment of one auditor from the panel of senior auditors and one from the panel of junior auditors; both the panels being drawn up by the Institute of Chartered Accountants of India.

The report of the Joint Committee has not accepted this important

provision for the joint audit system.

If the Companies Act has to work satisfactorily the meaning of "public financial institutions" for the purposes of this Act has to be widened so as to bring into the ambit of "public financial institutions". General Insu- rance Corporation of India and Nationalised Banks also.

The Joint Committee report does not accept this important aspect re- garding public financial institutions and I would not like to be a party to the exclusion of these two important institutions from the ambit of "public financial institutions."

NKW DELHI; MADHU DANDAVATE

JVoiM?mber ft. 1973.

n

With deep disappointment in mir minds we havp to include out mhiuies

of dissent as hereunder:—

The Bill is a halfhearted measure. Its provisions will hardly be able to meet adequately with cases oi abuse or distortions in the system of

corporate management and holdings. Some of the rigorous provisions re- lating to take-over have been diluted during the discussions before the Joint Committee, wliile some provisions are directed towards further perpetuation of bureaucratic control. The jurisdiction of the Courts has been curtailed and more powers have been conferred on the Company Law Board, whose porformanco in the paut has neither been able to rouse confidence in the minds of the people who had occassions to take recourse to the Board nor helped in the proper and speedy implemntation of thu provisons of the Act. The reasons which have been put forward for curtailing court's jurisdiction are not only unconvincing, they are also not bonafide. Whereas proceedings before the Courts are open to pub- lic view, the bureaucratic procedure is clandestine. In any event the aggrieved party will come to court in the end. So excepting creating a fresh army of white collar bureaucrats no other results can be achieved although scope for corruption will increase. Bureaucratic control is also discernible from the provisions made for deposit of the unpaid amount of dividend with the Government. This will only lead to multiplicity of white collor Government employees for which there is no necessity at all. No company has yet been known to have misappropriated money from dividend account. The provision of requiring scurity from share-holders is a ridiculous and Irresponsible measure.

We feel that tins kind of unimaginative legislation can hardly achieve proper formulation of law relating to corporate management or achieve desirable objectives. Too many restrictions requiring unnecessary secre- tarial work will not help formation and growth of the small companies, although there should be adequate provisions in the law to check mis- management and to provide remedial measures in all cases of abuse which can be done by enacting certain procedure and enforcing strict obser- vance of the same. There are still various lacunae in the company laws for the removal of which no attempt has been made in the present Bill. Till now the law does not provide lor participation by the workers in the management of the companies. Thp Bill, as well as the Act, does Dot lay down any guidelines for the discharge of duties and functions by the directors who may be nominated by the Government m the Boards of various companies. Similarly, no attempt has been made to lay down the principles on which the Public Trustee has to exercise his powers and functions. Guidelines have not been laid down to indicate for what act or omission a director can be removed. Everything has been left to the caprices of an inefficient bureaucracy.

Too sweeping restrictions regarding deposits particularly from share- holders or directors will only hamper the proper functioning of the com- panies without any concommitant benefit. The provision in the Bill W obtaining permission from all stock exchanges to which appH-afchr.t; have been made for dealing with shares before the shares are allotted by a company will create avoidable uncertainties.

While restrictions have been sought to be imposed on the appointment of secretary, consultant or advisor so far as the former managing agents, secretaries or treasurers or associates thereof are concerned, a time-lim:t of five years has been put. We do not find any rational explanation Tor such time-limit. The object seems to be to allow such persons to stnpp a come-back in the company's management after the period expires.

The provisions in the Bill for making over the unpaid amount ol dividenu to tne Government and for maKuig applications m the Govern- ment lor recovery 01 me same are oojecuonaoie leatures ot tne hill. More so, is tne provision lor payment 01 unpaid dividend to share-holders upon security being fuxmsned. Tins will very seriously hit a large number of small share-holders. We do not find any reason why any amount of unpaid dividend, which has remained unpaid for no fault of the company, snould be appropriated by the Government and should not be utilised by the company, which has generated the funds, for its own purposes. Moreover calling for security will virtually result in forfeiture ol the amount to Government.

Although the original provision in the Bill with regard to the appoint- ment of auditors has been considerably improved, we teel there was and still is scope for turther improvement,

We feel that the matter of cost audit should be left with the coal accountants. The oft-repeated excuse either for avoiding cost audit or for cost audit to be made by chartered accountants because of inadequacy of the number of cost accountants does not seem to be borne out by the available statistics as to the present number of cost accountants in the country. Statutory requirements to carry out cost-audit in respect of manufacturing and producing concerns and proper implementation of such provision will do away largely with the manipulation in the costing of products of such concerns. It is unfortunate that the Bill does not make such cost audit compulsory.

Various offences have been created in the Bill which will be, what are known as absolute offences, that is, persons may be held guilty of offences without any mens-rea. On principle, we have been opposed to creation of such offences because in many cases such provisions will ope- rate harshly and in most cases such provisions will be utilised for objec- tives other than those which seem to have prompted making of such provisions.

One particularly significant and objectionable provision of the Bill is the provision with regard to compulsory appointment of company secre- taries. The provision is to be found in clause 29 of the amending Bill seeking to add a new section 383A to the Companies Act, 1956 which makes it obligatory to every company having a paid up capital pf Rs. 25 Lakhs or more to employ a whole time company secretary having suen qualification as may be prescribed.

In the notes on clause 29 of the draft Bill the Government has stated " this provision will also hdp the growth of the profession of com- pany secretaries and provide employment opportunities to qualified secre- taries" This is significant. This discloses how the mind of the Govern- ment works. This reveals the reactionary, anti-people and blissfully ig- norant nature of the pseudo-socialists heading the Government and their •'Committed bureaucrats". There are about 3,000 companies in India with paid-up capital of Rs. 25 Lakhs or more. By making it obligatory for such companies to employ a person having a diploma of a company secretary, special privilege and employment opportunities are being created in favour of individuals whose qualifications are not likely to contribute towards increase in production. Minimum six crores of rupees per annum would have to be spent on such unproductive person- nel. It has been argued that since due to systematic encroachment by

•""• ²J l'H£. GAS5LTTK Oi INDIA EXIRAORDlNA&i 868/19

the bureaucracy into the day to day administration of a company the management 01 a eoinpam nas become complicated, it i.-v necessary to have tne assistance of these diploma holders. One does not see why this must be made obligatory. Whai lot the Directors are there? ⁴ What is the function of the Managing Director or the Manager? Who are the people tnose are doing this joti now"? VVhy replace tnem? Why lawyer* who with 10 years experience are considered U> Lf competent enough 10 fill the highest judicial posts in the country or ine charted account- ants should be excluded from being employed as secretaries oi a com- pany? Why create an unproductive privileged class? The answer to all these are not far of seek, ft has always been the policy of this Govern- ment to pursue two distinct policies (1) to preserve the monopolists; (2) to create side by side a bureaucratic capitalism which would serve as cloak and cover for monopoly capital and faithfully serve the interests of the monopolists from behind tne screens. By treating all companies having paid-up capital of more than 25 lakhs (whose number to-day exceeds 3,000) the big and small companies have been put under the same hardship. It is not difficult to appreciate who would suffer in such a case. This would help the monopolists because lots of money which could have been spent on productive labour, would have to be spent by smaller companies on these secretaries. And there would come into existence a large group of white collar employees, the top bureaucrats of the private sector who with their assistants, stenographers-, typists and peons will produce paper work only. A large part of the surplus if any would be swallowed by them. This is what is happening everywhere as a result of every Government policy. "Production" and "Productive labour" are mere slogans with this Government. Attempt is always to over centralise everything and thus create an ever-increasing army of superfluous bureaucrats.

We wonder whether ever and if so when will Government realise that the prospects of socialism increased national income, surpuls production and many other desirable things continue to recede with the growth in the number of unproductive workers.

SAUL KUMAR GANGUL1

NEW DELHI; SOMNATH CHATTERJEE November 8, 1973

III

The stated object of tm& BiJi is to acal with the problem of the growing concentration of economic powei m ike hands of private monopoly capital achieved through "take-over bids" and other means, as innumerable other malpratices and abuses of the private corporate sector which have assumed serious proportions.

In his opening remarks made before the Joint Committee, the then Minister lor Company Affairs. Shri Raghunatb Reddy, stated that the Government considered xius Bill as one of the means of advancing to- wards a socialist society through tne instrumentality of the law.

Judged by this criterion, it is necessary to make certain general obser- vations on the Bill before considering the utility of its clauses in dealing with the problems posed by it.

The long experience oi advanced capitalist countries, and even our wwn experience of the lasi decade and more has proved that legislation and administrative measures nave failed to prevent the rapid growth oi private monopoly concerns wuai to speak of controlling or restricting tneir activities. The Note; circulated fay the Department of Company Affairs explaining the inadequacy oi existing legislation in dealing witn ima question Irankly states thai "it has b e ta uie experience t h at not u ~.ngie va,se of take-over bids could be regulated or undesirable one pre- vented by the Government."

The coot vi' tiiis failuie does am lit* in faulty legislation or the siiis u£ ujiiission ami commission oi' the administrative machinery.

The root lies in this that existing legislation has all ulvng coivecdeti Uie position liiat the growth of private monopoly in industry and finance is intrinsically conducive to the development of industrial efficiency and economy oi s^ale, and an -such, to the development of national production. 'The only objectionable aspect oi the growth of such monopoly, it La argued, is that 11 ctten resorts to anti-social practices like extracting unconscion- able profits from the people and so on. Natuially, what follows is that the task oi anti-monopoly legislation is to prevent or curb such practices.

The 4act oi the matter, however, is thai despite its tall claims, private monopoly capital operates, not as a force lor increasing social produc- tion but for restricting it considering the available productive capacity of industry at any given moment.

Such has been the actual experience all over the capitalist world. To refer to t wo illustrations from our own experience of recent years, tfiti textile and the sugar industries are there. Monopolists in some of our engineering industries have done the same. The question of t he very , partial utilisation of our existing" industrial capacity is also there. All this goes to prove that the very basis of monopoly profits, not an aber- ration, is the restriction and not the expansion of production.

Considering particularly the extremely acute crisis of production in our country for which private monopoly capital is dominantly responsible, it is our opinion that Indian monopoly concerns must be taken over by the Government without further delay. Amended legislation will not solve the problem.

Coming to the question of the abuses and malpractices of the private corporate sector as a whole, including private limited companies, t he concern shown by the relevant clauses of the Bill is for the protection of the interest of small and scattered shareholders of companies, the small investors ,oftcn referred to as the minority shareholders. The question of depositors entrusting their hard earned savings to joint stock com- panies is also dealt with. Such shareholders and depositors are no doubt at the mercy of the dominant owners of companies, and being helpless in protecting their interests against tve latter, are generally cheated by them and have to suffer serious losses.

Some clauses also deal with the interest of the Government and pub- lic financial institutions w h e re they happen to be minority shareholders in joint stock companies in the private sector.

But a vital question is ignored by these provisions. It is the working class, whether in the public or private sectors of industry, that actually produces t he products of industry. As such it has every right to parti- cipate effectively in the management of industry, both at shop level where production takes place and at the managerial level, i.e. in the boards of directors of industrial concerns or financial institutions. The existing multiplicity of trade unions is no argument for denying this right to workers. National Trade Union Centres in our country have put forward proposals, for t he election of workers' representatives by all the workers in each industry to its governing bodies.

At present workers not only have no right in respect ot the general management of industry but a re helpless even when employers defraud them of their dues in respect of their provident fund and gratuity.

Legalist arguments may be put forth that the Company Law is no place to m a ke a provision for the exercise of this right for which sepa- rate legislation may be enacted. But this contention cannot, be accepted by those who hold t h at the company law ncods amendment in the inte- rest of an advance towards a socialist society

Workers' effective participation in the management ol industry is, however, needed not only in defence of the interests of the working class. It is also needed as a powerful instrument for exposing and rectifying the abuses and frauds practised by the monopolists and the private cor- porate sector as a whole whether in the sphere of financial transactions or in t he actual technical processes of industry. No other agency is as much qualified to deal with such practices effectively and speedily.

This brings us to another serious shortcoming of this Bill, viz., that it makes t he bureaucracy the main instrument for dealing with t he pro- blem of private monopoly concentration and t he abuses of the private corporate sector.

Some abuses may be discovered and rectified by such administrative intervention, but it also involves making the existing company law, com- plicated and vast as it is, even more- h b y r i n t h i an and complicated. That, as we know by experience, gives a h'.mlle to the powerful vested interests in industry to delay, if not to defeat, the "nds of law by resorting to end- less legal proceedings. That also gives them an opportunity for corrupt- ing weak and careerist elements in tV administrative services.

A glaring instance of this approach of the Bill is the manner in which it tries to tackle t he problem of the concentration of audit. P u t t i ng a. ceil- ing in the n u m b er of audits t h at an auditor can undertake is not an effec- tive method for tackling t he abuses arising from such concentration The nationalisation of audit is t he correct solution.

The provisions of this Bill have to be considered bearing these limi-

tations in view. They will not solve the hapic problems dealt with by the Bill. AH the same to a certain extent they can help 1o bring to light t hr harmful practices of the monopolists and the private corporate sector and thereby enable Parliament and public opinion to deal with them more effectively As such they can be helpful.

N EW DELHI;

S- G. SARDBSAI

November 11. 1973

U K: PANDA

IV

It is painfuJ to note that with their hard labour which the Joint Com- mittee has put in, it could not achieve its aim to amend the Bill compre- hensively in order to make it effective to check the cases of abuses inherent in the company system or distortion of the system which admittedly has assumed comparatively serious proportions.

Certain provisions of the Companies (Amendment) Bill are still ambi- guous. Some of them have knowingly been included by the Government, in such a way that they will mar the growth, development and smooth working of companies both private and public, and such provisions arr still in the Bill.

Providing for punishment for imprisonment in financial matters is also a point in which we could not agree.

It is also unfortunate that under clause 31 of the Bill, the Government hae been given wide powers to appoint as many directors as it wants. The Government may appoint directors on political motives, who may be ab- solutely ignorant of the busir" ;s and fh^ir official in-cxperience, they may completely ruin the business.

We regret and are unable to agree UJ the conclusions of the Joint Com- mittee particularly on the fallowing clauses for which we submit our following amendments:-—

(i) Clause 2—omit "or has the object of exercising", occurring in clause (18A) of section 2.

(1i) Clause 2—for explanation substituie the following explana- tion:—

"Explanation—The Group shall be deemed to have control over a body corporate if (a) it holds more than 50 per cent of the voting power in the body corporate nr (b) it controls the composition of the Board of Directors of such Body Corporate or majority of the Directors of such Body Corporate or the constituent and'or nominees of the ffvoup,¹'

(iii) Clause H—(New section WAI—after sub-section (3), the follow ing sub-section (A) may be added;-

•*(4) Where any request has been made to the Central Govern- ment by a company mder this section final orders must be passed within ninety days of the receipt of the application and if such orders are not pa^ed the application shall be deemed to be allowed,"

(ivl Clause 12—in sub-section (2) nf section 108R after clause (hi add the following clause (cV

(c) No orders shall be passed unless 1he company and also the person who mtendr; in transfer any

(v) Clause 12 -in clause (b) of sub-section (6) of section 108B for the words "imprisonment for a term which may extend to three years" substitute rh*" word-- "nn". which may extend to flvp thousand rupees "

(vl) Clause 12^in clause (b) of sub-section (2) of section 108C for the words "imprisonment for a term which may extend to three years" substitute the words "fine which may extend to five thousand rupees."

(vii) Clause 12—in clause (c) of sub-section (2) of section 108C omit the words "or with imprisonment for a term which may extend to three years, or with both".

jfviii) Clause 12—in sub-section (1) of section 108F for the words "imprisonment for a te,rm which may extend to five years and shall also be liable to fine" substitute the wtids "fine which may extend to five thousand rupees",

(ix) Clause 26—sub-section (3) of section 269 may be omitted.

(x) Clause 27.—in sub-section (2) of section 294AA the words "un- less such appointment has been previously approved by the Central Government" may bo deleted.

(xi) Clause 27—in sub-section (3) of section 294AA the worda "and the approval of the Central Government" may be deleted.

(xii) Clause 31.—for sub-clause (1) substitute "(i) in sub-section (1), for the words 'not more than two persons' substitute 'nc^ more than three persons* ".

j[xiii) Clause 31.—for sub-clause (ii) substitute "(ii) in sub-section (2), for the words 'not more than two persons' substitute 'noj more than three persons' ".

We are, therefore, of the opinion that the Companies (Amendment) Bill, 1972, as originally drafted 'and even after some amendments by the Jpint Committee is a piece of legislation which gives wide powers to the Government not needed to control or regulate the abuses prevalent in the^ company affairs but for interference and regimentation. The powers vested in the Government are most likely to be misused in the interest of the party in power and wijl not serve the healthy grpwth of Industry.

NEW DELHI;

R. R. SHARMA

Wovember 12, 197S. JAGEtfSH PRASAD MATHUR

V

We regret we have ito append this minute of dissent ,for inspite of the great amount of time, care and thought that has undoubtedly been given by the Committee to the Bill, and the modification that have, as a result, been recommended, the Bill remains unsatisfactory. It is no ones conten- tion that there is no justification for the objectives which are sought tp be achieved through this Bill. Quite obviously, it is essential at the same time to see that every possible care is taken tp ensure that the remedies proposed are not worse than the disease. The cumulative effect of the Bill, eye,n as npw modified, is to confer uppn (the Gpvernment, whjqh means the bureaucracy, widespread ppwers of interference in company management These powers can only be exercised with the help of a large, efficient and honest administrative organisation, and having regard to our experience hitherto, there is scarcely any warrant for assuming ,that the Government will be able easilv to organise an administrativ*

set up of this calibre. Moreover, such degree of bureaucratic interference will have a seriously dampening effect on private enterprise especially in the sphere of small and medium scale enterprise.

Having made these general observations, we would draw attention to some of the more important amendments and strongly commend that a further thought be given to them along lines indicated.

Definition of "Group" (Clause 2).-—To begin with, we would urge that the concept of "group" has not been as precisely and clearly denned as is essential in this very important and basic context. In its application in the definition of "companies under the same management", it is pos- sible that two companies which are entirely unconnected with each other may be deemed to be interconnected. The result will be that the res- trictive provisions of the Monopolies and Restrictive Trade Practices Act would be attracted by both the companies and one of them which has no financial or other relationship with the other company will be unnecessarily subjected to the requirements of the Monopolies and Res- trictive Trade Practices Act. It will be difficult for such companies to establish that they have a completely separate and different identity, in no way related to the other body corporate. It is not in our view enough to provide that if any question arises as to whether two or more indivi- duals, association, firms ,or bodies corporate or any combination thereof constitute a group, the Company Law Board after giving reasonable op- portunity to them of being heard will decide the same. However, this is not an altogether satisfactory solution. A definition should have pre- cision and clarity so the individuals will be able to identify their posi- tion. Several alternative definitions were suggested by witnesses in the course of their evidence before the Joint Committee. It is a matter for regret that none of them received due consideration.

Definition of "same management" (Clause 43).—The definition of two bodies corporate to be deemed under the same management is now in- corporated as an amendment to section 2 (g) of the Monopolies and Res- trictive Trade Practices Act. The definition of the term, however, is very vague and unintelligible. A definition should be precise and not give rise to unintended consequences.

Even though two bodies corporate have nothing in common their res- pective business are entirely different and they are controlled by two different persons, yet they would be regarded as being under the same management if by virtue of the definition of the group, the two persons controlling these two bodies corporate are said to belong to a group. This would be the effect of the words "any of the constituents of the same group".

Sub-clause (iv) of the Explanation also requires to be modified as it will completely distort the true position. It is not inconceivable that a person who is one of three directors in a small private company may also be one of the directors of a big company which may have a board of twelve persons. This person may be on the board of the big company because of his special qualifications in a particular line and the company considers his knowledge, experience and association with the company useful. However, in such a situation the two companies, one small and insignificant, and the other big and financially strong, will be deemed to be under the same management. The provisions of the Monopolies and Restrictive Trade Practices Act will then become operative and there,wilj

be difficulties even for the small company if it wants to obtain an indue 1- rial licence or otherwise wants to expand its activities, because it will bu deemed to be associated with a larger house. This is bound to be a dis- incentive to the entrepreneur and professional management, a resuit which is contrary to Government's proclaimed policy.

Private Company (Clause 6).—The clause provides that any private company with an average annual turnover of rupees one crore over a period of three years either preceding or following the date on which the Act comes Into force shall, irrespective of its paid up capital, become a public company. It is submitted that it is necessary to have a definite relationship between the paid up capital and turnover, othewif e it will very badly hit several small scale industries which are able to achieve high turnover with low capital investment. Instances of such industries are cotton ginning and pressing, oil milling, manufacture of plastic goods, paper packaging, etc. No social purpose would be served by such a, sweeping change.

It is, therefore, suggested that paid up capital must be one of the cri- teria, even though it may be fixed at a lower figure of only rupees fifteen lakhs, in order to safeguard the interests of small scale industries.

Acquisition Of Shares (Clause 12).—The clause provides that no indi- vidual, group, constituent of a group, firm, body corporate or bodies cor- porate under the same management may acquire severally or jointly ex- cept with Government approval shares exceeding 25 per cent of the paid- up share capital of a company.

'

The concept of control of a company should be clearly denned in the Act. It is clearly desirable that one concept runs throughout the pro- visions of the Act. Some Sections of the Act and the Bill contemplate one-third of the share-holding of a company's capital for the purpose of control while some other provisions like this clause envisage twenty-five per cent, of the shareholding in a company. The definition of "same management" contemplates one-third of the shares of a company. It may be pointed out that the Dutt Committee also adopted one-third shareholding as the criterion for control. It is only reasonable that the same criterion should be adopted here also.

Inspection (Clause 21) .—The powers of inspection

and the Inspecting officer have been Considerably enlarged under this provisions. No doubt under the existing section 209 an inspection may be ordered without notice to the management. But this goes further. Any officer may ask for any information and make a report without Indicating to the company or its officer the allegations and without limit- ation on the powers of the Inspectors. The company will not be given a copy of the report nor will it have any knowledge of what report is made against it. It is only reasonable that the elementary norms of judicial procedure and principles of natural justice should be followed In such matters. An opportunity should be given to the company to explain matters and the arbitrary powers given to the Inspector should be curtailed by suitable safeguards.

Appointment of Managing Director (Clause 26) .—This clause provide! that the Central Government shall not accord its approval for the ap- pointment or re-appointment of a managing director or whole-time

Deposits (Clause 7).—It is proposed that an advertisement specifying therein the financial condition, management structure and other parti- culars of the company should not be necessary for the acceptance of de- posits from the directors or shareholders of the company and that it would be enough if acceptance by the company of deposits is made in ac- cordance with the rules made by the Central Government after consul- tation with the Reserve Bank of India. This decision, however, has not been incorporated by a suitable amendment in sub-clause (2) of new section 58A. It should be specifically clarified.

Finally we would like to make a general reference to the final pro- visions in the Bill. There can be no two opinions but that punishment must be meted out for offences which are committed knowingly and wilfully. It seems to us desirable to spell out clearly the obligation and responsibilities of the company and its officers. They will not always be in a position to know whether they have violated the law when they do or refrain from doing a particular act. This will be the position for Instance under the provisions of new sections 108A or 108B.

NEW DELHI;

H. M. PATEL

November 14, 1973 M. K. MOHTA

MAHAVIR TYAGI

Bill No. 72-B of 1972.

THE COMPANIES (AMENDMENT) BILL, 1972

( As REPORTED BY THE JOINT COMMITTEE)

[Words underlined or side-lined indicate the amendments suggested by

the Committee; asterisks indicate omission*.]

A

BILL

further to amend the Companies Act, 1956, the Securities Contracts

(Regulation) Act, 1956 and the Monopolies and Restrictive Trade

Practices Act, 1969.

BE. it enacted by Parliament in the Twenty-fourth Year of the Republic

of India as follows: —

1. (/) This Act may be called the Companies (Amendment) Act, 1973.

(2) It shall come into force on such date, as the Central Governmant

may, by notification in the Official Gazette, appoint.

Short title and com- mence- ment.

2. In the Companies Act, 1956 (hereinafter referred to as the principal

Act), in section 2,—

Amend- ment "f •action 2.

(i) after clause (IS), the following clause shall be inserted,

namely: —

'(18A) "group" means a group of two or more individuals, associations, firms or bodies corporate, or any combination there- of, which exercises or is in a position to exercise, or has the ob- ject of exercising, control over any body corporate, nrm or trust.

Explanation.—If any question arises as to whether two or more individuals, associations, firms or bodies corporate, or any combination thereof, constitute, or fall within, a "group", the

Company Law Board shall, after giving such Individuals, associa- tions, firms or bodies corporate, or any combination thereof, a reasonable opportunity of being heard, decide the same;';

(ii) to clause (25), the following Explanations shall be added, namely: —

'Explanation I.—For the purposes of this Act, references to "managing agent" shall be construed as references to any indivi- dual, firm, or body corporate who, or which, was, at ally time before the 3rd day of April, 1970, the managing agent of any company.

17 of 1989.

Explanation II.—For $ie removal of doubts, it is hereby dec- lared that notwithstanding anything contained in section 6 of the Companies (Amendment) Act, 1969, this clause shall remain, and shall be deemed always to have remained, in force;";

(in) in clause (30), on the expiry of six months from the com- mencement of the Companies (Amendment) Act, 197.3,—

(i) in sub-clause (a), for the words "the secretaries and treasurers or the secretary", the words "or the secretaries and treasurers" shall be substituted;

, (ii) sub-clause (c) shall be omitted;

[iv) in clause (36), after the words "ptrier document", the words inviting deposits from the public orSl shall be inserted; * * * • t

(v) to cl"use (44), the following Explanations shall be added,

gamely: —

'Explanation I.—For the purposes ol this Act, references to "secretaries and treasurers" shall be construed as references to any firm or body corporate which was, at any time before the 3rd day of April, 1970, secretaries and treasurers of any company.

J7 of196fl Explanation II.—For the removal of doubts, it Is hereby dec- lared that notwithstanding anything contained in section 6 of the Companies {Amendment) Act, 19Q9, this rda^use phall remain, and shall be deemed always to have remained, in force;';

(vi) in clause (45) r~

(a) for the words "any individual, firm or body corporate", Jhe words "any individual possessing the prescribed qualifica- tions," shall be substituted;

(b) for the words "purely ministerial or administrative duties;", the words "ministerial or administrative duties."**¹" Shall 'be substituted.

8. After section 4 of ithe principal Act, the following seation shall be

inserted, namely: —

Insertion of new section 4A.

"4A. (1) Each of the financial institutions specified in this sub- section shall be regarded, for the purposes of this Act, as a public ,financial institution, namely: —

Public financial institu- tions.

7 of 1013.

(i) the Industrial Credit and Investment Corporation oi India Limited, a company formed and registered under the Indian Companies Act, 1913;

15 of 1948.

(ii) the Industrial Finance Corporation of India, established under section 3 of the Industrial Finance Corporation Act, 1948:

18 of 1964.

(M) the Industrial Development Bank of India, established under section 3 of the Industrial Development Bank of India Act 1964;

(iv) the Life Insurance Corporation of India, established under section 3 of the Life Insurance Corporation Act, 1956;

ai of 1956.

(v) the Unit Trust of India, established under section 3 oi the Unit Trust of India Act, 1963.

GZ of lOOSv

(2) Subject to the provisions of sub-section (I), the Central Government may, by notification in the Official Gazette, specify such other institution as it may think fit to be a public financial institution:

Provided that no institution shall be so specified unless—

(i) it has been established or constituted by or under any Central Act, or

(ii) noU less than fifty-one per cent, of the paid-up share capital of such institution Is held or controlled by the Central Government.".

• m m * *

4. In section 10E of the principal Act,—

Anuntnd*

meat of Sec-

tion IOB.

(i) in sub-section (2), for the word "five", the word "nine" shall be substituted;

(ii) after sub-section (4A), the following sub-sections shall be inserted, namely: —

"(4B) Without prejudice to the provisions of sub-section (4A), the Board, with the previous approval of the Central Gov- ernment, may, by order in writing, form one or more Benches from among its members and authorise each such Bench to exer- cise and discharge such of the Board's powers and functions as may be specified in the order; and every order made or act done by a Bench in exercise of such powers or discharge of such func- tions shall be deemed to be the order or act, as the oaae may be, of the Board.

5 of 1908.

(4C) Every Bench referred to in sub-section (4B) shall have powers which are vested in a Court under the Code of Civil Pro- cedure, 1908, while trying a suit, in respect of the following matters, namely:—

(a) discovery and Inspection of documents or other material objects producible as evidence;

(b) enforcing the attendance of witnesses and requir- ing the deposit of their expenses;

(c) compelling the production of documents or other material objects producible as evidence and Impounding the game;

(d) examining witnesses on oath;

(e) granting adjournments;

(f) reception of evidence on affidavits.

5 of 1898.

46 of 1860.

(4D) Every Bench shall be deemed to be a civil court ior the purposes of section 195 and Chapter XXXV of the Code of Criminal Procedure, 1898, and every proceeding before the Bench shall be deemed to be a judicial proceeding within the meaning of sections 193 and 228 of the Indian Penal Code and for the purpose of section 196 of that Code.".

5. (1) In sections 17, 18 and 19 of the principal Act, for the word Amend- ment of sections 17, 18 and 19.

"Court", wherever it occurs, the words "Company Law Board" shall be substituted.

(2) Nothing contained in sub-section (2) shall apply to any proceed- ings under section 17, or under sub-section (4) of section 18, which is pend- ing at the commencement oi the Companies (Amendment) Act, 1973,

before any Court or to any alteration of the memorandum of a company which has been confirmed, before such commencement, by any Court.

6. In section 43A of the principal Act,—

(i) after sub-section (2), trie following sub-sections shall be in-

Amend-

ment oi

section

43 A.

serted, namely: —

"(1A) Without prejudice to the provisions of sub-section (2), where the average annual turnover of a private company!; whether in existence at the commencement of the Companies (Amendment) Act, 1973, or incorporated thereafter, is not dur* ing the relevant period less than rupees one crore, the privat^ company shall, irrespective of its paid-up share capital, become^ on and from the expiry of a period of three months from the last day of the relevant period during which the private company, had the said average annual turnover, a public company by virtue of this sub-section:

Provided that even after the private company has so becotn| a public company, its articles of association may include pro* visions relating to the matters specified in clause (iii) of sub* section (2) of section 3 and the number of its members may bo or may at any time be reduced, below seven.

(IB) Where not less than twenty-five per cent of the Dald*

up Share capital of a public company, having share capital, Is held by a private company, the private company shall,—

(a) on and from the date on which the aforesaid per* centage is first held by it after the commencement of th# Companies (Amendment) Act, 1973, or

(b) where the aforesaid percentage bas been first s" held Vefore the commencement of the Companies (Amend*

ment) Act, 1973, on and from the expiry of the period of

three mouths from the date of such commencement, unless within that period the aforesaid percentage is reduced be- low twenty-five per cent, of the paid-up share capital of the public company.

become, by virtue of this sub-section, a public company, and thereupon all other provisions of this section shall apply thereto!

Provided that even after the private company has so become a public company, its articles of association may include provi- sions relating to the matters specified in clause (iii) of sub-section (1) of section 3 and the number of its members may be, or may at any time be reduced, below seven.";

(li) in sub-section (8), after clause (b), the following clause shall be inserted, namely: —

"(c) that the private company, irrespective of its paid-up share capital, did not have, during the relevant period, an average annual turnover of rupees one crore or more;";

(iii) after sub-section (8), the following sub-section shall be inserted, namely:—

,

' (9) Every private company, having share capital, shall file with the Registrar along with the annual return a certificate sign- ed by both the signatories of the return, stating that since the date of the annual general meeting with reference to which the last return was submitted, or in the case of a first return, since the date of the incorporation of the private company, it did not hold twenty-five per cent, or more of the paid-up share capital of one or more public companies.

Explanation.—For the purposes of this section,—

(a) "relevant period" means the period of three consecu- tive financial years,—

(1) immediately preceding the commencement of the

Companies (Amendment) Act, 1973, or

(li) a part of which immediately preceded such com- mencement and the other part of which immediately, fol- lowed such commencement, or

(iii) immediately following such commencement or

at any time thereafter;

(b) "turnover", of a company, means the aggregate value of the goods produced, supplied, distributed or controlled or services rendered, by the company during a financial year.'.

7. After section 58 of the principal Act, the following sections shall

beTnserted, namely:—

Inser- tion of new sec- tions 58A and SAB.

Deposit?

'58A. (1) The Central Government may, in consultation with the Reserve Bank of India, prescribe the limits up to which, the

not to ba

manner In which and the conditions subject to which deposits may be invited or accepted by a company either from the public or from its members.

(2) No company shall invite, or allow any other person to invite

Invited without issuing an advertise' ment.

or cause to be invited on its behalf, any deposit unless—

(a) such deposit is invited or is caused to be invited in accord-

ance with the rules made under sub-section (2), and

(b) an advertisement, including therein a statement show- ing the financial position of the company, has been issued by the company in such form and in such manner as may be prescribed

2 of 1934-

(3) (a) Every deposit accepted by a company at any time before the commencement of the Companies (Amendment) Act, 1973, in ac- cordance with the directions made by the Reserve Bank of India under Chapter IIIB of the Reserve Bank of India Act, 1934, shall, unless re- newed in accordance with clause ('fa), be repaid in accordance with the terms of such deposit.

(b) No deposit referred to in clause (a) shall be renewed by the company after the expiry of the term thereof unless the deposit is such that it could have been accepted if the rules made under sub-section (1) were in force at the time when the deposit was initially accepted by the company.

2 of 1934.

(c) Where before the commencement of the Companies (Amend- ment) Act, 1973 any deposit was received by a company in contra-* vention of any direction made under Chapter IIIB of the Reserve Bank of India Act, 1934, repayment of such deposit shall be made| in the manner specified in clause (d), and such repayment shall be without prejudice to any action that may be taken under the Re- serve Bank of India Act, 1934 for the acceptance of such deposit in contravention of such direction.

(d) Unless a deposit referred to in clause (c) is repayable earlier under the terms of such deposit, repayment of one-third of such de- posit shall be made before the 1st day of April, 1974; repayment oi another one-third of such deposit shall be made before the 1st day of April, 1975, and repayment of the balance of such deposit shall be made before the 1st day of April, 1976.

(4) Where any deposit is accepted by a company after the com- mencement of the Companies (Amendment) Act, 1973, in contraven* tion of the rules made under sub-section (1), repayment of such de- posit shall be made by the company within thirty days from the data of acceptance of such deposit or within such further time, not exceed ing thirty days, as the Central Government may, on sufficient caus< being shown by the company, allow.

(5) Where a company omits or fails to make repayment of a de- posit in accordance with the provisions of clause (c) of sub-sectioi (3), or in the case of a deposit referred to in sub-section (4), withir the time specified in that sub-section,™

(a) the company shall be punishable with fine which shal not be less than twice the amount in relation to which the re payment of the deposit has not been made, and out of the fine, 1 realised, an amount equal to the amount in relation to which th< repayment of deposit has not been made, shall be paid by the

Court, trying the offence, to the person to whom repayment of the deposit was to be made, and on such payment, the liability of the company to make repayment of the deposit shall, to the extent of the amount paid by the Court, stand discharged;

(b) every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to five years and shall also be liable to fine.

(6) Where a company accepts or invites, or allows or causes any other person to accept or invite on its behalf, any deposit in contra- vention of the provisions of sub-section (3) or sub-section (2), as the case may be,—

(a) the company shall be punishable,—

(i) where such contravention relates to the acceptance of any deposit, with fine which shall not be less than an amount equal to the amount of the deposit so accepted,

(ii) where such contravention relates to the invitation of any deposit, with fine which may extend to one lakh rupees but shall not be teas than five thousand rupees;

(b) every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to five years and shall also be liable to fine.

(7) (a) Nothing contained in this section shall apply to,—

(i) a banking company, or

{ii) such other company as the Central Government may, after consultation with the Reserve Bank of India, specify in this behalf.

Explanation.—For the purposes of this section "deposit" in clause (b) of sub-section (2), nothing in this section shall apply to such classes of financial companies as the Central Government may, after consultation with the Reserve Bank of India, specify in this behalf.

Explanation.—For the purposes of this section^ "deposit" means any deposit of money with, and includes any amount borrowed by, a company but shall not include such categories of amount as may be prescribed in consultation with the Reserve Bank of India.

58B. The previsions of this Act relating to a prospectus shall, so far as may be, apply to an advertisement referred to in section 58A.\

Provi- sions relating to pros- pectus to apply to advertise- ment.

8. In section 73 of the principal Act,—

(i) for sub-section (2), the following sub-section shall be subs- tituted, namely:—

Amend- ment of section 73.

"(1) Where a prospectus, whether issued generally or not, states that an application has been, or will be made, for permis- sion for the shares or debentures offered thereby to be dealt

42 of 1856.

with in one or more recognized stock exchanges, such prospectus shall state the name of the stock exchange or, as the case may be, each such stock exchange, and any allotment made on an application in pursuance of such prospectus shall, whenever made, be void if the permission has not been applied for before the tenth day after the first issue of the prospectus, or, where such permission has been applied for before that day, If the permission has not been granted by the stock exchange or each such stock exchange, as the case may be, before the expiry of ten weeks from the date of the closing of the subscription lists: Provided that where an appeal against the decision of any recognized stock exchange refusing permission for the shares or debentures to be dealt with on that stock exchange has been preferred under section 22 of the Securities Contracts (Regula- tion) Act, 1956, such allotment shall not be void until the dis- missal of the appeal.";

(ii) in siib-seetion (2), for the words "or has not been granted as aforesaid", the words "or, such permission having been applied for, has not been granted as aforesaid" shall be substituted;

(Hi) for sub-section (5), the following sub-section shall be subs- tituted, namely:—

"(5) For the purposes of this section, it shall be deemed that permission has not been granted if the application for permission, where made, has not been disposed of within the time specified in sub-section (1).".

9. (1) In section 79 of the principal Act,—

(i) in sub-sections (2) and (3), for the word "Court", wherever Amend- merit of section 79.

it occurs, the words "Company Law Board" shall be substituted;

(ii) in sub-section (2),—

(a) in clause (ii), the words and brackets "(not exceeding ten per cent, or such higher percentage as the Central Govern- ment may permit in any special case)" shall be omitted;

(b) to clause (ii), the following proviso shall be added, namely:—

"Provided that no such resolution shall be sanctioned by the Company Law Board if the maximum rate of discount specified in the resolution exceeds ten per cent, unless that Board is of opinion that a higher percentage of discount may be allowed in the special circumstances of the case;".

(2) Nothing contained in sub-section (1) shall affect any issue of shares at a discount which has been sanctioned by the Court or any proceeding relating to such sanction which is pending before the Court at the com- mencement of the Companies (Amendment) Act, 1973.

10. For section 90 of the principal Act, the following section shall ba substituted, namely:—

Subatltu- tion ol section 00.

•Savings.

"90. (1) Nothing in sections 85, 86, 88 and 89 shall, in the case of any shares issued by a public company before the commencement

of this Act, affect any voting rights attached to the shares save as otherwise provided in section 89, or any rights attached to the share? as to dividend, capital or otherwise.

(2) Nothing in sections 85 to 89 shall apply to a private com- pany, unless it is a subsidiary of a public company.

(3) For the removal of doubts, it is hereby declared that on and from the commencement of the Companies (Amendment) Act, 1973, the provisions of section 87 shall apply in relation to the voting rights attached to preference shares issued by a public company before the 1st day of April, 1956, as they apply to the preference shares issued by a public company after that date.

Explanation.—For the purposes of this section, references to a public company shall be construed as Including references to a pri- vate company which is a subsidiary of a public company.".

11. After section 94 of the principal Act, the following section shall be

inserted, namely:—

Inser- tion of new sec- tion MA.

Share capital to stand Increased where an order is made under section 81 (4). "04A, (1) Notwithstanding anything contained in this Act, where the Central Government has, by an order made under sub-section (4) of section 81, directed that any debenture or loan or any part thereof shall be converted into shares in a company, the conditions contained in the memorandum of such company shall, where such order has the effect of increasing the nominal share capital of the company, stand altered and the nominal share capital of such com- pany shall stand increased by an amount equal to the amount of the value of the shares into which such debentures or loans or part thereof has been converted.

(2) Where, in pursuance of an option attached to debentures issu- ed or loans raised by the company, any public financial institution has converted such debentures or loans into shares In the company, the Central Government may, on the application of such public finan- cial institution, direct that the conditions contained in the memoran- dum of such company shall stand altered and the nominal share capital of such company shall stand Increased by an amount equal to the amount of the value of the shares into which such debentures or loans or part thereof has been converted.

(3) Where the memorandum of a company becomes altered, whe- ther by reason of an order made by the Central Government under sub-section (4) of section 81 or sub-section (2) of this section, the Central Government shall send a copy of such order to the Registrar who shall, on receipt of such order, carry out the necessary altera- tions In the memorandum of the company.".

12. After section 108 of the principal Act, the following sections shall Inser- tion of new sec- tions 108A to 108H.

be Inserted, namely:—

Restric- tionon the acquisition of shares.

'108A. (1) Except with the previous approval of the Central Government, no individual, group, constituent of a group, firm, body corporate, or bodies corporate under the same management, shall jointly or severally acquire or agree to acquire, whether in his or its own name or in the name of any other person, any equity shares in a public company, *** or a private company which is a subsidiary of * a public company, if the total nominal value of the equity shares intended to be so acquired exceeds, or would, together with the total nominal value of any equity share already held in the company by such individual, firm, group, constituent of a group, body corpo- rate, or bodies corporate under the same management, exceeds twenty- five per cent, of the paid-up equity share capital of such company.

(2) Any person who acquires any share in contravention of the provisions of sub-section (1), shall be punishable with imprisonment for a term which may extend to three years, or with fine which may extend to five thousand rupees, or with both.

Restric- tion on the transfer.

108B. (1) Every body corporate, or bodies corporate under the same management, holding whether singly or in the aggregate, ten per cent, or more of the nominal value of the subscribed equity share capital of any other company, shall, before transferring one or more "of such shares, give to the Central Government an intimation of its or their proposal to transfer such share, and every such intimation shall Include a statement as to the particulars of the share proposed to be transferred, the name and address of the person t0 whom the share Is proposed to be transferred, the share holding, if any, of the proposed transferee in the concerned company and such other particulars as may be prescribed.

(2) Where, on receipt of an intimation given under sub-section (1) or otherwise, the Central Government is satisfied that as a result of such transfer, a change in the composition of the Board of directorl of the company is likely to take place and that such change would be prejudicial to the Interests of the company or to the public interest, it may be order, direct that—

(a) no such share shall be transferred to the proposed transferee:

Provided that no such order shall preclude the company from intimating, in accordance with the provisions of rob- section (1), to the Central Government its proposal to transfer the share to any other person, or

(b) where such share is held in a company engaged in any industry specified in Schedule XIII, such share shall be trans- ferred to the Central Government or to such corporation owned or controlled by that Government as may be specified in the direction. (3) Where a direction is made by the Central Government under clause (b) of sub-section (2), the share referred to in such direction shall stand transferred to the Central Government ox the corpora- tion specified therein, and the Central Government or the specified corporation, as the case may be, shall pay, in cash, to the body cor-

porate or bodies corporate from which such share stands transferred, an amount equal to the market value of such share, within the tim# specified in sub-section (4).

Explanation.—In this sub-section, "market value" means, in the case of a share which is quoted on any recognised stock exchange, the value quoted at such stock exchange on the date on which the direction is made, and, in any other case, such value as may be mutu- ally agreed upon between the holder of the share and the Central Government or the specified corporation, as the case may be, or in the absence of such agreement, as may be determined by the Court.

(4) The market value referred lo in sub-section (3) shall be given forthwith, where there is no dispute as to such value or where such value has been mutually agreed upon, but where there is a dispute as to the market value, such value as estimated by the Cen- tral Government or the corporation, as the case may be, shall be given forthwith and the balance, if any, shall be given within thirty days from the date when the market value is determined by the Court.

(5) If the Central Government does not make any direction under

sub-section (2) within sixty days from the date of receipt by it of the intimation, given under sub-section (1), the provisions contained in sub-section (2) with regard to the transfer of such share shall not apply.

(6) (a) Every company which makes any transfer of shares in

contravention of the provisions of this section, shall be punishable with fine which may extend to five thousand rupees.

(b) Where any contravention of this section ha¹* been made by a company, every officer of the company who is In default shall be punishable with imprisonment for a term which may extend to three years.

Restriction on the transfer of shares of foreign companies 108C. (1) No body corporate, or bodies corporate under the same management, which holds, or hold in the aggregate,*** ten per cent. or more of the nominal value of the equity share capital of a fore- ign company, having an established place of business in India, shall transfer any share in such foreign company to any citizen of India or any body corporate incorporated in India except with the pre- vious approval of the Central Government and such previous approval

shall not be refused unless the Central Government is satisfied that such transfer would be prejudicial to the public interest.

(2) (a) Every company which makes any transfer of shares in contravention of the provisions of this section, shall be punishable with fine which may extend to five thousand rupees.

(b) Where any contravention of fliis section has been made by a company, every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to three years.

(c) Every other person who transfers * * any share in contravention of the provisions of this section, shall be punishnblt 1M7LS—".

with fine which may extend to five thousand rupees, or with imprisonment for a term which may extend to three years, or with both.

108D. (1) Where the Central Government is satisfied that as a

result of the transfer of any share or block of shares of a company, a change in the controlling interest of the company is likely to take place and that such change is prejudicial to the interests of the com- pany or to the public interest, that Government may direct the company not to give effect to the transfer of any such share or block of shares and—

Power oi Central Govern- ment to direct com- panies not to give effect to the trans- fer.

(a) where the transfer of such share or block of shares hag already been registered, not t© permit the transferee or any nominee or proxy of the transferee to exercise any voting or other rights attaching to such share or block of shares,

(b) where the transfer of such share or block of shares has not been registered, not to permit any nominee or proxy of the transferor to exercise any voting or other rights attaching to such share or block of shares.

(2) Where any direction is made by the Central Government under sub-section (1), the share or the block of shares referred to therein shall stand retransferred to the person from whom it was acquired and thereupon the amount paid by the transferee for the acquisition of such share or block of shares shall be refunded to him by the person from whom such share or block of shares was acquired by such transferee.

(3) If the refund referred to in sub-section (2) is not made within a period of thirty days from the date of the direction referred to in sub-section (1), the Central Government shall, on the appli- cation of the person entitled to get the refund, direct, by order, the refund of such amount and such order may be enforced as if it were a decree made by a civil court.

(4) The person to whom any share or block of shares stand re transferred under sub-section (2) shall, on making refund under sub-section (2) or sub-section (3), be eligible to exercise voting or other rights attaching to such share or block of shares.

Time within which refusal to be communi- cated.

10&E. Every request made to the Central Government for accord- ing its approval to the proposal for the acquisition of any share referred to in section 108A or the transfer of any share referred to in section 108C shall be presumed to have been granted unless, within a period of sixty days from the date of receipt of such request, the Central Government communicates to the person by whom the request was made, that the approval prayed for cannot be granted.

Penalty for contra- vention oi section 108A,108B o* 108C.

108F. (1) Every person who exercises any voting or other right in relation to any share acquired in contravention of the provisions of section 108A, section 108B or section 10&C shall be punishable with imprisonment for a term which may extend to flye years and shall aldo be liable to fine.

(2) If any company gives effect to any voting or other right exercised in relation to any share acquired in contravention of the provisions of section, 108A, section 108B or section 108C, the company 5 and every officer of the company who is in default shall be punish- able with fine which may extend to five thousand rupees, or with im- prisonment for a term which may extend to three years, or with both.

108G. Nothing contained in section 108A, section 108B, section

10SC or section 108D shall apply to the transfer of any share to, or b y ,-

(a) any company in which not less than fifty-one per cent,

Nothing in sections 108A to 108D to apply to Govern- ment com- panies, etc. of the share capital is held by the Central Government;

(b) any corporation (nul. being a company) established by

or under any Central Act;

(c) any public financial institution specified by or under

section 4A.

108H. References in sections 108A, 108B, 108C and 108D to shares

M of I960.

or share capital, as the case may be, shall be construed as references to shares or share capital, respectively, of a body corporate owning any undertaking to which the provisions of Part A of Chapter III of the Monopolies and Restrictive Trade Practices Act, 1969, apply.'.

13. (1) In section 141 of the principal Act, for the word "Court",

Construc- tion of references to "shares" or "share eapitaTin gectioiia 108A to 108D. Amend- mend of Section 141.

wherever it occurs, the words "Company Law Board" shall be substi- tuted.

(2) Nothing in sub-section (I) shall affect any order made by the Court under section 141 or any proceeding relating to any matter speci- fied in that section which is pending before the Court at the commence- ment of the Companies (Amendment) Act, 1973.

14. In section 186 of the principal Act, in sub-section (1), for the

word "Court", wherever it occurs, the words "Company Law Board"

Amend- ment of section 186.

3° shall be substituted.

15. After section 187B of the principal Act, the following sections shall

be inserted, namely:—

Inser- tion of new sec- tions 187C and 187D. Declara- tion by persona not hold- ing" behe- flcial inte- r""t in any

share.

"187C. (1) Notwithstanding anything contained in section 150, section 153B or section 187B, a person, whose name is entered, at the 35 commencement of the Companies (Amendment) Act, 1973, or at any time thereafter, in the register of members of a company as the holder of a share in that company but who does not hold the bene- ficial interest in such share, shall, within such time and in such form as may be prescribed, make a declaration to the company 40 specifying the name and other particulars of the person who holds

the beneficial interest in such share.

(2) Notwithstanding anythirg contained elsewhere In this Act, a person who holds a beneficial Interest in a share or a class of shares of a company shall, within thirty days from the commencement of the Companies (Amendment) Act, 1973, or within thirty daya after

his becoming such beneficial owner, whichever is later, make a decla- ration to the company specifying the nature of his interest, parti- culars of the person in whose name the shares stand registered in the books of the company and such other particulars as may be prescribed.

(3) Whenever there is a change in the beneficial interest In such shares the beneficial owner shall, within thirty days, from the date of such change, make a declaration to the company in such- form and containing such particulars as may be prescribed.

(4) Notwithstanding anything contained in section 153 where any declaration referred to in sub-section (J.), sub-section (2) or sub- section (3) is made to a company, the company shall make a note of such declaration, in its register of members and shall file, within thirty days from the date of receipt of the declaration by it, a return in the prescribed form with the Registrar with regard to such dec- laration.

(5) (a) If any person, being required by the provisions of sub- section (I), sub-section (2) or sub-section (3), to make a declaration, fails, without any reasonable excuse, to do so, he shall be punishabl* with fine 'which may extend to one thousand rupees for every day during which the failure continues.

(b) If a company fails to comply with the provisions of thl* section, the company, and every officer of the company who is in default, shall be punishable with fine which may extend to one hundred rupees for every day during which the default continues.

(6) Any charge, promissory note or any other collateral agree- ment, created, executed or entered into in relation to any share, by the ostensible owner thereof, or any hypothecation by the ostensible owner of any share, in respect of which a declaration is required to be made under the foregoing provisions of this section, but not so declared, shall not be enforceable by the beneficial owner or any person claiming through him.

(7) Nothing in this section shall be deemed to prejudice the¹ obligation of a company to pay dividend in accordance with the provisions of section 206, and the obligation shall, on such payment, stand discharged.

Invest*-

"ation of

beneficial

ownership

ofihar"

tncwrtafn

187D. Where it appears to the Central Government that there are good reasons so to do, it may appoint one or more Inspector! to investigate and report as to whether the provisions of section 187C have been complied with with regard to any share, and there- upon the provisions of section 247 shall, as far as may be, apply ta such investigation as if it were an investigation ordered under that section.".

16. In section 192 of the principal Act, in sub-section (4),—

Amend- ment qj section 1B2.

(1) in item (ii) of clause (ee), for the word and figures "section 294", the words and iigures "section 294 or section 294AA" shall be substituted;

(ii) after clause (j), the following clause shall be inserted, namely: —

" (fif) copies of the terms and conditions of appointment of a sole selling agent appointed under section 294 or of a sole sel- ling agent or other person appointed under section 294AA.".

17. After section 204 of the principal Act, the following section shall

ba inserted, namely: —

Insertion ot new section 201A.

'204A. (1) Except with the previous approval of the—

(a) company in general meeting, and

(b) Central Government,

no company shall, during a period of five years from the commence- ment of the Companies (Amendment) Act, 1973, appoint as secretary,

consultant or adviser or to any other office, by whatever name called,—

(1) any individual, firm or body corporate who, or which, had at any time after the 15th day of August, 1960, been holding

Restri*- tio'iiti on the ap- pointment of former managizyl agents or secretaries and trea- surers tD anyofflct.

office as. the managing agents or secretaries and treasurers of the company, or

(ii) any associate of the managing agents or secretaries and treasurers as aforesaid:

Provided that where any such appointment has been made be- fore the commencement of the Companies (Amendment) Act, 1973,

no such appointment shall be continued by the Company after a period of six months from such commencement unless such appoint- ment has been approved by the company in general meeting and the- Central Government before the expiry of the said period,

(2) (a) Where—

(i) any individual, firm or body corporate, who, or which,

had at any time after the 15th day of August, 1960, been holding office as the managing agents or secretaries and treasurers of the company, or

(ii) any associate of the managing agents or secretaries and treasurers aa aforesaid;

has been appointed by such company at any time during a period of five years preceding the 3rd day of April, 1970, or at any time after that date, as its secretary, consultant or adviser, or to any other office under it, by whatever name called, the Central Government may, If it appears to it that there is good reason for so doing, require the com- pany to furnish to it such Information as it may consider necessary, with regard to the terms and conditions of the appointment of such' individual, firm or body corporate as secretary, consultant or adviser or as the holder of such other office, for the purpose of determining¹. whether or not such terms and conditions are prejudicial to the in- terest of the company.

(b) If the company refuses or neglects to furnish any such in- formation, the Central Government may appoint-a competent person

to investigate and report on the terms and conditions of appointment to any of the offices referred to in clause (a) and the provisions of section 240A shall, so far as may be, apply, to such investigation, as they apply to any other investigation made under any other provi- sion of this Act.

(c) If, after perusal of the information furnished by the com-

pany, or, as the case may be, the report submitted by the person appointed under clause (b), the Central Government is of opinion that the terms and conditions of appointment to any of the officer s referred to in clause (a) are prejudicial to the interests of the com- pany, it may, by order, make such variations in those terms and conditions as would, in its opinion, no longer render such terms and conditions of appointment prejudicial to the interests of the company.

(d) As from such date as may be specified by the Central Gov- ernment in the order aforesaid, the appointment referred to in clause (a) shall be regulated by the terms and conditions as varied by that Government.

(3) For the purposes of this section, the expression "appoint-

ment" includes re-appointment, employment a"d re-employment.'.

18. In section 205 of the principal Act, after sub-section (2), the fol-

lowing sub-section shall be inserted, namely: —

Amcnd-

jnent of

•ectton

Wi,

"(2A) Notwithstanding anything contained in subjection (1), on and from the commencement of the Companies (Amendment) Act, 1973, no dividend shall be declared or paid by a company for any financial year out of the profits of the company for that year arrived at after providing for depreciation in accordance with the provisions of sub-section (2), except after the transfer to the reserves of the company of such percentage of its profits for that year, not exceeding ten per cent., as may be prescribed:

Provided that nothing in this sub-section shall be deemed to pro- hibit the voluntary transfer by a company of a higher percentage of its profits to the reserves in accordance with such rules as may be made by the Central Government in this behalf.".

19. After section 205 of the principal Act, the following sections shall

be inserted, namely: —

Insertion

"f new

lections

205A and

3O9B.

Unpaid

dividend

to be

transferred

to special

dividend

account.

'205A. (1) Where, after the commencement of the Companies (Amendment) Act, 1973, a dividend has been declared by a company but has not been paid, or the warrant in respect thereof has not been posted, within forty-two days from the date of the declaration, to any shareholder entitled to the payment of the dividend, the company shall, within seven days from the date of expiry of the said period of forty-two days, transfer the total amount of dividend which remainu unpaid or in relation to which no dividend warrant has been posted within the said period of forty-two days, to a special account to be opened by the company in that behalf in any scheduled bank, to b" called "Unpaid Dividend Account of Company Limited I Com- pany (Private) Limited".

(2) Where the whole or any part of any dividend, declared by a company before the commencement of the Companies (Amend-

ment) Act, 1973, remains unpaid at such commencement, the com- pany shall, within a period of six months from such commencement transfer such unpaid amount to the account referred to in sub-sec- tion (1).

(3) Where, owing to inadequacy or absence of profits in any year, any company proposes to declare dividend out of the accumu- lated profits earned by the company in previous years and transfer- red by it to the reserves, such declaration of dividend shall not be made except in accordance with such rules as may be made by the Central Government in this behalf, and, where any such declaration is not in accordance with such rules, such declaration shall not be made except with the previous approval of the Central Government.

* * >a * *

(4) If the default is made in transferring the total amount

referred to in sub-section (I) or any part thereof to the unpaid dividend account of the concerned company, the company shall pay, from the date of such default, interest on so much of the amount as has not been transferred to the said account, at the rate of twelve per cent, per annum and the interest accruing on such amount shall enure to

the benefit of the members of the company in proportion to the amount

remaining unpaid to them.

(5) Any money transferred to the unpaid dividend account of a

company in pursuance of this section which remains unpaid or un- claimed for a period of three years from the date of such transfer, shall be transferred by the company to the general revenue account of the Central Government but a claim to any money so transferred to the general revenue account may be preferred to the Central Government by the person to whom the money is due and shall be dealt with as if such transfer to the general revenue account had not been made, the order, if any, for payment of the claim being treated as an order for refund of revenue.

(6) The company shall, when making any transfer under sub- section (5) to the general revenue account of the Central Govern- ment any unpaid or unclaimed dividend, furnish to such officer as the Central Government may appoint in this behalf a statement in the prescribed form setting forth in respect of all sums included in such transfer, the nature of the sums, the names and last known addresses of the person entitled to receive the sum, the amount to which each person IK entitled and the nature of his claim thereto and such other particulars as may be prescribed,

(7) The company shall be entitled to a receipt from the Reserve

Bank of India for any money transferred by it to the general revenue account of the Central Government and such receipt shall be an effectual discharge of the company in respect thereof.

(8) If a company fails to comply with any of the requirements

of this section, the company and every officer of the company who is in default, shall be punishable with fine which may extend to five hundred rupees for every day during which the failure continues.

payment (ft unpaid (Jc un- <9 aimed dividend.

205B. Any person claiming to be entitled to any money transfer- red under sub-section (5) of section 205A to the general revenue ac- count of the Central Uovurnment, may apply to the Central Govern- ment for an order for payment of the monty claimed; and the Cenlral Government may, if satisfied, whether on a certificate by the company or otherwise, that such person is entitled to the whole or any part of the money, claimed, make an order for the payment to that person of the sum due to him after taking such security from him as it may think fit.'.

20. In section 209 of the principal Act, in sub-section (4),—

(i) the brackets and letter " ( a )" shall be omitted;

Attend- Eftent of (Ection toa.

(ii) clauses (b), (c) and (d) shall be omitted.

21. After section 209 of the principal Act, the following section shall

De inserted, namely: —

"209A. (1) The books of account and other books and papers of

every company shall be open to inspection during business hours—

(i) by the Registrar, or

Insertion cttnew ^"ttion "0A. Inspection cff books (ff account, eta, of companies.

(ii) by such officer of Government as may be authorised by

the Central Government in this behalf:

Provided that such inspection may be made without giving any-

previous notice to the company or any officer thereof;

(2) It shall be the duty of every director, other officer or em- ployee of the company to produce to the person making inspection under sub-section (1), all such books of account and other books and papers of the company in his custody or control and to furnish him •with any statement, information or explanation relating to the affairs of the company as the said person may require of him within such time and at such place as he may specify.

(3) It shall also be the duty of every director, other officer or employee of the company to give to the person making inspection under this section all assistance in connection with th$ inspection which the company may be reasonably expected to give.

(4) The person making the inspection under this section may,

during the course of inspection,—

(i) make or cause to be made copies of books of account and

other books and papers, or

({{) place or cause to be placed any marks of identification

thereon in token of the inspection having been made.

(5) Notwithstanding anything contained in any other law for

-the time being in force or any contract to the contrary, any person

making an inspection under this section shall have the same powers

S ol 1908.

as are vested in a civil court under the Code of Civil Procedure, 1908, while trying a suit, in respect of the following matters, namely: —

(i) the discovery and production of books of account and other documents, at such place and such time as may be specified by such person;

(li) summoning and enforcing the attendance of persons and examining them on oath;

(iti) inspection of any books, registers and other documents of the company at any place.

(6) Where an inspection of the books of account and other books and papers of the company has been made under this section, the person making the inspection shall make a report to the Central Government

(7) Any officer authorised to make an inspection under this section shall have all the powers that a Registrar has under this Act in relation to the making of inquiries.

(8) If default is made in complying with the provisions of this section, every officer of the company who is in default shall be punishable with fine which shall not be less than five thousand rupees, and also with imprisonment for a term not exceeding one year.

(9) Where a director or any other officer of a company has been convicted of an offence under this section he shall, on and from the date on which he is so convicted, be deemed to have vacated his office as such and on such vacation of office, shall be disqualified for holding such office in any company, for a period of five years from such date."

22. In section 217 of the principal Act, after sub-section (2) the

following sub-section shall be inserted, namely: —

'(2A) (o) The Board's report shall also include a statement

Amend- ment of section 217.

showing the name of every employee of the company who—

(i) if employed throughout the financial year, was in receipt of remuneration for that year which, in the aggregate, was not less than thirty-six thousand rupees; or

{it) if employed for a part of the financial year, was in receipt of remuneration for any part of that year, at a rate which, in the aggregate, was not less than three thousand rupees per month, (b) The statement referred to in clause (a) shall also indicate,—

(i) whether any such employee is a relative of any director or manager of the company and if so, the name of such director, and

(ii) such other particulars as may be prescribed.

Explanation.—"Remuneration" has the meaning assigned to it in the Eocplanation to section 198'.

8 6 8 ) 48

T HE G A Z E T TE OF I N D IA B X T R A O H D X N A RY

| P A HT I I —•

23. In section 224 of the principal Act,—

(i) to subjection (1), the following proviso shall be added, Amend- ment of section 221

namely:—

"Provided that before any appointment or re-appointment of auditor or auditors is made by any company at any annual general meeting, a written certificate shall be obtained by the company from the auditor or auditors proposed to be so ap- pointed to the effect that the appointment or re-appointment, if made, will be in accordance with the limits specified in sub- sections (IB) and (1C).'J;

(ii) in sub-section (1A), the words "unless he is a retiring audi-

tor" shall be omitted;

(Hi) after sub-section (1A), the following sub-sections shall be

inserted, namely: —

'(IB) On and from the financial year next .following the commencement of the Companies (Amendment) Act, 1973, no company shall appoint or re-appoint any person or firm as its auditor if such person or firm is, at the date of such appointment or re-appointment, holding appointment as auditor of more than the specified number of companies:

Provided that in the case of a firm of auditors, "specified number of companies" shall be construed as specified number of companies per partner of the firm:

Provided further that where any partner of the firm is also a partner of any other firm or firms of auditors, the number of companies which may be taken into account, by all the firms together, in relation to such partner shall not exceed the speci- fied number in the aggregate.

(1C) For the purposes of enabling a company to comply with the provisions of sub-section (IB), a person or firm hold- ing, immediately before the commencement of the Companies (Amendment) Act, 1973, appointment as the auditor of a num- ber of companies exceeding the specified number, shall, within sixty days from such commencement, intimate his or its unwill- ingness to be re-appointed as the auditor lrom the financial year next following such commencement, to the company or com- panies of which he or it is not willing to be re-appointed as the auditor; and shall simultaneously intimate to the Registrar the names of the companies of which he or it is willing to be re- appointed as the auditor and farward a copy of the intimation to each of the companies referred to therein.

Explanation I.—For the purposes of sub-section (IB) and (1C) /'specified number" means,—

(a) in the case of a person or firm holding appointment as auditor of a number of companies each of which has a paid-up share capital of less than rupees twenty-five lakhs, twenty such companies;

(b) in any other case, twenty companies, out of which not more than ten shall be companies each of which has a caid-up share capital of rupees twenty-five lakhs or more.

Explanation II.—In computing the specified number, the number of companies in respect of which or any part ot which any person or firm has been appointed as an auditor, whether singly or in combination with any other person or firm, shall be taken into account.';

(iv) in sub-section (2), for the words "At any annual general

meeting", the words "Subject to the provisions of sub-section (IB) and section 224A, at any annual general meeting" shall be substituted.

24. After section 224 of the principal Act, the following section shall

be inserted, namely: —

Insertion

of new

section

224A.

'224A. (1) In the case of a company in which not less than twenty-five per cent, of the subscribed share capital is held, whether singly or in any combination, by—

(a) a public financial institution or a Government company or Central Government or any State Government, or

(b) any financial or other institution established by any Provincial or State Act in which a State Government holds not less than fifty-one per cent, of the subscribed share capital, or

Auditor

not to be

appointed

except

with

the appro-

val of the

company

by special

resolution

in certain

ca"ea.

(c) a nationalised bank or an insurance company carrying on general insurance business,

the appointment or re-appointment at each annual general meeting of an auditor or auditors shall be made by a special resolution.

(2) Where any company referred to In sub-section (1) omits or fails to pass at its annual general meeting any special resolution appointing an auditor or auditors, it shall be deemed that no auditor or auditors had been appointed by the company at Its annual general meeting, and thereupon the provisions of sub-section (3) of section 224 shall become applicable in relation to such company.

Explanation.—For the purposes of this section,—

17 of 1971.

(a) "general insurance business" has the meaning assigned to it in the General Insurance (Emergency Provisions) Act, 1971;

(b) "nationalised bank" means a corresponding new bank as defined in the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970.'.

5 of 1970.

25. In section 233B of the principal Act,-

Amend- ment of section 233B.

(i) in sub-section (1), for the words beginning with "who shall be either" and ending with "prescribed qualifications", the following shall be substituted, namely: —

"who shall be a cast accountant within the meaning of the 33 of 1960.

Cost and Works Accountants Act, 1959:

Provided that if the Central Government is of opinion that sufficient number of cost accountants within the meaning of the Cost and Works Accountants Act, 1959, are not available for con- ducting the audit of the cost accounts of companies generally, that Government may, by notification in the Official Gazette direct