GOVERNMENT OF KERALA
Law (Leg. Publication) Department
NOTIFICATION
No. 23201/Leg.Pbn.2/2013/Law.
Dated, Thiruvananthapuram, 26th October 2013.
The following Act of Parliament published in the Gazette of India,
Extraordinary, Part II, Section I dated 30th August, 2013 is hereby republished for
general information. The Bill as passed by the Houses of Parliament received
the assent of the President on 29th August, 2013.
By order of the Governor,
C. P. RAMARAJA PREMA PRASAD,
Law Secretary.
Kerala Gazette No. 1 dated 7th January 2014.
PART I
Section i
2
THE COMPANIES ACT, 2013
CHAPTER I
PRELIMINARY
1.
Short title, extent, commencement and application.
2.
Definitions.
CHAPTER II
INCORPORATION OF COMPANY AND MATTERS
INCIDENTAL THERETO
3.
Formation of company.
4.
Memorandum.
5.
Articles.
6.
Act to override memorandum, articles, etc.
7.
Incorporation of company.
8.
Formation of companies with charitable objects, etc.
9.
Effect of registration.
10.
Effect of memorandum and articles.
11.
Commencement of business, etc.
12.
Registered office of company.
13.
Alteration of memorandum.
14.
Alteration of articles.
15.
Alteration of memorandum or articles to be noted in every copy.
16.
Rectification of name of company.
17.
Copies of memorandum, articles, etc., to be given to members.
18.
Conversion of companies already registered.
19.
Subsidiary company not to hold shares in its holding company.
20.
Service of documents.
21.
Authentication of documents, proceedings and contracts.
3
22.
Execution of bills of exchange, etc.
CHAPTER III
PROSPECTUS AND ALLOTMENT OF SECURITIES
PART I.—Public offer
23.
Public offer and private placement.
24.
Power of Securities and Exchange Board to regulate issue and transfer of
securities, etc.
25.
Document containing offer of securities for sale to be deemed
prospectus.
26.
Matters to be stated in prospectus.
27.
Variation in terms of contract or objects in prospectus.
28.
Offer of sale of shares by certain members of company.
29.
Public offer of securities to be in dematerialised form.
30.
Advertisement of prospectus.
31.
Shelf prospectus.
32.
Red herring prospectus.
33.
Issue of application forms for securities.
34.
Criminal liability for mis-statements in prospectus.
35.
Civil liability for mis-statements in prospectus.
36.
Punishment for fraudulently inducing persons to invest money.
37.
Action by affected persons.
38.
Punishment for personation for acquisition, etc., of securities.
39.
Allotment of securities by company.
40.
Securities to be dealt with in stock exchanges.
41.
Global depository receipt.
PART II.—Private placement
42.
Offer or invitation for subscription of securities on private placement.
CHAPTER IV
SHARE CAPITAL AND DEBENTURES
43.
Kinds of share capital.
44.
Nature of shares or debentures.
4
45.
Numbering of shares.
46.
Certificate of shares.
47.
Voting rights.
48.
Variation of shareholders’ rights.
49.
Calls on shares of same class to be made on uniform basis.
50.
Company to accept unpaid share capital, although not called up.
51.
Payment of dividend in proportion to amount paid-up.
52.
Application of premiums received on issue of shares.
53.
Prohibition on issue of shares at discount.
54.
Issue of sweat equity shares.
55.
Issue and redemption of preference shares.
56.
Transfer and transmission of securities.
57.
Punishment for personation of shareholder.
58.
Refusal of registration and appeal against refusal.
59.
Rectification of register of members.
60.
Publication of authorised, subscribed and paid-up capital.
61.
Power of limited company to alter its share capital.
62.
Further issue of share capital.
63.
Issue of bonus shares.
64.
Notice to be given to Registrar for alteration of share capital.
65.
Unlimited company to provide for reserve share capital on conversion
into limited company.
66.
Reduction of share capital.
67.
Restrictions on purchase by company or giving of loans by it for
purchase of its shares.
68.
Power of company to purchase its own securities.
69.
Transfer of certain sums to capital redemption reserve account.
70.
Prohibition for buy-back in certain circumstances.
71.
Debentures.
72.
Power to nominate.
CHAPTER V
ACCEPTANCE OF DEPOSITS BY COMPANIES
73.
Prohibition on acceptance of deposits from public.
5
74.
Repayment of deposits, etc., accepted before commencement of this Act.
75.
Damages for fraud.
76.
Acceptance of deposits from public by certain companies.
CHAPTER VI
REGISRTATION OF CHARGES
77.
Duty to register charges, etc.
78.
Application for registration of charge.
79.
Section 77 to apply in certain matters.
80.
Date of notice of charge.
81.
Register of charges to be kept by Registrar.
82.
Company to report satisfaction of charge.
83.
Power of Registrar to make entries of satisfaction and release in absence
of intimation from company.
84.
Intimation of appointment of receiver or manager.
85.
Company’s register of charges.
86.
Punishment for contravention.
87.
Rectification by Central Government in register of charges.
CHAPTER VII
MANAGEMENT AND ADMINISTRATION
88.
Register of members, etc.
89.
Declaration in respect of beneficial interest in any share.
90.
Investigation of beneficial ownership of shares in certain cases.
91.
Power to close register of members or debenture holders or other security
holders.
92.
Annual return.
93.
Return to be filed with Registrar in case promoters’ stake changes.
94.
Place of keeping and inspection of registers, returns, etc.
95.
Registers, etc., to be evidence.
96.
Annual general meeting.
97.
Power of Tribunal to call annual general meeting.
6
98.
Power of Tribunal to call meetings of members, etc.
99.
Punishment for default in complying with provisions of sections 96 to 98.
100.
Calling of extraordinary general meeting.
101.
Notice of meeting.
102.
Statement to be annexed to notice.
103.
Quorum for meetings.
104.
Chairman of meetings.
105.
Proxies.
106.
Restriction on voting rights.
107.
Voting by show of hands.
108.
Voting through electronic means.
109.
Demand for poll.
110.
Postal ballot.
111.
Circulation of members’ resolution.
112.
Representation of President and Governors in meetings.
113.
Representation of corporations at meeting of companies and of creditors.
114.
Ordinary and special resolutions.
115.
Resolutions requiring special notice.
116.
Resolutions passed at adjourned meeting.
117.
Resolutions and agreements to be filed.
118.
Minutes of proceedings of general meeting, meeting of Board of Directors
and other meeting and resolutions passed by postal ballot.
119.
Inspection of minute-books of general meeting.
120.
Maintenance and inspection of documents in electronic form.
121.
Report on annual general meeting.
122.
Applicability of this Chapter to One Person Company.
CHAPTER VIII
DECLARATION AND PAYMENT OF DIVIDEND
123.
Declaration of dividend.
124.
Unpaid Dividend Account.
7
125.
Investor Education and Protection Fund.
126.
Right to dividend, rights shares and bonus shares to be held in
abeyance pending registration of transfer of shares.
127.
Punishment for failure to distribute dividends.
CHAPTER IX
ACCOUNTS OF COMPANIES
128.
Books of account, etc., to be kept by company.
129.
Financial statement.
130.
Re-opening of accounts on court’s or Tribunal’s orders.
131.
Voluntary revision of financial statements or Board’s report.
132.
Constitution of National Financial Reporting Authority.
133.
Central Government to prescribe accounting standards.
134.
Financial Statement, Board’s report, etc.
135.
Corporate Social Responsibility.
136.
Right of member to copies of audited financial statement.
137.
Copy of financial statement to be filed with Registrar.
138.
Internal Audit.
CHAPTER X
AUDIT AND AUDITORS
139.
Appointment of auditors.
140.
Removal, resignation of auditor and giving of special notice.
141.
Eligibility, qualifications and disqualifications of auditors.
142.
Remuneration of auditors.
143.
Powers and duties of auditors and auditing standards.
144.
Auditor not to render certain services.
145.
Auditors to sign audit reports, etc.
146.
Auditors to attend general meeting.
147.
Punishment for contravention.
148.
Central Government to specify audit of items of cost in respect of certain
companies.
CHAPTER XI
APPOINTMENT AND QUALIFICATIONS OF DIRECTORS
8
149.
Company to have Board of Directors.
150.
Manner of selection of independent directors and maintenance of data
bank of independent directors.
.
151.
Appointment of director elected by small shareholders.
152.
Appointment of directors.
153.
Application for allotment of Director Identification Number.
154.
Allotment of Director Identification Number.
155.
Prohibition to obtain more than one Director Identification Number.
156.
Director to intimate Director Identification Number.
157.
Company to inform Director Identification Number to Registrar.
158.
Obligation to indicate Director Identification Number.
159.
Punishment for contravention.
160.
Right of persons other than retiring directors to stand for directorship.
161.
Appointment of additional director, alternate director and nominee
director.
162.
Appointment of directors to be voted individually.
163.
Option to adopt principle of proportional representation for appointment
of directors.
164.
Disqualifications for appointment of director.
165.
Number of directorships.
166.
Duties of directors.
167.
Vacation of office of director.
168.
Resignation of director.
169.
Removal of directors.
170.
Register of directors and key managerial personnel and their
shareholding.
171.
Members’ right to inspect.
172.
Punishment.
CHAPTER XII
MEETINGS OF BOARD AND ITS POWERS
173.
Meetings of Board.
174.
Quorum for meetings of Board.
175.
Passing of resolution by circulation.
9
176.
Defects in appointment of directors not to invalidate actions taken.
177.
Audit committee.
178.
Nomination and remuneration committee and stakholders relationship
committee.
179.
Powers of Board.
180.
Restrictions on powers of Board.
181.
Company to contribute to bona fide and charitable funds, etc.
182.
Prohibitions and restrictions regarding political contributions.
183.
Power of Board and other persons to make contributions to national
defence fund, etc.
184.
Disclosure of interest by director.
185.
Loan to directors, etc.
186.
Loan and investment by company.
187.
Investments of company to be held in its own name.
188.
Related party transactions.
189.
Register of contracts or arrangements in which directors are interested.
190.
Contract of employment with managing or whole-time directors.
191.
Payment to director for loss of office, etc., in connection with transfer of
undertaking, property or shares.
192.
Restriction on non-cash transactions involving directors.
193.
Contract by One Person Company.
194.
Prohibition on forward dealings in securities of company by director or
key managerial personnel.
195.
Prohibition on insider trading of securities.
CHAPTER XIII
APPOINTMENT AND REMUNERATION OF MANAGERIAL PERSONNEL
196.
Appointment of managing director, whole-time director or manager.
197.
Overall maximum managerial remuneration and managerial remuneration in
case of absence or inadequacy of profits.
198.
Calculation of profits.
199.
Recovery of remuneration in certain cases.
200.
Central Government or company to fix limit with regard to remuneration.
201.
Forms of, and procedure in relation to, certain applications.
10
202.
Compensation for loss of office of managing or whole-time director or
manager.
203.
Appointment of key managerial personnel.
204.
Secretarial audit for bigger companies.
205.
Functions of company secretary.
CHAPTER XIV
INSPECTION, INQUIRY AND INVESTIGATION
206.
Power to call for information, inspect books and conduct inquiries.
207.
Conduct of inspection and inquiry.
208.
Report on inspection made.
209.
Search and seizure.
210.
Investigation into affairs of company.
211.
Establishment of Serious Fraud Investigation Office.
212.
Investigation into affairs of company by Serious Fraud Investigation
Office.
213.
Investigation into company’s affairs in other cases.
214.
Security for payment of costs and expenses of investigation.
215.
Firm, body corporate or association not to be appointed as inspector.
216.
Investigation of ownership of company.
217.
Procedure, powers, etc., of inspectors.
218.
Protection of employees during investigation.
219.
Power of inspector to conduct investigation into affairs of related
companies, etc.
220.
Seizure of documents by inspector.
221.
Freezing of assets of company on inquiry and investigation.
222.
Imposition of restrictions upon securities.
223.
Inspector’s report.
224.
Actions to be taken in pursuance of inspector’s report.
225.
Expenses of investigation.
11
226.
Voluntary winding up of company, etc., not to stop investigation
proceedings.
227.
Legal advisers and bankers not to disclose certain information.
228.
Investigation, etc., of foreign companies.
229.
Penalty for furnishing false statement, mutilation, destruction of
documents.
CHAPTER XV
COMPROMISES, ARRANGEMENTS AND AMALGAMATIONS
230.
Power to compromise or make arrangements with creditors and members.
231.
Power of Tribunal to enforce compromise or arrangement.
232.
Merger and amalgamation of companies.
233.
Merger or amalgamation of certain companies.
234.
Merger or amalgamation of company with foreign company.
235.
Power to acquire shares of shareholders dissenting from scheme or
contract approved by majority.
236.
Purchase of minority shareholding.
237.
Power of Central Government to provide for amalgamation of companies
in public interest.
238.
Registration of offer of schemes involving transfer of shares.
239.
Preservation of books and papers of amalgamated companies.
240.
Liability of officers in respect of offences committed prior to merger,
amalgamation, etc.
CHAPTER XVI
PREVENTION OF OPPRESSION AND MISMANAGEMENT
241.
Application to Tribunal for relief in cases of oppression, etc.
242.
Powers of Tribunal.
243.
Consequence of termination or modification of certain agreements.
244.
Right to apply under section 241.
12
245.
Class action.
246.
Application of certain provisions to proceedings under section 241 or
section 245.
CHAPTER XVII
REGISTERED VALUERS
247.
Valuation by registered valuers.
CHAPTER XVIII
REMOVAL OF NAMES OF COMPANIES FROM
THE REGISTER OF COMPANIES
248.
Power of Registrar to remove name of company from register of
Companies.
249.
Restrictions on making application under section 248 in certain situations.
250.
Effect of company notified as dissolved.
251.
Fraudulent application for removal of name.
252.
Appeal to Tribunal.
CHAPTER XIX
REVIVAL AND REHABILITATION OF SICK COMPANIES
253.
Determination of sickness.
254.
Application for revival and rehabilitation.
255.
Exclusion of certain time in computing period of limitation.
256.
Appointment of interim administrator.
257.
Committee of creditors.
258.
Order of Tribunal.
259.
Appointment of administrator.
260.
Powers and duties of company administrator.
261.
Scheme of revival and rehabilitation.
262.
Sanction of scheme.
263.
Scheme to be binding.
13
264.
Implementation of scheme.
265.
Winding up of company on report of company administrator.
266.
Power of Tribunal to assess damages against delinquent directors, etc.
267.
Punishment for certain offences.
268.
Bar of jurisdiction.
269.
Rehabilitation and Insolvency Fund.
CHAPTER XX
WINDING UP
270.
Modes of winding up.
PART I.—Winding up by the Tribunal
271.
Circumstances in which company may be wound up by Tribunal.
272.
Petition for winding up.
273.
Powers of Tribunal.
274.
Directions for filing statement of affairs.
275.
Company Liquidators and their appointments.
276.
Removal and replacement of liquidator.
277.
Intimation to Company Liquidator, provisional liquidator and Registrar.
278.
Effect of winding up order.
279.
Stay of suits, etc., on winding up order.
280.
Jurisdiction of Tribunal.
281.
Submission of report by Company Liquidator.
282.
Directions of Tribunal on report of Company Liquidator.
283.
Custody of company’s properties.
284.
Promoters, directors, etc., to co-operate with Company Liquidator.
285.
Settlement of list of contributories and application of assets.
286.
Obligations of directors and managers.
287.
Advisory Committee.
288.
Submission of periodical reports to Tribunal.
289.
Power of Tribunal on application for stay of winding up.
290.
Powers and duties of Company Liquidator.
291.
Provision for professional assistance to Company Liquidator.
14
292.
Exercise and control of Company Liquidator’s powers.
293.
Books to be kept by Company Liquidator.
294.
Audit of Company Liquidator’s accounts.
295.
Payment of debts by contributory and extent of set-off.
296.
Power of Tribunal to make calls.
297.
Adjustment of rights of contributories.
298.
Power to order costs.
299.
Power to summon persons suspected of having property of company, etc.
300.
Power to order examination of promoters, directors, etc.
301.
Arrest of person trying to leave India or abscond.
302.
Dissolution of company by Tribunal.
303.
Appeals from orders made before commencement of Act.
PART II.—Voluntary winding up
304.
Circumstances in which company may be wound up voluntarily.
305.
Declaration of solvency in case of proposal to wind up voluntarily.
306.
Meeting of creditors.
307.
Publication of resolution to wind up voluntarily.
308.
Commencement of voluntary winding up.
309.
Effect of voluntary winding up.
310.
Appointment of Company Liquidator.
311.
Power to remove and fill vacancy of Company Liquidator.
312.
Notice of appointment of Company Liquidator to be given to Registrar.
313.
Cesser of Board’s powers on appointment of Company Liquidator.
314.
Powers and duties of Company Liquidator in voluntary winding up.
315.
Appointment of committees.
316.
Company Liquidator to submit report on progress of winding up.
317.
Report of Company Liquidator to Tribunal for examination of persons.
318.
Final meeting and dissolution of company.
319.
Power of Company Liquidator to accept shares, etc., as consideration for
sale of property of company.
320.
Distribution of property of company.
321.
Arrangement when binding on company and creditors.
322.
Power to apply to Tribunal to have questions determined, etc.
15
323.
Costs of voluntary winding up.
PART III.—Provisions applicable to every mode of winding up
324.
Debts of all descriptions to be admitted to proof.
325.
Application of insolvency rules in winding up of insolvent companies.
326.
Overriding preferential payments.
327.
Preferential payments.
328.
Fraudulent preference.
329.
Transfers not in good faith to be void.
330.
Certain transfers to be void.
331.
Liabilities and rights of certain persons fraudulently preferred.
332.
Effect of floating charge.
333.
Disclaimer of onerous property.
334.
Transfers, etc., after commencement of winding up to be void.
335.
Certain attachments, executions, etc., in winding up by Tribunal to be void.
336.
Offences by officers of companies in liquidation.
337.
Penalty for frauds by officers.
338.
Liability where proper accounts not kept.
339.
Liability for fraudulent conduct of business.
340.
Power of Tribunal to assess damages against delinquent directors, etc.
341.
Liability under sections 339 and 340 to extend to partners or directors in
firms or companies.
342.
Prosecution of delinquent officers and members of company.
343.
Company Liquidator to exercise certain powers subject to sanction.
344.
Statement that company is in liquidation.
345.
Books and papers of company to be evidence.
346.
Inspection of books and papers by creditors and contributories.
347.
Disposal of books and papers of company.
348.
Information as to pending liquidations.
349.
Official Liquidator to make payments into public account of India.
350.
Company Liquidator to deposit monies into scheduled bank.
351.
Liquidator not to deposit monies into private banking account.
16
352.
Company Liquidation Dividend and Undistributed Assets Account.
353.
Liquidator to make returns, etc.
354.
Meetings to ascertain wishes of creditors or contributories.
355.
Court, Tribunal or person, etc., before whom affidavit may be sworn.
356.
Powers of Tribunal to declare dissolution of company void.
357.
Commencement of winding up by Tribunal.
358.
Exclusion of certain time in computing period of limitation.
PART IV.—Official liquidators
359.
Appointment of Official Liquidator.
360.
Powers and functions of Official Liquidator.
361.
Summary procedure for liquidation.
362.
Sale of assets and recovery of debts due to company.
363.
Settlement of claims of creditors by Official Liquidator.
364.
Appeal by creditor.
365.
Order of dissolution of company.
CHAPTER XXI
PART I.—Companies authorised to register under this Act
366.
Companies capable of being registered.
367.
Certificate of registration of existing companies.
368.
Vesting of property on registration.
369.
Saving of existing liabilities.
370.
Continuation of pending legal proceedings.
371.
Effect of registration under this Part.
372.
Power of Court to stay or restrain proceedings.
373.
Suits stayed on winding up order.
374.
Obligation of Companies registering under this Part.
PART II.—Winding up of unregistered companies
375.
Winding up of unregistered companies.
376.
Power to wind up foreign companies although dissolved.
377.
Provisions of Chapter cumulative.
378.
Saving and construction of enactments conferring power to wind up
partnership firm, association or company, etc., in certain cases.
17
CHAPTER XXII
COMPANIES INCORPORATED OUTSIDE INDIA
379.
Application of Act to foreign companies.
380.
Documents, etc., to be delivered to Registrar by foreign companies.
381.
Accounts of foreign company.
382.
Display of name, etc., of foreign company.
383.
Service on foreign company.
384.
Debentures, annual return, registration of charges, books of account and
their inspection.
385.
Fee for registration of documents.
386.
Interpretation.
387.
Dating of prospectus and particulars to be contained therein.
388.
Provisions as to expert’s consent and allotment.
389.
Registration of prospectus.
390.
Offer of Indian Depository Receipts.
391.
Application of sections 34 to 36 and Chapter XX.
392.
Punishment for contravention.
393.
Company’s failure to comply with provisions of this Chapter not to affect
validity of contracts, etc.
CHAPTER XXIII
GOVERNMENT COMPANIES
394.
Annual reports on Government companies.
395.
Annual reports where one or more State Governments are members of
companies.
CHAPTER XXIV
REGISTRATION OFFICES AND FEES
396.
Registration offices.
397.
Admissibility of certain documents as evidence.
398.
Provisions relating to filing of applications, documents, inspection, etc., in
18
electronic form.
399.
Inspection, production and evidence of documents kept by Registrar.
400.
Electronic form to be exclusive, alternative or in addition to physical form.
401.
Provision of value added services through electronic form.
402.
Application of provisions of Information Technology Act, 2000.
403.
Fee for filing, etc.
404.
Fees, etc., to be credited into public account.
CHAPTER XXV
COMPANIES TO FURNISH INFORMATION OR STATISTICS
405.
Power of Central Government to direct companies to furnish information
or statistics.
CHAPTER XXVI
NIDHIS
406.
Power to modify Act in its application to Nidhis.
CHAPTER XXVII
NATIONAL COMPANY LAW TRIBUNAL AND APPELLATE TRIBUNAL
407.
Definitions.
408.
Constitution of National Company Law Tribunal.
409.
Qualification of President and Members of Tribunal.
410.
Constitution of Appellate Tribunal.
411.
Qualifications of Chairperson and members of Appellate Tribunal.
412.
Selection of Members of Tribunal and Appellate Tribunal.
413.
Term of office of President, Chairperson and other Members.
414.
Salary, allowances and other terms and conditions of service of Members.
415.
Acting President and Chairperson of Tribunal or Appellate Tribunal.
416.
Resignation of Members.
417.
Removal of Members.
418.
Staff of Tribunal and Appellate Tribunal.
419.
Benches of Tribunal.
19
420.
Orders of Tribunal.
421.
Appeal from Orders of Tribunal.
422.
Expeditious disposal by Tribunal and Appellate Tribunal.
423.
Appeal to Supreme Court.
424.
Procedure before Tribunal and Appellate Tribunal.
425.
Power to punish for contempt.
426.
Delegation of powers.
427.
President, Members, officers, etc., to be public servants.
428.
Protection of action taken in good faith.
429.
Power to seek assistance of Chief Metropolitan Magistrate, etc.
430.
Civil court not to have jurisdiction.
431.
Vacancy in Tribunal or Appellate Tribunal not to invalidate acts or
proceedings.
432.
Right to legal representation.
433.
Limitation.
434.
Transfer of certain pending proceedings.
CHAPTER XXVIII
SPECIAL COURTS
435.
Establishment of Special Courts.
436.
Offences triable by Special Courts.
437.
Appeal and revision.
438.
Application of Code to proceedings before Special Court.
439.
Offences to be non-cognizable.
440.
Transitional provisions.
441.
Compounding of certain offences.
442.
Mediation and conciliation penal.
443.
Power of Central Government to appoint company prosecutors.
444.
Appeal against acquittal.
445.
Compensation for accusation without reasonable cause.
446.
Application of fines.
CHAPTER XXIX
20
MISCELLANEOUS
447.
Punishment for fraud.
448.
Punishment for false statements.
449.
Punishment for false evidence.
450.
Punishment where no specific penalty or punishment is provided.
451.
Punishment in case of repeated default.
452.
Punishment for wrongful withholding of property.
453.
Punishment for improper use of “Limited” or “Private Limited”.
454.
Adjudication of penalties.
455.
Dormant company.
456.
Protection of action taken in good faith.
457.
Non-disclosure of information in certain cases.
458.
Delegation by Central Government of its powers and functions.
459.
Powers of Central Government or Tribunal to accord approval, etc.,
subject to conditions and to prescribe fees on applications.
460.
Condonation of delay in certain cases.
461.
Annual report by Central Government.
462.
Power to exempt class or classes of companies from provisions of
this Act.
463.
Power of court to grant relief in certain cases.
464.
Prohibition of association or partnership of persons exceeding certain
number.
465.
Repeal of certain enactments and savings.
466.
Dissolution of Company Law Board and consequential provisions.
467.
Power of Central Government to amend Schedules.
468.
Powers of Central Government to make rules relating to winding up.
469.
Power of Central Government to make rules.
21
470.
Power to remove difficulties.
SCHEDULE I
SCHEDULE II
SCHEDULE III
SCHEDULE IV
SCHEDULE V
SCHEDULE VI
SCHEDULE VII
THE COMPANIES ACT, 2013
(ACT NO. 18 OF 2013)
AN
ACT
to consolidate and amend the law relating to companies
BE it enacted by Parliament in the Sixty-fourth Year of the Republic of
India as follows:—
CHAPTER I
PRELIMINARY
1.
(1) This Act may be called the Companies Act, 2013.
(2) It extends to the whole of India.
(3) This section shall come into force at once and the remaining
provisions of this Act shall come into force on such date as the Central
Government may, by notification in the Official Gazette, appoint and different
dates may be appointed for different provisions of this Act and any reference in
any provision to the commencement of this Act shall be construed as a
reference to the coming into force of that provision.
(4) The provisions of this Act shall apply to—
(a) companies incorporated under this Act or under any previous
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company law;
(b) insurance companies, except in so far as the said provisions
are inconsistent with the provisions of the Insurance Act, 1938 (4 of
1938) or the Insurance Regulatory and Development Authority Act,
1999 (41 of 1999);
(c) banking companies, except in so far as the said provisions are
inconsistent with the provisions of the Banking Regulation Act, 1949
(10 of 1949);
(d) companies engaged in the generation or supply of electricity,
except in so far as the said provisions are inconsistent with the
provisions of the Electricity Act, 2003 (36 of 2003);
(e) any other company governed by any special Act for the time
being in force, except in so far as the, said provisions are inconsistent
with the provisions of such special Act; and
(f)
such body corporate, incorporated by any Act for the time
being in force, as the Central Government may, by notification, specify
in this behalf, subject to such exceptions, modifications or adaptation,
as may be specified in the notification.
2.
Definitions.—In this Act, unless the context otherwise requires,—
(1) “abridged prospectus” means a memorandum containing such
salient features of a prospectus as may be specified by the Securities
and Exchange Board by making regulations in this behalf;
(2) “accounting standards” means the standards of accounting or
any addendum thereto for companies or class of companies referred to
in section 133;
(3) “alter” or “alteration” includes the making of additions,
omissions and substitutions;
(4) “Appellate Tribunal” means the National Company Law
Appellate Tribunal constituted under section 410;
(5) “articles” means the articles of association of a company as
originally framed or as altered from time to time or applied in
pursuance of any previous company law or of this Act;
(6) “associate company”, in relation to another company, means a
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company in which that other company has a significant influence, but
which is not a subsidiary company of the company having such
influence and includes a joint venture company.
Explanation.—For the purposes of this clause, “significant
influence” means control of at least twenty per cent. of total
share capital, or of business decisions under an agreement;
(7) “auditing standards” means the standards of auditing or any
addendum thereto for companies or class of companies referred to
in sub-section (10) of section 143;
(8) “authorised capital” or “nominal capital” means such capital
as is authorised by the memorandum of a company to be the
maximum amount of share capital of the company;
(9)
“banking company” means a banking company as defined in
clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of
1949);
(10) “Board of Directors” or “Board”, in relation to a company,
means the collective body of the directors of the company;
(11) “body corporate” or “corporation” includes a company
incorporated outside India, but does not include—
(i) a co-operative society registered under any law relating to
co-operative societies; and
(ii) any other body corporate (not being a company as defined in
this Act), which the Central Government may, by notification, specify
in this behalf;
(12) “book and paper” and “book or paper” include books of
account deeds, vouchers, writings, documents, minutes and registers
maintained on paper or in electronic form;
(13) “books of account” includes records maintained in respect
of—
(i) all sums of money received and expended by a company and
matters in relation to which the receipts and expenditure take place;
(ii) all sales and purchases of goods and services by the
24
company;
(iii) the assets and liabilities of the company; and
(iv) the items of cost as may be prescribed under section 148 in
the case of a company which belongs to any class of companies
specified under that section;
(14) “branch office” in relation to a company, means any
establishment described as such by the company;
(15) “called-up capital” means such part of the capital, which has
been called for payment;
(16) “charge” means an interest or lien created on the property
or assets of a company or any of its undertakings or both as security
and includes a mortgage;
(17) “chartered accountant” means a chartered accountant as
defined in clause (b) of sub-section (1) of section 2 of the Chartered
Accountants Act, 1949 (38 of 1949) who holds a valid certificate of
practice under sub-section (1) of section 6 of that Act;
(18) “Chief Executive Officer” means an officer of a company, who
has been designated as such by it;
(19) “Chief Financial Officer” means a person appointed as the
Chief Financial Officer of a company;
(20) “company” means a company incorporated under this Act or
under any previous company law;
(21) “company limited by guarantee” means a company having the
liability of its members limited by the memorandum to such amount as
the members may respectively undertake to contribute to the assets of
the company in the event of its being wound up;
(22) “company limited by shares” means a company having the
liability of its members limited by the memorandum to the amount if
any, unpaid on the shares respectively held by them;
(23) “Company Liquidator”, in so far as it relates to the winding
up of a company, means a person appointed by—
(a) the Tribunal in case of winding up by the Tribunal; or
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(b) the company or creditors in case of voluntary winding up, as a
Company Liquidator from a panel of professionals maintained by the
Central Government under sub-section (2) of section 275;
(24) “company secretary” or “secretary” means a company
secretary as defined in clause (c) of sub-section (1) of section 2 of
the Company Secretaries Act, 1980 (56 of 1980) who is appointed by a
company to perform the functions of a company secretary under this
Act;
(25) “company secretary in practice” means a company secretary
who is deemed to be in practice under sub-section (2) of section 2 of
the Company Secretaries Act, 1980 (56 of 1980);
(26) “contributory” means a person liable to contribute towards
the assets of the company in the event of its being wound up.
Explanation.—For the purposes of this clause, it is hereby clarified that
a person holding fully paid-up shares in a company shall be considered as a
contributory but shall have no liabilities of a contributory under the Act whilst
retaining rights of such a contributory;
(27)
“control” shall include the right to appoint majority of the
directors or to control the management or policy decisions exercisable by a
person or persons acting individually or in concert, directly or indirectly,
including by virtue of their shareholding or management rights or shareholders
agreements or voting agreements or in any other manner;
(28)
“cost accountant” means a cost accountant as defined in clause
(b) of sub-section (1) of section 2 of the Cost and Works Accountants Act,
1959 (23 of 1959);
(29)
“court” means—
(i) the High Court having jurisdiction in relation to the place at
which the registered office of the company concerned is situate, except
to the extent to which jurisdiction has been conferred on any district
court or district courts subordinate to that High Court under
sub-clause (ii);
(ii) the district court, in cases where the Central Government has, by
notification, empowered any district court to exercise all or any of the
jurisdictions conferred upon the High Court, within the scope of its
26
jurisdiction in respect of a company whose registered office is situate in
the district;
(iii) the Court of Session having jurisdiction to try any offence under
this Act or under any previous company law;
(iv) the Special Court established under section 435;
(v) any Metropolitan Magistrate or a Judicial Magistrate of the First
Class having jurisdiction to try any offence under this Act or under any
previous company law;
(30) “debenture” includes debenture stock, bonds or any other
instrument of a company evidencing a debt, whether constituting a charge on
the assets of the company or not;
(31) “deposit” includes any receipt of money by way of deposit or
loan or in any other form by a company, but does not include such categories
of amount as may be prescribed in consultation with the Reserve Bank of India;
(32) “depository” means a depository as defined in clause (e) of sub-
section (1) of section 2 of the Depositories Act, 1996 (22 of 1996);
(33) “derivative” means the derivative as defined in clause (ac) of
section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956);
(34) “director” means a director appointed to the Board of a company;
(35) “dividend” includes any interim dividend;
(36) “document” includes summons, notice, requisition, order,
declaration, form and register, whether issued, sent or kept in pursuance of this
Act or under any other law for the time being in force or otherwise, maintained
on paper or in electronic form;
(37) “employees’ stock option” means the option given to the
directors, officers or employees of a company or of its holding company or
subsidiary company or companies, if any, which gives such directors, officers or
employees, the benefit or right to purchase, or to subscribe for, the shares of the
company at a future date at a pre-determined price;
(38) “expert” includes an engineer, a valuer, a chartered accountant, a
company secretary, a cost accountant and any other person who has the power
or authority to issue a certificate in pursuance of any law for the time being in
27
force;
(39) “financial institution” includes a scheduled bank, and any other
financial institution defined or notified under the Reserve Bank of India Act,
1934 (2 of 1934);
(40) “financial statement” in relation to a company, includes—
(i) a balance sheet as at the end of the financial year;
(ii) a profit and loss account, or in the case of a company
carrying on any activity not for profit, an income and expenditure
account for the financial year;
(iii) cash flow statement for the financial year;
(iv) a statement of changes in equity, if applicable; and
(v) any explanatory note annexed to, or forming part of, any
document referred to in sub-clause (i) to sub-clause (iv):
Provided that the financial statement, with respect to One Person
Company, small company and dormant company, may not include the cash flow
statement;
(41) “financial year”, in relation to any company or body corporate,
means the period ending on the 31st day of March every year, and where it has
been incorporated on or after the 1st day of January of a year, the period ending
on the 31st day of March of the following year, in respect whereof financial
statement of the company or body corporate is made up:
Provided that on an application made by a company or body corporate,
which is a holding company or a subsidiary of a company incorporated outside
India and is required to follow a different financial year for consolidation of its
accounts outside India, the Tribunal may, if it is satisfied, allow any period as its
financial year, whether or not that period is a year:
Provided further that a company or body corporate, existing on the
commencement of this Act, shall, within a period of two year from such
commencement, align its financial year as per the provisions of this clause;
(42) “foreign company” means any company or body corporate
incorporated outside India which—
(a) has a place of business in India whether by itself or through
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an agent, physically or through electronic mode; and
(b) conducts any business activity in India in any other manner.
(43) “tree reserves” means such reserves which, as per the latest
audited balance sheet of a company, are available for distribution as dividend:
Provided that—
(i) any amount representing unrealised gains, notional gains or
revaluation of assets, whether shown as a reserve or otherwise, or
(ii) any change in carrying amount of an asset or of a liability
recognised in equity, including surplus in profit and loss account on
measurement of the asset or the liability at fair value,
shall not be treated as tree reserves;
(44) “Global Depository Receipt” means any instrument in the form of
a depository receipt, by whatever name called, created by a foreign depository
outside India and authorised by a company making an issue of such depository
receipts;
(45) “Government company” means any company in which not less
than fifty-one per cent. of the paid-up share capital is held by the Central
Government, or by any State Government or Governments, or partly by the
Central Government and partly by one or more State Governments, and includes
a company which is a subsidiary company of such a Government company;
(46) “holding company”, in relation to one or more other companies,
means a company of which such companies are subsidiary companies;
(47) “independent director” means an independent director referred to
in sub-section (5) of section 149;
(48) “Indian Depository Receipt” means any instrument in the form of
a depository receipt created by a domestic depository in India and authorised by
a company incorporated outside India making an issue of such depository
receipts;
(49) “interested director” means a director who is in any way, whether
by himself or through any of his relatives or firm, body corporate or other
29
association of individuals in which he or any of his relatives is a partner,
director or a member, interested in a contract or arrangement, or proposed
contract or arrangement, entered into or to be entered into by or on behalf of a
company;
(50) “issued capital” means such capital as the company issues from
time to time for subscription;
(51) “key managerial personnel”, in relation to a company, means—
(i) the Chief Executive Officer or the managing director or the
manager;
(ii) the company secretary;
(iii)the whole-time director;
(iv) the Chief Financial Officer; and
(v) such other officer as may be prescribed;
(52) “listed company” means a company which has any of its securities
listed on any recognised stock exchange;
(53) “manager” means an individual who, subject to the
superintendence, control and direction of the Board of Directors, has the
management of the whole, or substantially the whole, of the affairs of a company,
and includes a director or any other person occupying the position of a
manager, by whatever name called, whether under a contract of service or not;
(54) “managing director” means a director who, by virtue of the
articles of a company or an agreement with the company or a resolution passed
in its general meeting, or by its Board of Directors, is entrusted with substantial
powers of management of the affairs of the company and includes a director
occupying the position of managing director, by whatever name called.
Explanation.—For the purposes of this clause, the power to do
administrative acts of a routine nature when so authorised by the Board such as
the power to affix the common seal of the company to any document or to
draw and endorse any cheque on the account of the company in any bank or to
draw and endorse any negotiable instrument or to sign any certificate of share
or to direct registration of transfer of any share, shall not be deemed to be
included within the substantial powers of management;
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(55) “member”, in relation to a company, means—
(i) the subscriber to the memorandum of the company who shall
be deemed to have agreed to become member of the company, and on
its registration, shall be entered as member in its register of members;
(ii) every other person who agrees in writing to become a
member of the company and whose name is entered in the register of
members of the company;
(iii)every person holding shares of the company and whose name
is entered as a beneficial owner in the records of a depository;
(56) “memorandum” means the memorandum of association of a
company as originally framed or as altered from time to time in pursuance of any
previous company law or of this Act;
(57) “net worth” means the aggregate value of the paid-up share
capital and all reserves created out of the profits and securities premium
account, after deducting the aggregate value of the accumulated losses, deferred
expenditure and miscellaneous expenditure not written of, as per the audited
balance sheet, but does not include reserves created out of revaluation of
assets, write-back of depreciation and amalgamation;
(58) “notification” means a notification published in the Official Gazette
and the expression “notify” shall be construed accordingly;
(59) “officer” includes any director, manager or key managerial
personnel or any person in accordance with whose directions or instructions the
Board of Directors or any one or more of the directors is or are accustomed to
act;
(60) “officer who is in default”, for the purpose of any provision in this
Act which enacts that an officer of the company who is in default shall be liable
to any penalty or punishment by way of imprisonment, fine or otherwise, means
any of the following officers of a company, namely:—
(i)
whole-time director;
(ii) key managerial personnel;
(iii) where there is no key managerial personnel, such director or
directors as specified by the Board in this behalf and who has or have
given his or their consent in writing to the Board to such specification, or
all the directors, if no director is so specified;
(iv) any person who, under the immediate authority of the Board
or any key managerial personnel, is charged with any responsibility
31
including maintenance, filing or distribution of accounts or records,
authorises, actively participates in, knowingly permits, or knowingly fails
to take active steps to prevent, any default;
(v) any person in accordance with whose advice, directions or
instructions the Board of Directors of the company is accustomed to act,
other than a person who gives advice to the Board in a professional
capacity;
(vi) every director, in respect of a contravention of any of the
provisions of this Act, who is aware of such contravention by virtue of
the receipt by him of any proceedings of the Board or participation in
such proceedings without objecting to the same, or where such
contravention had taken place with his consent or connivance;
(vii) in respect of the issue or transfer of any shares of a
company, the share transfer agents, registrars and merchant bankers to the
issue or transfer;
(61) “Official Liquidator” means an Official Liquidator appointed under
sub-section (1) of section 359;
(62) “One Person Company” means a company which has only one
person as a member;
(63) “ordinary or special resolution” means an ordinary resolution, or
as the case may be, special resolution referred to in section 114;
(64) “paid-up share capital” or “share capital paid-up” means such
aggregate amount of money credited as paid-up as is equivalent to the amount
received as paid-up in respect of shares issued and also includes any amount
credited as paid-up in respect of shares of the company, but does not include
any other amount received in respect of such shares, by whatever name called;
(65) “postal ballot” means voting by post or through any electronic
mode;
(66) “prescribed” means prescribed by rules made under this Act;
(67) “previous company law” means any of the laws specified
below:—
32
(i)
Acts relating to companies in force before the Indian
Companies Act, 1866 (10 of 1866);
(ii) the Indian Companies Act, 1866 (10 of 1866);
(iii) the Indian Companies Act, 1882, (6 of 1882);
(iv) the Indian Companies Act, 1913, (7 of 1913);
(v) the Registraion of Transsferred Companies Ordinance, 1942,
ord 54 of 1942);
(vi) the Companies Act, 1956 (1 of 1956); and
(vii) any law corresponding to any of the aforesaid Acts or the
Ordinances and in force—
(A) in the merged territories or in a Part B State (other than
the State of Jammu and Kashmir), or any part thereof, before the
extension thereto of the Indian Companies Act, 1913 (7 of 1913); or
(B) in the State of Jammu and Kashmir, or any part there of,
before the commencement of the Jammu and Kashmir (Extension
of Laws) Act, 1956, (62 of 1956), in so far as banking, insurance
and financial corporations are concerned, and before the
commencement of the Central Laws (Extension to Jammu and
Kashmir) Act, 1968 (25 of 1968), in so far as other corporations
are concerned;
(viii) the Portuguese Commercial Code, in so far as it relates to
sociedades anonimas; and
(ix) the Registration of Companies (Sikkim) Act, 1961 (Sikkim
Act 8 of 1961);
(68)
“private company” means a company having a minimum paid-up
share capital of one lakh rupees or such higher paid-up share capital as may be
prescribed, and which by its articles,—
(i) restricts the right to transfer its shares;
33
(ii) except in case of One Person Company, limits the number of its
members to two hundred:
Provided that where two or more persons hold one or more shares in a
company jointly, they shall, for the purposes of this clause, be treated as a
single member :
Provided further that—
(A) persons who are in the employment of the company; and
(B) persons who, having been formerly in the employment of the
company, were members of the company while in that employment and have
continued to be members after the employment ceased,
shall not be included in the number of members; and
(iii) prohibits any invitation to the public to subscribe for any
securities of the company;
(69) “promoter” means a person—
(a) who has been named as such in a prospectus or is identified by
the company in the annual return referred to in section 92; or
(b) who has control over the affairs of the company, directly or
indirectly whether as a shareholder, director or otherwise; or
(c) in accordance with whose advice, directions or instructions the
Board of Directors of the company is accustomed to act:
Provided that nothing in sub-clause (c) shall apply to a person who is
acting merely in a professional capacity;
(70) “prospectus” means any document described or issued
as a prospectus and includes a red herring prospectus referred to in section
32 or shelf prospectus referred to in section 31 or any notice, circular,
advertisement or other document inviting offers from the public for the
subscription or purchase of any securities of a body corporate;
34
(71) “public company” means a company which—
(a) is not a private company;
(b) has a minimum paid-up share capital of five lakh rupees or such
higher paid-up capital, as may be prescribed:
Provided that a company which is a subsidiary of a company, not being a
private company, shall be deemed to be public company for the purposes of this
Act even where such subsidiary company continues to be a private company in
its articles;
(72) “public financial institution” means—
(i)
the Life Insurance Corporation of India, established under section
3 of the Life Insurance Corporation Act, 1956 (31 of 1956);
(ii) the Infrastructure Development Finance Company Limited, referred
to in clause (vi) of sub-section (1) of section 4A of the Companies Act,
1956 (1 of 1956) so repealed under section 465 of this Act;
(iii) specified company referred to in the Unit Trust of India
(Transfer of undertaking and Repeal) Act, 2002 (58 of 2002);
(iv) institutions notified by the Central Government under
sub-section (2) of section 4A of the Companies Act, 1956 (1 of 1956) so
repealed under section 465 of this Act;
(v) such other institution as may be notified by the Central
Government in consultation with the Reserve Bank of India:
Provided that no institution shall be so notified unless—
(A)it has been established or constituted by or under any Central
or State Act; or
(B)not less than fifty-one per cent. of the paid-up share capital is
held or controlled by the Central Government or by any State
Government or Governments or partly by the Central Government and
partly by one or more State Governments;
(73)
“recognised stock exchange” means a recognised stock exchange as
defined in clause (f) of section 2 of the Securities Contracts (Regulation) Act,
1956 (42 of 1956);
35
(74)
“register of companies” means the register of companies maintained
by the Registrar on paper or in any electronic mode under this Act;
(75)
“Registrar” means a Registrar, an Additional Registrar, a Joint
Registrar, a Deputy Registrar or an Assistant Registrar, having the duty of
registering companies and discharging various functions under this Act;
(76)
“related party”, with reference to a company, means—
(i)
a director or his relative;
(ii)
a key managerial personnel or his relative;
(iii) a firm, in which a director, manager or his relative is a partner;
(iv) a private company in which a director or manager is a member or
director;
(v) a public company in which a director or manager is a director or
holds along with his relatives, more than two per cent. of its paid-up share
capital;
(vi)
any body corporate whose Board of Directors, managing director
or manager is accustomed to act in accordance with the advice, directions
or instructions of a director or manager;
(vii) any person on whose advice, directions or instructions a
director or manager is accustomed to act:
Provided that nothing in sub-clauses (vi) and (vii) shall apply to the advice,
directions or instructions given in a professional capacity;
(viii) any company which is—
(A) a holding, subsidiary or an associate company of such
company; or
(B) a subsidiary of a holding company to which it is also a
subsidiary;
(ix) such other person as may be prescribed;
(77) “relative”, with reference to any person, means any one who is
related to another, if—
36
(i)
they are members of a Hindu Undivided Family;
(ii) they are husband and wife; or
(iii) one person is related to the other in such manner as may be
prescribed;
(78)“remuneration” means any money or its equivalent given or
passed to any person for services rendered by him and includes perquisites
as defined under the Income-tax Act, 1961 (43 of 1961);
(79) “Schedule” means a Schedule annexed to this Act;
(80) “scheduled bank” means the scheduled ‘bank as defined in clause (e)
of section 2 of the Reserve Bank of India Act, 1934 (2 of 1934);
(81) “securities” means the securities as defined in clause (h) of section 2
of the Securities Contracts (Regulation) Act, 1956 (42 of 1956);
(82) “Securities and Exchange Board” means the Securities and Exchange
Board of lndia established under section 3 of the Securities and Exchange Board
of India Act, 1992 (15 of 1992);
(83) “Serious Fraud Investigation Office” means the office referred to in
section 211 ;
(84) “share” means a share in the share capital of a company and
includes stock;
(85) “small company” means a company, other than a public company,—
(i) paid-up share capital of which does not exceed fifty lakh rupees or
such higher amount as may be prescribed which shall not be more than
five crore rupees; or
(ii) turnover of which as per its last profit and loss account does not
exceed two crore rupees or such higher amount as may be prescribed
which shall not be more than twenty crore rupees:
37
Provided that nothing in this clause shall apply to—
(A) a holding company or a subsidiary company;
(B) a company registered under section 8; or
(C) a company or body corporate governed by any special Act;
(86)“subscribed capital” means such part of the capital which is for the
time being subscribed by the members of a company;
(87)“subsidiary company” or “subsidiary”, in relation to any other
company (that is to say the holding company), means a company in which the
holding company—
(i) controls the composition of the Board of Directors; or
(ii) exercises or controls more than one-half of the total share capital
either at its own or together with one or more of its subsidiary
companies:
Provided that such class or classes of holding companies as may be
prescribed shall not have layers of subsidiaries beyond such numbers as may be
prescribed.
Explanation.—For the purposes of this clause,—
(a) a company shall be deemed to be a subsidiary company of the holding
company even if the control referred to in sub-clause (i) or
sub-clause (ii) is of another subsidiary company of the holding
company;
(b) the composition of a company’s Board of Directors shall be deemed
to be controlled by another company if that other company by
exercise of some power exercisable by it at its discretion can appoint
or remove all or a majority of the directors;
(c) the expression “company” includes any body corporate;
(d) “layer” in relation to a holding company means its subsidiary or
subsidiaries;
38
(88)“sweat equity shares” means such equity shares as are issued by a
company to its directors or employees at a discount or for consideration, other
than cash, for providing their know-how or making available rights in the nature
of intellectual property rights or value additions, by whatever name called;
(89)“total voting power”, in relation to any matter, means the total number
of votes which may be cast in regard to that matter on a poll at a meeting of a
company if all the members thereof or their proxies having a right to vote on
that matter are present at the meeting and cast their votes;
(90) “Tribunal” means the National Company Law Tribunal constituted
under section 408;
(91) “turnover” means the aggregate value of the realisation of amount
made from the sale, supply or distribution of goods or on account of services
rendered, or both, by the company during a financial year;
(92) “unlimited company” means a company not having any limit on the
liability of its members;
(93) “voting right” means the right of a member of a company to vote in
any meeting of the company or by means of postal ballot;
(94) “whole-time director” includes a director in the whole-time employment
of the company;
(95) words and expressions used and not defined in this Act but defined in
the Securities Contracts (Regulation) Act, 1956 (42 of 1956) or the Securities and
Exchange Board of India Act, 1992 (15 of 1992) or the Depositories Act, 1996
(22 of 1996) shall have the meanings respectively assigned to them in
those Acts.
CHAPTER II
INCORPORATION OF COMPANY AND MATTERS INCIDENTAL THERETO
3. Formation of company.—(1) A company may be formed for any lawful
purpose by—
(a)seven or more persons, where the company to be formed is to be
a public company;
(b)two or more persons, where the company to be formed is to be a
private company; or
(c) one person, where the company to be formed is to be One Person
Company that is to say, a private company,
39
by subscribing their names or his name to a memorandum and complying with
the requirements of this Act in respect of registration:
Provided that the memorandum of One Person Company shall indicate the
name of the other person, with his prior written consent in the prescribed form,
who shall, in the event of the subscriber’s death or his incapacity to contract
become the member of the company and the written consent of such person
shall also be filed with the Registrar at the time of incorporation of the One
Person Company along with its memorandum and articles:
Provided further that such other person may withdraw his consent in such
manner as may be prescribed:
Provided also that the member of One Person Company may at any time
change the name of such other person by giving notice in such manner as may
be prescribed:
Provided also that it shall be the duty of the member of One Person
Company to intimate the company the change, if any, in the name of the other
person nominated by him by indicating in the memorandum or otherwise within
such time and in such manner as may be prescribed, and the company shall
intimate the Registrar any such change within such time and in such manner as
may be prescribed:
Provided also that any such change in the name of the person shall not be
deemed to be an alteration of the memorandum.
(2) A company formed under sub-section (I) may be either—
(a) a company limited by shares; or
(b) a company limited by guarantee; or
(c) an unlimited company.
4. Memorandum.—(1) The memorandum of a company shall state—
(a) the name of the company with the last word “Limited” in the case
of a public limited company, or the last words “Private Limited” in
the case of a private limited company:
Provided that nothing in this clause shall apply to a company registered
under section 8;
(b) the State in which the registered office of the company is to be situated;
(c) the objects for which the company is proposed to be incorporated
and any matter considered necessary in furtherance thereof;
40
(d) the liability of members of the company, whether limited or unlimited,
and also state,—
(i) in the case of a company limited by shares, that liability
of its members is limited to the amount unpaid, if any, on the
shares held by them; and
(ii) in the case of a company limited by guarantee, the amount up to
which each member undertakes to contribute—
(A) to the assets of the company in the event of its being
wound-up while he is a member or within one year after he
ceases to be a member, for payment of the debts and
liabilities of the company or of such debts and liabilities as
may have been contracted before he ceases to be a member,
as the case may be; and
(B) to the costs, charges and expenses of winding-up and for
adjustment of the rights of the contributories among
themselves;
(e) in the case of a company having a share capital,.—
(i) the amount of share capital with which the company is to be registered
and the division there of into shares of a fixed amount and the number
of shares which the subscribers to the memorandum agree to
subscribe which shall not be less than one share; and
(ii) the number of shares each subscriber to the memorandum
intends to take, indicated opposite his name;
(f) in the case of One Person Company, the name of the person who, in
the event of death of the subscriber, shall become the member of
the company.
(2) The name stated in the memorandum shall not—
(a) be identical with or resemble too nearly to the name of an
existing company registered under this Act or any previous
company law; or
(b) be such that its use by the company—
(i) will constitute an offence under any law for the time being in
force; or
41
(ii) is undesirable in the opinion of the Central Government.
(3) Without prejudice to the provisions of sub-section (2), a company
shall not be registered with a name which contains—
(a) any word or expression which is likely to give the impression that
the company is in any way connected with, or having the patronage of, the
Central Government, any State Government, or any local authority, corporation or
body constituted by the Central Government or any State Government under
any law for the time being in force; or
(b) such word or expression, as may be prescribed, unless the
previous approval of the Central Government has been obtained for the use of
any such word or expression.
(4) A person may make an application, in such form and manner and
accompanied by such fee, as may be prescribed, to the Registrar for the
reservation of a name set out in the application as—
(a) the name of the proposed company; or
(b) the name to which the company proposes to change its name.
(5) (i) Upon receipt of an application under sub-section (4), the Registrar
may, on the basis of information and documents furnished along with the
application, reserve the name for a period of sixty days from the date of the
application.
(ii) Where after reservation of name under clause (i), it is found that name
was applied by furnishing wrong or incorrect information, then,—
(a) if the company has not been incorporated, the reserved name shall
be cancelled and the person making application under sub-section (4) shall
be liable to a penalty which may extend to one lakh rupees;
(b) if the company has been incorporated, the Registrar may, after giving
the company an opportunity of being heard—
(i) either direct the company to change its name within a period
of three months, after passing an ordinary resolution;
(ii) take action for striking off the name of the company from the
register of companies; or
42
(iii) make a petition for winding up of the company.
(6) The memorandum of a company shall be in respective forms specified in
Tables A, B, C, D and E in Schedule I as may be applicable to such company.
(7) Any provision in the memorandum or articles, in the case of a company
limited by guarantee and not having a share capital, purporting to give any person a
right to participate in the divisible profits of the company otherwise than as a member,
shall be void.
5. Articles.—(1) The articles of a company shall contain the regulations for
management of the company.
(2) The articles shall also contain such matters, as may be prescribed:
Provided that nothing prescribed in this sub-section shall be deemed to prevent
a company from including such additional matters in its articles , as may be considered
necessary for its management.
(3) The articles may contain provisions for entrenchment to the effect that
specified provisions of the articles may be altered only if conditions or procedures as
that are more restrictive than those applicable in the case of a special resolution, are
met or complied with.
(4) The provisions for entrenchment referred to in sub-section (3) shall only
be made either on formation of a company, or by an amendment in the articles agreed
to by all the members of the company in the case of a private company and by a
special resolution in the case of a public company.
(5) Where the articles contain provisions for entrenchment, whether made on
formation or by amendment, the company shall give notice to the Registrar of such
provisions in such form and manner as may be prescribed.
(6) The articles of a company shall be in respective forms specified in Tables,
F, G, H, I and J in Schedule I as may be applicable to such company.
(7) A company may adopt all or any of the regulations contained in the model
articles applicable to such company.
(8) In case of any company, which is registered after the commencement of this
Act, in so far as the registered articles of such company do not exclude or modify the
regulations contained in the model articles applicable to such company, those
regulations shall, so far as applicable, be the regulations of that company in the same
43
manner and to the extent as if they were contained in the duly registered articles of
the company.
(9) Nothing in this section shall apply to the articles of a company registered
under any previous company law unless amended under this Act.
6. Act to over ride memorandum, articles, etc.— Save as otherwise expressly
provided in this Act—
(a) the provisions of this Act shall have effect notwithstanding
anything to the contrary contained in the memorandum or articles of
a company, or in any agreement executed by it, or in any resolution
passed by the company in general meeting or by its Board of
Directors, whether the same be registered, executed or passed, as the
case may be, before or after the commencement of this Act; and
( b) any provision contained in the memorandum, articles,
agreement or resolution shall, to the extent to which it is repugnant
to the provisions of this Act, become or be void, as the case may be.
7. Incorporation of company.— (1) There shall be filed with the Registrar
within whose jurisdiction the registered office of a company is proposed to be
situated, the following documents and information for registration, namely:—
(a) the memorandum and articles of the company duly signed by all
the subscribers to the memorandum in such manner as may be prescribed.
(b) a declaration in the prescribed form by an advocate, a chartered
accountant, cost accountant or company secretary in practice, who is
engaged in the formation of the company, and by a person named in the
articles as a director, manager or secretary of the company, that all the
requirements of this Act and the rules made thereunder in respect
of registration and matters precedent or incidental thereto have been
complied with;
(c) an affidavit from each of the subscribers to the memorandum and
from persons named as the first directors, if any, in the articles that he is
not convicted of any offence in connection with the promotion, formation
or management of any company, or that he has not been found guilty of
any fraud or misfeasance or of any breach of duty to any company under
this Act or any previous company law during the preceding five years and
44
that all the documents filed with the Registrar for registration of the
company contain information that is correct and complete and true to the
best of his knowledge and belief;
(d) the address for correspondence till its registered office is
established;
(e) the particulars of name, including surname or family name,
residential address, nationality and such other particulars of every
subscriber to the memorandum along with proof of identity, as may be
prescribed, and in the case of a subscriber being a body corporate, such
particulars as may be prescribed;
(f)
the particulars of the persons mentioned in the articles as the
first directors of the company, their names, including surnames or family
names, the Director Identification Number, residential address, nationality
and such other particulars including proof of identity as may be
prescribed; and
(g) the particulars of the interests of the persons mentioned in the
articles as the first directors of the company in other firms or bodies
corporate along with their consent to act as directors of the company in
such form and manner as may be prescribed.
(2) The Registrar on the basis of documents and information filed under
sub-section (1) shall register all the documents and information referred to in
that sub-section in the register and issue a certificate of incorporation in the
prescribed form to the effect that the proposed company is incorporated under
this Act.
(3) On and from the date mentioned in the certificate of incorporation
issued under sub-section (2), the Registrar shall allot to the company a
corporate identity number, which shall be a distinct identity for the company
and which shall also be included in the certificate.
(4) The company shall maintain and preserve at its registered office copies
of all documents and information as originally filed under sub-section (1) till its
dissolution under this Act.
(5) If any person furnishes any false or incorrect particulars of any
information or suppresses any material information, of which he is aware in any
of the documents filed with the Registrar in relation to the registration of a
45
company, he shall be liable for action under section 447.
(6) Without prejudice to the provisions of sub-section (5) where, at any
time after the incorporation of a company, it is proved that the company has
been got incorporated by furnishing any false or incorrect information or
representation or by suppressing any material fact or information in any of the
documents or declaration filed or made for incorporating such company, or by
any fraudulent action, the promoters, the persons named as the first directors of
the company and the persons making declaration under clause (b) of sub-section
(1) shall each be liable for action under section 447.
(7) Without prejudice to the provisions of sub-section (6), where a
company has been got incorporated by furnishing any false or incorrect
information or representation or by suppressing any material fact or information
in any of the documents or declaration filed or made for incorporating such
company or by any fraudulent action, the Tribunal may, on an application made
to it, on being satisfied that the situation so warrants,—
(a) pass such orders, as it may think fit, for regulation of the
management of the company including changes, if any, in its memorandum
and articles, in public interest or in the interest of the company and its
members and creditors; or
(b) direct that liability of the members shall be unlimited; or
(c) direct removal of the name of the company from the register of
companies; or
(d) pass an order for the winding up of the company; or
(e) pass such other orders as it may deem fit:
Provided that before making any order under this sub-section,—
(i) the company shall be given a reasonable opportunity of being
heard in the matter; and
(ii) the Tribunal shall take into consideration the transactions
entered into by the company, including the obligations, if any,
contracted or payment of any liability.
8. Formation of companies with charitable objects, etc.—(1) Where it is
proved to the satisfaction of the Central Government that a person or an
46
association of persons proposed to be registered under this Act as a limited
company—
(a) has in its objects the promotion of commerce, art, science, sports,
education, research, social welfare, religion, charity, protection of
environment or any such other object;
(b) intends to apply its profits, if any, or other income in promoting its
objects; and
(c) intends to prohibit the payment of any dividend to its members,
the Central Government may, by licence issued in such manner as may be
prescribed, and on such conditions as it deems fit, allow that person or
association of persons to be registered as a limited company under this
section without the addition to its name of the word “Limited”, or as the
case may be, the words “Private Limited”, and thereupon the Registrar
shall, on application, in the prescribed form, register such person or
association of persons as a company under this section.
(2) The company registered under this section shall enjoy all the privileges
and be subject to all the obligations of limited companies.
(3) A firm may be a member of the company registered under this section.
(4) (i) A company registered under this section shall not alter the
provisions of its memorandum or articles except with the previous approval of
the Central Government.
(ii) A company registered under this section may convert itself into
company of any other kind only after complying with such conditions as may be
prescribed.
(5) Where it is proved to the satisfaction of the Central Government that a
limited company registered under this Act or under any previous company law
has been formed with any of the objects specified in clause (a) of sub-section
(I) and with the restrictions and prohibitions as mentioned respectively in clauses
(b) and (c) of that sub-section, it may, by licence, allow the company to be
registered under this section subject to such conditions as the Central
Government deems fit and to change its name by omitting the word “Limited”, or
47
as the case may be, the words “Private Limited” from its name and thereupon
the Registrar shall, on application, in the prescribed form, register such
company under this section and all the provisions of this section shall apply to
that company.
(6) The Central Government may, by order, revoke the licence granted to a
company registered under this section if the company contravenes any of the
requirements of this section or any of the conditions subject to which a licence
is issued or the affairs of the company are conducted fraudulently or in a
manner violative of the objects of the company or prejudicial to public interest,
and without prejudice to any other action against the company under this Act,
direct the company to convert its status and change its name to add the word
“Limited” or the words “Private Limited”, as the case may be, to its name and
thereupon the Registrar shall, without prejudice to any action that may be taken
under sub-section (7), on application, in the prescribed form, register the
company accordingly:
Provided that no such order shall be made unless the company is given a
reasonable opportunity of being heard:
Provided further that a copy of every such order shall be given to the
Registrar.
(7) Where a licence is revoked under sub-section (6), the Central
Government may, by order, if it is satisfied that it is essential in the public
interest, direct that the company be wound up under this Act or amalgamated
with another company registered under this section:
Provided that no such order shall be made unless the company is given a
reasonable opportunity of being heard.
(8) Where a licence is revoked under sub-section (6) and where the Central
Government is satisfied that it is essential in the public interest that the
company registered under this section should be amalgamated with another
company registered under this section and having similar objects, then,
notwithstanding anything to the contrary contained in this Act, the Central
Government may, by order, provide for such amalgamation to form a single
company with such constitution, properties, powers, rights, interest, authorities
48
and privileges and with such liabilities, duties and obligations as may be
specified in the order.
(9) If on the winding up or dissolution of a company registered under this
section, there remains, after the satisfaction of its debts and liabilities, any
asset, they may be transferred to another company registered under this section
and having similar objects, subject to such conditions as the Tribunal may
impose, or may be sold and proceeds thereof credited to the Rehabilitation and
Insolvency Fund formed under section 269.
(10) A company registered under this section shall amalgamate only with
another company registered under this section and having similar objects.
(11) If a company makes any default in complying with any of the
requirements laid down in this section, the company shall, without prejudice to
any other action under the provisions of this section, be punishable with fine
which shall not be less than ten lakh rupees but which may extend to one crore
rupees and the directors and every officer of the company who is in default shall
be punishable with imprisonment for a term which may extend to three years or
with fine which shall not be less than twenty-five thousand rupees but which
may extend to twenty-five lakh rupees, or with both:
Provided that when it is proved that the affairs of the company were
conducted fraudulently, every officer in default shall be liable for action under
section 447.
9. Effect of registration.—From the date of incorporation mentioned in the
certificate of incorporation, such subscribers to the memorandum and all other
persons, as may, from time to time, become members of the company, shall be a
body corporate by the name contained in the memorandum, capable of exercising
all the functions of an incorporated company under this Act and having
perpetual succession and a common seal with power to acquire, hold and
dispose of property, both movable and immovable, tangible and intangible, to
contract and to sue and be sued, by the said name.
10. Effect of memorandum and articles.—(1) Subject to the provisions of
this Act, the memorandum and articles shall, when registered, bind the company
and the members thereof to the same extent as if they respectively had been
49
signed by the company and by each member, and contained covenants on its
and his part to observe all the provisions of the memorandum and of the
articles.
(2) All monies payable by any member to the company under the
memorandum or articles shall be a debt due from him to the company.
11. Commencement of business. etc.—(1) A company having a share capital
shall not commence any business or exercise any borrowing powers unless—
(a) a declaration is filed by a director in such form and verified in such
manner as may be prescribed, with the Registrar that every subscriber to
the memorandum has paid the value of the shares agreed to be taken by
him and the paid-up share capital of the company is not less than five lakh
rupees in case of a public company and not less than one lakh rupees in
case of a private company on the date of making of this declaration; and
(b) the company has filed with the Registrar a verification of its
registered office as provided in sub-section (2) of section 12.
(2) If any default is made in complying with the requirements of this
section, the company shall be liable to a penalty which may extend to five
thousand rupees and every officer who is in default shall be punishable with
fine which may extend to one thousand rupees for every day during which the
default continues.
(3) Where no declaration has been filed with the Registrar under clause (a)
of sub-section (1) within a period of one hundred and eighty days of the date
of incorporation of the company and the Registrar has reasonable cause to
believe that the company is not carrying on any business or operations, he may,
without prejudice to the provisions of sub-section (2), initiate action for the
removal of the name of the company from the register of companies under
Chapter XVIII.
12. Registered office of company.—(1) A company shall, on and from the
fifteenth day of its incorporation and at all times thereafter, have a registered
office capable of receiving and acknowledging all communications and notices as
may be addressed to it.
50
(2) The company shall furnish to the Registrar verification of its registered
office within a period of thirty days of its incorporation in such manner as may
be prescribed.
(3) Every company shall—
(a) paint or affix its name, and the address of its registered office, and
keep the same painted or affixed, on the outside of every office or place in
which its business is carried on, in a conspicuous position, in legible
letters, and if the characters employed therefor are not those of the
language or of one of the languages in general use in that locality, also in
the characters of that language or of one of those languages;
(b) have its name engraved in legible characters on its seal;
(c) get its name, address of its registered office and the Corporate
Identity Number along with telephone number, fax number, if any, e-mail and
website addresses, if any, printed in all its business letters, billheads, letter
papers and in all its notices and other official publications; and
(d) have its name printed on hundies, promissory notes, bills of
exchange and such other documents as may be prescribed:
Provided that where a company has changed its name or names during the
last two years, it shall paint or affix or print, as the case may be, along with its
name, the former name or names so changed during the last two years as
required under clauses (a) and (c):
Provided further that the words “One Person Company” shall be mentioned
in brackets below the name of such company, wherever its name is printed,
affixed or engraved.
(4) Notice of every change of the situation of the registered office, verified
in the manner prescribed, after the date of incorporation of the company, shall be
given to the Registrar within fifteen days of the change, who shall record the
same.
(5) Except on the authority of a special resolution passed by a company,
the registered office of the company shall not be changed,—
(a) in the case of an existing company, outside the local limits of any
51
city, town or village where such office is situated at the commencement of
this Act or where it may be situated later by virtue of a special resolution
passed by the company; and
(b) in the case of any other company, outside the local limits of, any
city, town or village where such office is first situated or where it may be
situated later by virtue of a special resolution passed by the company:
Provided that no company shall change the place of its registered office
from the jurisdiction of one Registrar to the jurisdiction of another Registrar
within the same State unless such change is confirmed by the Regional Director
on an application made in this behalf by the company in the prescribed manner.
(6) The confirmation referred to in sub-section (5) shall be communicated
within a period of thirty days from the date of receipt of application by the
Regional Director to the company and the company shall file the confirmation
with the Registrar within a period of sixty days of the date of confirmation who
shall register the same and certify the registration within a period of thirty days
from the date of filing of such confirmation.
(7) The certificate referred to in sub-section (6) shall be conclusive evidence
that all the requirements of this Act with respect to change of registered office in
pursuance of sub-section (5) have been complied with and the change shall take
effect from the date of the certificate.
(8) If any default is made in complying with the requirements of this
section, the company and every officer who is in default shall be liable to a
penalty of one thousand rupees for every day during which the default
continues but not exceeding one lakh rupees.
13. Alteration of memorandum.—(1) Save as provided in section 61, a
company may, by a special resolution and after complying with the procedure
specified in this section, alter the provisions of its memorandum.
(2) Any change in the name of a company shall be subject to the
provisions of sub-sections (2) and (3) of section 4 and shall not have effect
except with the approval of the Central Government in writing:
Provided that no such approval shall be necessary where the only change
in the name of the company is the deletion therefrom, or addition thereto, of the
52
word “Private”, consequent on the conversion of anyone class of companies to
another class in accordance with the provisions of this Act.
(3) When any change in the name of a company is made under sub-section
(2), the Registrar shall enter the new name in the register of companies in place
of the old name and issue a fresh certificate of incorporation with the new name
and the change in the name shall be complete and effective only on the issue of
such a certificate.
(4) The alteration of the memorandum relating to the place of the
registered office from one State to another shall not have any effect unless it is
approved by the Central Government on an application in such form and manner
as may be prescribed.
(5) The Central Government shall dispose of the application under sub-
section (4) within a period of sixty days and before passing its order may satisfy
itself that the alteration has the consent of the creditors, debenture-holders and
other persons concerned with the company or that the sufficient provision has
been made by the company either for the due discharge of all its debts and
obligations or that adequate security has been provided for such discharge.
(6) Save as provided in section 64, a company shall, in relation to any
alteration of its memorandum, file with the Registrar—
(a) the special resolution passed by the company under sub-section (1);
(b) the approval of the Central Government under sub-section (2), if the
alteration involves any change in the name of the company.
(7) Where an alteration of the memorandum results in the transfer of the
registered office of a company from one State to another, a certified copy of the
order of the Central Government approving the alteration shall be filed by the
company with the Registrar of each of the States within such time and in such
manner as may be prescribed, who shall register the same, and the Registrar of
the State where the registered office is being shifted to, shall issue a fresh
certificate of incorporation indicating the alteration.
(8) A company, which has raised money from public through prospectus
and still has any unutilised amount out of the money so raised, shall not
53
change its objects for which it raised the money through prospectus unless a
special resolution is passed by the company and—
(i) the details, as may be prescribed, in respect of such resolution shall
also be published in the newspapers (one in English and one in vernacular
language) which is in circulation at the place where the registered office of
the company is situated and shall also be placed on the website of the
company, if any, indicating therein the justification for such change;
(ii) the dissenting shareholders shall be given an opportunity to exit by
the promoters and shareholders having control in accordance with
regulations to be specified by the Securities and Exchange Board.
(9) The Registrar shall register any alteration of the memorandum with
respect to the objects of the company and certify the registration within a period
of thirty days from the date of filing of the special resolution in accordance with
clause (a) of sub-section (6) of this section.
(10) No alteration made under this section shall have any effect until it has
been registered in accordance with the provisions of this section.
(11) Any alteration of the memorandum, in the case of a company limited
by guarantee and not having a share capital, purporting to give any person a
right to participate in the divisible profits of the company otherwise than as a
member, shall be void.
14. Alteration of articles.—(1) Subject to the provisions of this Act and
the conditions contained in its memorandum, if any, a company may, by a
special resolution, alter its articles including altorations having the effect of
conversion of—
(a) a private company into a public company; or
(b) a public company into a private company:
Provided that where a company being a private company alters its articles
in such a manner that they no longer include the restrictions and limitations
which are required to be included in the articles of a private company under this
Act, the company shall, as from the date of such alteration, cease to be a
private company:
Provided further that any alteration having the effect of conversion of a
public company into a private company shall not take effect except with the
54
approval of the Tribunal which shall make such order as it may deem fit.
(2) Every alteration of the articles under this section and a copy of the
order of the Tribunal approving the alteration as per sub-section (1) shall be
filed with the Registrar, together with a printed copy of the altered articles,
within a period of fifteen days in such manner as may be prescribed, who shall
register the same.
(3) Any alteration of the articles registered under sub-section (2) shall,
subject to the provisions of this Act, be valid as if it were originally in the
articles.
15. Alteration of memorandum or articles to be noted in every copy.—
(1) Every alteration made in the memorandum or articles of a company shall be
noted in every copy of the memorandum or articles, as the case may be.
(2) If a company makes any default in complying with the provisions of
sub-section (1), the company and every officer who is in default shall be liable
to a penalty of one thousand rupees for every copy of the memorandum or
articles issued without such alteration.
16. Rectification of name of company.—(1) If, through inadvertence or
otherwise, a company on its first registration or on its registration by a new
name, is registered by a name which,—
(a) in the opinion of the Central Government, is identical with or too
nearly resembles the name by which a company in existence had been
previously registered, whether under this Act or any previous company law,
it may direct the company to change its name and the company shall
change its name or new name, as the case may be, within a period of three
months from the issue of such direction, after adopting an ordinary
resolution for the purpose;
(b) on an application by a registered proprietor of a trade mark that the
name is identical with or too nearly resembles to a registered trade mark of
such proprietor under the Trade Marks Act, 1999, made to the Central
Government within three years of incorporation or registration or change of
name of the company, whether under this Act or any previous company
law, in the opinion of the Central Government, is identical with or too nearly
resembles to an existing trade mark, it may direct the company to change
its name and the company shall change its name or new name, as the case
may be, within a period of six months from the issue of such direction,
after adopting an ordinary resolution for the purpose.
55
(2) Where a company changes its name or obtains a new name under sub-
section (1), it shall within a period of fifteen days from the date of such change,
give notice of the change to the Registrar along with the order of the Central
Government, who shall carry out necessary changes in the certificate of
incorporation and the memorandum.
(3) If a company makes default in complying with any direction given under
sub-section (1), the company shall be punishable with fine of one thousand
rupees for every day during which the default continues and every officer who
is in default shall be punishable with fine which shall not be less than five
thousand rupees but which may extend to one lakh rupees.
17. Copies of memorandum, articles, etc., to be given to members.— (1) A
company shall, on being so requested by a member, send to him within seven
days of the request and subject to the payment of such fees as may be
prescribed, a copy of each of the following documents, namely:—
(a) the memorandum;
(b) the articles; and
(c) every agreement and every resolution referred to in sub-section (1)
of section 117, if and in so far as they have not been embodied in the
memorandum or articles.
(2) If a company makes any default in complying with the provisions of this
section, the company and every officer of the company who is in default shall be
liable for each default, to a penalty of one thousand rupees for each day during
which such default continues or one lakh rupees, whichever is less.
18. Convertion of companies already registered.—(1) A company of any
class registered under this Act may convert itself as a company of other class
under this Act by alteration of memorandum and articles of the company in
accordance with the provisions of this Chapter.
(2) Where the conversion is required to be done under this section, the
Registrar shall on an application made by the company, after satisfying himself
that the provisions of this Chapter applicable for registration of companies have
been complied with, close the former registration of the company and after
registering the documents referred to in sub-section (1), issue a certificate of
incorporation in the same manner as its first registration.
56
(3) The registration of a company under this section shall not affect any
debts, liabilities, obligations or contracts incurred or entered into, by or on
behalf of the company before conversion and such debts, liabilities, obligations
and contracts may be enforced in the manner as if such registration had not
been done.
19. Subsidiary company not to hold shares in its holding company.—
(1) No company shall, either by itself or through its nominees, hold any shares
in its holding company and no holding company shall allot or transfer its shares
to any of its subsidiary companies and any such allotment or transfer of shares
of a company to its subsidiary company shall be void:
Provided that nothing in this sub-section shall apply to a case—
(a) where the subsidiary company holds such shares as the legal
representative of a deceased member of the holding company; or
(b) where the subsidiary company holds such shares as a trustee; or
(c) where the subsidiary company is a shareholder even before it
became a subsidiary company of the holding company:
Provided further that the subsidiary company referred to in the preceeding
proviso shall have a right to vote at a meeting of the holding company only in
respect of the shares held by it as a legal representative or as a trustee, as
referred to in clause (a) or clause (b) of the said proviso.
(2) The reference in this section to the shares of a holding company which
is a company limited by guarantee or an unlimited company, not having a share
capital, shall be construed as a reference to the interest of its members, whatever
be the form of interest.
20. Service of documents.—(1) A document may be served on a company
or an officer thereof by sending it to the company or the officer at the registered
office of the company by registered post or by speed post or by courier service
or by leaving it at its registered office or by means of such electronic or other
mode as may be prescribed:
Provided that where securities are held with a depository, the records of the
beneficial ownership may be served by such depository on the company by
means of electronic or other mode.
(2) Save as provided in this Act or the rules made thereunder for filing of
57
documents with the Registrar in electronic mode, a document may be served on
Registrar or any member by sending it to him by post or by registered post or
by speed post or by courier or by delivering at his office or address, or by such
electronic or other mode as may be prescribed:
Provided that a member may request for delivery of any document through
a particular mode, for which he shall pay such fees as may be determined by the
company in its annual general meeting.
Explanation.—For the purposes of this section, the term “courier” means a
person or agency which delivers the document and provides proof of its
delivery.
21. Authentication of documents, proceedings and contracts.—Save as
otherwise provided in this Act,—
(a) a document or proceeding requiring authentication by a company; or
(b) contracts made by or on behalf of a company,
may be signed by any key managerial personnel or an officer of the company
duly authorised by the Board in this behalf.
22. Execution of bills of exchange, etc.—(1) A bill of exchange, hundi or
promissory note shall be deemed to have been made, accepted, drawn or
endorsed on behalf of a company if made, accepted, drawn, or endorsed in the
name of, or on behalf of or on account of, the company by any person acting
under its authority, express or implied.
(2) A company may, by writing under its common seal, authorise any
person, either generally or in respect of any specified matters, as its attorney to
execute other deeds on its behalf in any place either in or outside India.
(3) A deed signed by such an attorney on behalf of the company and
under his seal shall bind the company and have the effect as if it were made
under its common seal.
CHAPTER III
PROSPECTUS AND ALLOTMENT OF SECURITIES
58
PART I.—Public offer
23. Public offer and private placement.—(1) A public company may issue
securities—
(a) to public through prospectus (herein referred to as “public offer”)
by complying with the provisions of this Part; or
(b) through private placement by complying with the provisions of
Part II of this Chapter; or
(c) through a rights issue or a bonus issue in accordance with the
provisions of this Act and in case of a listed company or a company which
intends to get its securities listed also with the provisions of the Securities
and Exchange Board of India Act, 1992 (15 of 1992) and the rules and
regulations made thereunder.
(2) A private company may issue securities—
(a) by way of rights issue or bonus issue in accordance with the
provisions of this Act; or
(b) through private placement by complying with the provisions of
Part II of this Chapter.
Explanation.—For the purposes of this Chapter, “public offer” includes
initial public offer or further public offer of securities to the public by a
company, or an offer for sale of securities to the public by an existing
shareholder, through issue of a prospectus.
24. Power of Securities and Exchange Board to regulate issue and
transfer of securities, etc.—(1) The provisions contained in this Chapter,
Chapter IV and in section 127 shall,—
(a) in so far as they relate to—
(i) issue and transfer of securities; and
(ii) non-payment of dividend,
by listed companies or those companies which intend to get their securities
listed on any recognised stock exchange in India, except as provided under
this Act, be administered by the Securities and Exchange Board by making
regulations in this behalf;
59
(b) in any other case, be administered by the Central Government.
Explanation.—For the removal of doubts, it is hereby declared that all
powers relating to all other matters relating to prospectus, return of allotment,
redemption of preference shares and any other matter specifically provided in
this Act, shall be exercised by the Central Government, the Tribunal or the
Registrar, as the case may be.
(2) The Securities and Exchange Board shall, in respect of matters
specified in sub-section (1) and the matters delegated to it under proviso to
sub-section (1) of section 458, exercise the powers conferred upon it under
sub-sections (1), (2A), (3) and (4) of section 11, sections 11 A,11 B and 11 D of
the Securities and Exchange Board of India Act, 1992 (15 of 1992).
25. Document containing offer of securities for sale to be deemed
prospectus.—(1) Where a company allots or agrees to allot any securities of
the company with a view to all or any of those securities being offered for sale
to the public, any document by which the offer for sale to the public is made
shall, for all purposes, be deemed to be a prospectus issued by the company;
and all enactments and rules of law as to the contents of prospectus and as to
liability in respect of mis-statements, in and omissions from, prospectus, or
otherwise relating to prospectus, shall apply with the modifications specified in
sub-sections (3) and (4) and shall have effect accordingly, as if the securities
had been offered to the public for subscription and as if persons accepting the
offer in respect of any securities were subscribers for those securities, but
without prejudice to the liability, if any, of the persons by whom the offer is
made in respect of mis-statements contained in the document or otherwise in
respect thereof.
(2) For the purposes of this Act, it shall unless the contrary is proved, be
evidence that an allotment of, or an agreement to allot, securities was made with
a view to the securities being offered for sale to the public if it is shown—
(a) that an offer of the securities or of any of them for sale to the
public was made within six months after the allotment or agreement to
allot: or
(b) that at the date when the offer was made, the whole consideration
to be received by the company in respect of the securities had not
been received by it.
(3) Section 26 as applied by this section shall have effect as if—
60
(i) it required a prospectus to state in addition to the matters
required by that section to be stated in a prospectus—
(a) the net amount of the consideration received or to be
received by the company in respect of the securities to which the
offer relates; and
(b) the time and place at which the contract where under the
said securities have been or are to be allotted may be inspected;
(ii) the persons making the offer were persons named in a
prospectus as directors of a company.
(4) Where a person making an offer to which this section relates is a
company or a firm, it shall be sufficient if the document referred to in sub-section
(1) is signed on behalf of the company or firm by two directors of the company
or by not less than one-half of the partners in the firm, as the case may be.
26. Matters to be stated in prospectus.—(1) Every prospectus issued by
or on behalf of a public company either with reference to its formation or
subsequently, or by or on behalf of any person who is or has been engaged or
interested in the formation of a public company, shall be dated and signed and
shall—
(a) state the following information, namely:—
(i) names and addresses of the registered office of the
company, company secretary, Chief Financial Officer, auditors, legal
advisers, bankers, trustees, if any, underwriters and such other
persons as may be prescribed;
(ii) dates of the opening and closing of the issue, and
declaration about the issue of allotment letters and refunds within the
prescribed time;
(iii) a statement by the Board of Directors about the separate
bank account where all monies received out of the issue are to be
transferred and disclosure of details of all monies including utilised
and unutilised monies out of the previous issue in the prescribed
manner;
(iv) details about underwriting of the issue;
(v) consent of the directors, auditors, bankers to the issue,
61
expert’s opinion, if any, and of such other persons, as may be
prescribed;
(vi) the authority for the issue and the details of the resolution
passed therefor;
(vii) procedure and time schedule for allotment and issue of
securities;
(viii) capital structure of the company in the prescribed manner;
(ix) main objects of public offer, terms of the present issue and
such other particulars as may be prescribed;
(x) main objects and present business of the company and its
location, schedule of implementation of the project;
(xi) particulars relating to—
(A) management perception of risk factors specific to the
project;
(B)
gestation period of the project;
(C)
extent of progress made in the project;
(D)
deadlines for completion of the project; and
(E)
any litigation or legal action pending or taken by a
Government Department or a statutory body during the last five
years immediately preceding the year of the issue of prospectus
against the promoter of the company;
(xii) minimum subscription, amount payable by way of premium,
issue of shares otherwise than on cash;
(xiii) details of directors including their appointments and
remuneration, and such particulars of the nature and extent of their
interests in the company as may be prescribed; and
(xiv) disclosures in such manner as may be, prescribed about
sources of promoter’s contribution;
62
(b) set out the following reports for the purposes of the financial
information, namely:—
(i) reports by the auditors of the company with respect to its
profits and losses and assets and liabilities and such other matters as
may be prescribed;
(ii) reports relating to profits and losses for each of the five financial
years immediately preceding the financial year of the issue of prospectus
including such reports of its subsidiaries and in such manner as may be
prescribed:
.
Provided that in case of a company with respect to which a period of
five years has not elapsed from the date of incorporation, the prospectus
shall set out in such manner as may be prescribed, the reports relating to
profits and losses for each of the financial years immediately preceding the
financial year of the issue of prospectus including such reports of its
subsidiaries;
(iii) reports made in the prescribed manner by the auditors upon the
profits and losses of the business of the company for each of the five
financial years immediately preceding issue and assets and liabilities of its
business on the last date to which the accounts of the business were
made up, being a date not more than one hundred and eighty days before
the issue of the prospectus:
Provided that in case of a company with respect to which a period of
five years has not elapsed from the date of incorporation, the prospectus
shall set out in the prescribed manner the reports made by the auditors
upon the profits and losses of the business of the company for all
financial years from the date of its incorporation, and assets and liabilities
of its business on the last date before the issue of prospectus; and
(iv) reports about the business or transaction to which the proceeds
of the securities are to be applied directly or indirectly;
(c) make a declaration about the compliance of the provisions of this
Act and a statement to the effect that nothing in the prospectus is
contrary to the provisions of this Act, the Securities Contracts (Regulation)
63
Act, 1956 (42 of 1956) and the Securities and Exchange Board of India Act,
1992 (15 of 1992) and the rules and regulations made thereunder; and
(d) state such other matters and set out such other reports, as may
be prescribed.
(2) Nothing in sub-section (1) shall apply—
(a) to the issue to existing members or debenture-holders of a
company, of a prospectus or form of application relating to shares in
or debentures of the company, whether an applicant has a right to
renounce the shares or not under sub-clause (ii) of clause (a) of
sub-section (1) of section 62 in favour of any other person; or
(b) to the issue of a prospectus or form of application relating
to shares or debentures which are, or are to be, in all respects
uniform with shares or debentures previously issued and for the time
being dealt in or quoted on a recognised stock exchange.
(3) Subject to sub-section (2), the provisions of sub-section (1) shall
apply to a prospectus or a form of application, whether issued on or with
reference to the formation of a company or subsequently.
Explanation.—The date indicated in the prospectus shall be deemed to be
the date of its publication.
(4)
No prospectus shall be issued by or on behalf of a company or in
relation to an intended company unless on or before the date of its publication,
there has been delivered to the Registrar for registration, a copy thereof signed
by every person who is named therein as a director or proposed director of the
company or by his duly authorised attorney.
(5) A prospectus issued under sub-section (1) shall not include a
statement purporting to be made by an expert unless the expert is a person who
is not, and has not been, engaged or interested in the formation or promotion or
management, of the company and has given his written consent to the issue of
the prospectus and has not withdrawn such consent before the delivery of a
copy of the prospectus to the Registrar for registration and a statement to that
64
effect shall be included in the prospectus.
(6)
Every prospectus issued under sub-section (1) shall, on the face of it,—
(a)
state that a copy has been delivered for registration to
the Registrar as required under sub-section (4); and
(b) specify any documents required by this section to be
attached to the copy so delivered or refer to statements included in
the prospectus which specify these documents.
(7) The Registrar shall not register a prospectus unless the requirements of
this section with respect to its registration are complied with and the prospectus
is accompanied by the consent in writing of all the persons named in the
prospectus.
(8) No prospectus shall be valid if it is issued more than ninety days after
the date on which a copy thereof is delivered to the Registrar under
sub-section (4).
(9) If a prospectus is issued in contravention of the provisions of this
section, the company shall be punishable with fine which shall not be less than
fifty thousand rupees but which may extend to three lakh rupees and every
person who is knowingly a party to the issue of such prospectus shall be
punishable with imprisonment for a term which may extend to three years or
with fine which shall not be less than fifty thousand rupees but which may
extend to three lakh rupees, or with both.
27. Variation in terms of contract or objects in prospectus.—(1) A
company shall not, at any time, vary the terms of a contract referred to in the
prospectus or objects for which the prospectus was issued, except subject to the
approval of, or except subject to an authority given by the company in general
meeting by way of special resolution:
Provided that the details, as may be prescribed, of the notice in respect of
such resolution to shareholders, shall also be published in the newspapers (one
in English and one in vernacular language) in the city where the registered office
of the company is situated indicating clearly the justification for such variation:
Provided further that such company shall not use any amount raised by
it through prospectus for buying, trading or otherwise dealing in equity shares
65
of any other listed company.
(2) The dissenting shareholders being those shareholders who have
not agreed to the proposal to vary the terms of contracts or objects referred to
in the prospectus, shall be given an exit offer by promoters or controlling
shareholders at such exit price, and in such manner and conditions as may be
specified by the Securities and Exchange Board by making regulations in this
behalf.
28. Offer of sale of shares by certain members of company.—(1) Where
certain members of a company propose, in consultation with the Board of
Directors to offer, in accordance with the provisions of any law for the time
being in force, whole or part of their holding of shares to the public, they may
do so in accordance with such procedure as may be prescribed.
(2) Any document by which the offer of sale to the public is made shall,
for all purposes, be deemed to be a prospectus issued by the company and all
laws and rules made thereunder as to the contents of the prospectus and as to
liability in respect of mis-statements in and omission from prospectus or
otherwise relating to prospectus shall apply as if this is a prospectus issued by
the company.
(3) The members, whether individuals or bodies corporate or both, whose
shares are proposed to be offered to the public, shall collectively authorise the
company, whose shares are offered for sale to the public, to take all actions in
respect of offer of sale for and on their behalf and they shall reimburse the
company all expenses incurred by it on this matter.
29. Public offer of securities to be in dematerialised form.—(l)
Notwithstanding
anything
contained
in
any
other
provisions
of this Act,—
(a) every company making public offer ; and
(b) such other class or classes of public companies as may be
prescribed,
shall issue the securities only in dematerialised form by complying with the
provisions of the Depositories Act, 1996 (22 of 1996) and the regulations made
thereunder.
(2) Any company, other than a company mentioned in sub-section (1), may
convert its securities into dematerialised form or issue its securities in physical
66
form in accordance with the provisions of this Act or in dematerialised form in
accordance with the provisions of the Depositories Act, 1996 (22 of 1996) and
the regulations made thereunder.
30. Advertisement of prospectus.—Where an advertisement of any
prospectus of a company is published in any manner, it shall be necessary to
specify therein the contents of its memorandum as regards the objects, the
liability of members and the amount of share capital of the company, and the
names of the signatories to the memorandum and the number of shares
subscribed for by them, and its capital structure.
31. Shelf prospectus.—(1) Any class or classes of companies, as the
Securities and Exchange Board may provide by regulations in this behalf, may
file a shelf prospectus with the Registrar at the stage of the first offer of
securities included therein which shall indicate a period not exceeding one year
as the period of validity of such prospectus which shall commence from the date
of opening of the first offer of securities under that prospectus, and in respect
of a second or subsequent offer of such securities issued during the period of
validity of that prospectus, no further prospectus is required.
(2) A company filing a shelf prospectus shall be required to file an
information memorandum containing all material facts relating to new charges
created, changes in the financial position of the company as have occurred
between the first offer of securities or the previous offer of securities and the
succeeding offer of securities and such other changes as may be prescribed,
with the Registrar within the prescribed time, prior to the issue of a second or
subsequent offer of securities under the shelf prospectus:
Provided that where a company or any other person has received
applications for the allotment of securities along with advance payments of
subscription before the making of any such change, the company or other
person shall intimate the changes to such applicants and if they express a desire
to withdraw their application, the company or other person shall refund all the
monies received as subscription within fifteen days thereof.
(3) Where an information memorandum is filed, every time an offer of
securities is made under sub-section (2), such memorandum together with the
shelf prospectus shall be deemed to be a prospectus.
Explanation.—For the purposes of this section, the expression “shelf
67
prospectus” means a prospectus in respect of which the securities or class of
securities included therein are issued for subscription in one or more issues over
a certain period without the issue of a further prospectus.
32. Red herring prospectus.—(1) A company proposing to make an
offer of securities may issue a red herring prospectus prior to the issue of a
prospectus.
(2) A company proposing to issue a red herring prospectus under
sub-section (1) shall file it with the Registrar at least three days prior to the
opening the subscription list and the offer.
(3) A red herring prospectus shall carry the same obligations as are
applicable to a prospectus and any variation between the red herring prospectus
and a prospectus shall be highlighted as variations in the prospectus.
(4) Upon the closing of the offer of securities under this section, the
prospectus stating therein the total capital raised, whether by way of debt or
share capital, and the closing price of the securities and any other details as are
not included in the red herring prospectus shall be filed with the Registrar and
the Securities and Exchange Board.
Explanation.—For the purposes of this section, the expression “red
herring prospectus” means a prospectus which does not include complete
particulars of the quantum or price of the securities included therein. .
33. Issue of application forms for securities.—(1) No form of
application for the purchase of any of the securities of a company shall be
issued unless such form is accompanied by an abridged prospectus :
Provided that nothing in this sub-section shall apply if it is shown that
the form of application was issued—
(a) in connection with a bona fide invitation to a person to enter into
an underwriting agreement with respect to such securities; or
(b) in relation to securities which were not offered to the public.
(2) A copy of the prospectus shall, on a request being made by any
person before the closing of the subscription list and the offer, be furnished
to him.
68
(3) If a company makes any default in complying with the provisions of
this section, it shall be liable to a penalty of fifty thousand rupees for each
default.
34. Criminal liability for mis-statements in prospectus.—Where a
prospectus, issued, circulated or distributed under this Chapter, includes any
statement which is untrue or misleading in form or context in which it is included
or where any inclusion or omission of any matter is likely to mislead, every
person who authorises the issue of such prospectus shall be liable under
Section 447:
Provided that nothing in this section shall apply to a person if he proves
that such statement or omission was immaterial or that he had reasonable
grounds to believe, and did up to the time of issue of the prospectus believe,
that the statement was true or the inclusion or omission was necessary.
35. Civil liability for mis-statements in prospectus.—(1) Where a person
has subscribed for securities of a company acting on any statement included,
or the inclusion or omission of any matter, in the prospectus which is misleading
and has sustained any loss or damage as a consequence thereof, the company
and every person who—
(a) is a director of the company at the time of the issue of the
prospectus;
(b) has authorised himself to be named and is named in the
prospectus as a director of the company, or has agreed to become such
director, either immediately or after an interval of time ;
(c) is a promoter of the company ;
(d) has authorised the issue of the prospectus ; and
(e) is an expert referred to in sub-section (5) of Section 26,
shall, without prejudice to any punishment to which any person may be
liable under Section 36, be liable to pay compensation to every person who has
sustained such loss or damage.
(2) No person shall be liable under sub-section (1), if he proves—
(a) that, having consented to become a director of the company, he
69
withdrew his consent before the issue of the prospectus, and that it was
issued without his authority or consent ; or
(b) that the prospectus was issued without his knowledge or consent,
and that on becoming aware of its issue, he forthwith gave a reasonable
public notice that it was issued without his knowledge or consent.
(3) Notwithstanding anything contained in this section, were it is
proved that a prospectus has been issued with intent to defraud the applicants
for the securities of a company or any other person or for any fraudulent
purpose every person referred to in sub-section (1) shall be personally
responsible, without any limitation of liabiity, for all or any of the losses or
damages that may have been incurred by any person who subscribed to the
securities on the basis of such prospectus.
36. Punishment for fraudulently inducing persons to invest money.—Any
person who either knowingly or recklessly makes any statement, promise or
forecast which is false, deceptive or misleading, or deliberately conceals any
meterial facts, to induce another person to enter into, or to offer to enter into,—
(a) any agreement for, or with a view to acquiring , disposing of,
subscribing for, or underwriting securities ; or
(b) any agreement, the purpose or the pretended purpose of which is
to secure a profit to any of the parties from the yield of securities or
by reference to fluctuations in the value of securities ; or
(c) any agreemcnt for, or with a view to obtaining credit facilities from
any bank or financial institution,
shall be liable for action under section 447.
37. Action by affected persons.—A suit may be filed or any other action
may be taken under Section 34 or Section 35 or Section 36 by any person,
group of persons or any association of persons affected by any misleading
statement or the inclusion or omission of any matter in the prospectus.
38. Punishment for person ation for acquisition, etc. of securities.—
70
(2) The amount payable on application on every security shall not be
less than five percent of the nominal amount of the security or such other
percentage or amount, as may be specified by the securities and Exchange Board
by making regulations in this behalf.
(3) If the stated minimum amount has not been subscribed and the
sum payable on application is not received within a period of thirty days from
the date of issue of the prospectus, or such other period as may be specified by
the Securities and Exchange Board, the amount received under sub-section (1)
shall be returned within such time and manner as may be prescribed.
(4) Whenever a company having a share capital makes any allotment
of securities, it shall file with the Registrar a return of allotment in such manner
as may be prescribed.
(5) In case of any default under sub-section (3) or sub-section (4),
the company and its officer who is in default shall be liable to a penalty, for
each default, of one thousand rupees for each day during which such default
continues or one lakh rupees, whichever is less.
40. Securities to be dealt with in stock exchanges.—(1) Every company
making public offer shall, before making such offer, make an application to one
or more recognised stock exchange or exchanges and obtain permission for the
securities to be dealt with in such stock exchange or exchanges.
(2) Where a prospectus states that an application under sub-section (1)
has been made, such prospectus shall also state the name or names of the
stock exchange in which the securities shall be dealt with.
(3) All monies received on application from the public for subscription
to the securities shall be kept in a separate bank account in a scheduled bank
and shall not be utilised for any purpose other than—
(a) for adjustment against allotment of securities where the
securities have been permitted to be dealt with in the stock
exchange or stock exchanges specified in the prospectus; or
(b) for the repayment of monies within the time specified by
the Securities and Exchange Board, received from applicants in
pursuance of the prospectus, where the company is for any other
reason unable to allot securities.
71
(4) Any condition purporting to require or bind any applicant for
securities to waive compliance with any of the requirements of this section shall
be void.
(5) If a default is made in complying with the provisions of this
section, the company shall be punishable with a fine which shall not be less
than five lakh rupees but which may extend to fifty lakh rupees and every
officer of the company who is in default shall be punishable with imprisonment
for a term which may extend to one year or with fine which shall not be less
than fifty thousand rupees but which may extend to three lakh rupees, or with
both.
(6) A company may pay commission to any person in connection with
the subscription to its securities subject to such conditions as may be
prescribed.
41. Global depository receipt.—A company may, after passing a special
resolution in its general meeting, issue depository receipts in any foreign country
in such manner, and subject to such conditions, as may be prescribed.
PART II—Private Placement
42. Offer or invitation for subscription of securities on private
placement.— (1) Without prejudice to the provisions of Section 26, a company
may, subject to the provisions of this section, make private placement through
issue of a private placement offer letter.
(2)
Subject to sub-section (1), the offer of securities or invitation to
subscribe securities, shal1 be made to such number of persons not exceeding
fifty or such higher number as may be prescribed, [excluding qualified
institutional buyers and employees of the company being offered securities
under a scheme of employees stock option as per provisions of clause (b) of
sub-section (1) of Section 62], in a financial year and on such conditions
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(Including the form and manner of private placement) as may be prescribed.
Explanation I.—If a company, listed or unlisted, makes an offer to
al1ot or invites subscription, or al1ots, or enters into an agreement to al1ot,
securities to more than the prescribed number of persons, whether the payment
for the securities has been received or not or whether the company intends to
list its securities or not on any recognised stock exchange in or outside India,
the same shall be deemed to be an offer to the public and shall accordingly be
governed by the provisions of Part I of this Chapter.
Explanation II.— For the purposes of this section, the expression—
(i)
“qualified institutional buyer” means the qualified
institutional buyer as defined in the Securities and Exchange
Board of India (Issue of Capital and Disclosure Requirments)
Regulations, 2009 as amended from time to time.
(ii)
“private placement” means any offer of securities
or invitation to subscribe securities to a select group of
persons by a company (Other than by way of public offer)
through issue of a private placement offer letter and which
satisfies the conditions specified in this section.
(3) No fresh offer or invitation under this section shall be made
unless the allotments with respect to any offer or invitation made earlier have
been completed or that offer or invitation has been withdrawn or abandoned by
the company.
(4) Any offer or invitation not in compliance with the provisions of this
section shal1 be treated as a Public offer and al1 provisions of this Act, and the
Securities Contracts (Regulation) Act, 1956 (42 of 1956) and the Securities and
Exchange Board of India Act, 1992 (15 of 1992) shal1 be required to be
complied with.
(5)
Al1 monies payable towards subscription of securities under this
section shal1 be paid through cheque or demand draft or other banking
channels but not by cash.
(6)
A company making an offer or invitation under this section shall
allot its securities within sixty days from the date of receipt of the application
money for such securities and if the company is not able to allot the securities
within that period, it shall repay the application money to the subscribers within
fifteen days from the date of completion of sixty days and if the company fails
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to repay the application money within the aforesaid period, it shall be liable to
repay that money with interest at the rate of twelve per cent per annum from
the expiry of the sixtieth day :
Provided that monies received on application under this section shal1 be
kept in a separate bank account in a scheduled bank and shal1 not be utilised
for any purpose otherthan—
(a)
for adjustment against allotment of securities ; or
(b)
for the repayment of monies where the company is unable
to allot securities.
(7) All offers covered under this section shall be made only to such
persons whose names are recorded by the company prior to the invitation to
subscribe, and that such persons shall receive the offer by name, and that a
complete record of such offers shall be kept by the company in such manner as
may be prescribed and complete information about such offer shall be filed with
the Registrar within a period of thirty days of circulation of relevant private
placement offer letter.
(8) No company offering securities under this section shall release any
public advertisement or utilise any media, marketing or distribution channels or
agents to inform the public at large about such an offer.
(9) Whenever a company makes any allotment of securities under this
section, it shall file with the Registrar a return of allotment in such manner as
may be prescribed, including the complete list of all security-holders, with their
full names, addresses, number of securities allotted and such other relevant
information as may be prescribed.
(10)
If a company makes an offer or accepts monies in contravention of
this section, the company, its promoters and directors shall be liable for a penalty
74
which may extend to the amount involved in the offer or invitation or two crore
rupees, whichever is higher, and the company shall also refund all monies to
subscribers within a period of thirty days of the order imposing the penalty.
CHAPTER IV
SHARE CAPITAL AND DEBENTURES
43. Kinds of share capital.—The share capital of a company limited by
shares shall be of two kinds, namely:—
(a) equity share capital—
(i) with voting rights; or
(ii) with differential rights as to dividend, voting or otherwise
in accordance with such rules as may be prescribed; and
(b) preference share capital:
Provided that nothing contained in this Act shall affect the rights of
the preference shareholders who are entitled to participate in the proceeds of
winding up before the commencement of this Act.
Explanation.—For the purposes of this section,—
(i) “equity share capital”, with reference to any company
limited by shares, means all share capital which is not preference share
capital;
(ii) “preference share capital”, with reference to any company
limited by shares, means that part of the issued share capital of the
company which carries or would carry a preferential right with
respect to—
(a)
payment of dividend, either as a fixed amount or an
amount calculated at a fixed rate, which may either be free of or
subject to income-tax; and
(b)
repayment, in the case of a winding up or repayment of
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capital, of the amount of the share capital paid-up or deemed to
have been paid-up, whether or not, there is a preferential right to
the payment of any fixed premium or premium on any fixed scale,
specified in the memorandum or articles of the company;
(iii) capital shall be deemed to be preference capital, notwithstanding
that it is entitled to either or both of the following rights, namely:—
(a) that in respect of dividends, in addition to the preferential
rights to the amounts specified in sub-clause (a) of clause (ii), it has a
right to participate, whether fully or to a limited extent, with capital not
entitled to the preferential right aforesaid;
(b) that in respect of capital, in addition to the preferential right to
the repayment, on a winding up, of the amounts specified in sub-clause
(b) of clause ( ii), it has a right to participate, whether fully or to a limited
extent, with capital not entitled to that preferential right in any surplus
which may remain after the entire capital has been repaid.
44. Nature of shares or debentures.—The shares or debentures or other
interest of any member in a company shall be movable property transferable in
the manner provided by the articles of the company.
45. Numbering of shares.—Every share in a company having a share
capital shall be distinguished by its distinctive number:
Provided that nothing in this section shall apply to a share held by a
person whose name is entered as holder of beneficial interest in such share in
the records of a depository.
46. Certificate of shares.—(1) A certificate, issued under the common seal
of the company, specifying the shares held by any person, shall be prima facie
evidence of the title of the person to such shares.
(2) A duplicate certificate of shares may be issued, if such
certificate
(a) is proved to have been lost or destroyed; or
(b) has been defaced, mutilated or torn and is surrendered to the
company.
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(3) Notwithstanding anything contained in the articles of a company, the
manner of issue of a certificate of shares or the duplicate thereof, the form of
such certificate, the particulars to be entered in the register of members and
other matters shall be such as may be prescribed.
(4) Where a share is held in depository form, the record of the depository
is the prima facie evidence of the interest of the beneficial owner.
(5) If a company with intent to defraud issues a duplicate certificate of
shares, the company shall be punishable with fine which shall not be less than
five times the face value of the shares involved in the issue of the duplicate
certificate but which may extend to ten times the face value of such shares or
rupees ten crores whichever is higher and every officer of the company who is
in default shall be liable for action under section 447.
47. Voting rights.—(1) Subject to the provisions of section 43 and sub-
section (2) of section 50,—
(a) every member of a company limited by shares and holding equity
share capital therein, shall have a right to vote on every resolution placed
before the company; and
(b) his voting right on a poll shall be in proportion to his share in the
paid-up equity share capital of the company.
(2) Every member of a company limited by shares and holding any
preference share capital therein shall, in respect of such capital, have a right to
vote only on resolutions placed before the company which directly affect the
rights attached to his preference shares and, any resolution for the winding up
of the company or for the repayment or reduction of its equity or preference
share capital and his voting right on a poll shall be in proportion to his share in
the paid-up preference share capital of the company:
Provided that the proportion of the voting rights of equity shareholders to
the voting rights of the preference shareholders shall be in the same proportion
as the paid-up capital in respect of the equity shares bears to the paid-up
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capital in respect of the preference shares:
Provided further that where the dividend in respect of a class of preference
shares has not been paid for a period of two years or more, such class of
preference shareholders shall have a right to vote on all the resolutions placed
before the company.
48. Variation of shareholders rights.—(1) Where a share capital of the
company is divided into different classes of shares, the rights attached to the
shares of any class may be varied with the consent in writing of the holders of
not less than three-fourths of the issued shares of that class or by means of a
special resolution passed at a separate meeting of the holders of the issued
shares of that class,—
(a) if provision with respect to such variation is contained in the
memorandum or articles of the company; or
(b) in the absence of any such provision in the memorandum or
articles, if such variation is not prohibited by the terms of issue of the
shares of that class:
Provided that if variation by one class of shareholders affects the rights of
any other class of shareholders, the consent of three-fourths of such other class
of shareholders shall also be obtained and the provisions of this section shall
apply to such variation.
(2) Where the holders of not less than ten per cent. of the issued shares
of a class did not consent to such variation or vote in favour of the special
resolution for the variation, they may apply to the Tribunal to have the variation
cancelled, and where any such application is made, the variation shall not have
effect unless and until it is confirmed by the Tribunal:
Provided that an application under this section shall be made within
twenty-one days after the date on which the consent was given or the resolution
was passed, as the case may be, and may be made on behalf of the
shareholders entitled to make the application by such one or more of their
number as they may appoint in writing for the purpose.
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(3) The decision of the Tribunal on any application under sub-section (2)
shall be binding on the shareholders.
(4) The company shall, within thirty days of the date of the order of the
Tribunal, file a copy thereof with the Registrar.
(5) Where any default is made in complying with the provisions of this
section, the company shall be punishable with fine which shall not be less than
twenty-five thousand rupees but which may extend to five lakh rupees and
every officer of the company who is in default shall be punishable with
imprisonment for a term which may extend to six months or with fine which
shall not be less than twenty-five thousand rupees but which may extend to five
lakh rupees, or with both.
49. Calls on shares of same class to be made on uniform basis.— Where
any calls for further share capital are made on the shares of a class, such calls
shall be made on a uniform basis on all shares falling under that class.
Explanation.—For the purposes of this section, shares of the same
nominal value on which different amounts have been paid-up shall not be
deemed to fall under the same class.
50. Company to accept unpaid share capital, although not called up.—
(1) A company may, if so authorised by its articles, accept from any member, the
whole or a part of the amount remaining unpaid on any shares held by him,
even if no part of that amount has been called up.
(2) A member of the company limited by shares shall not be entitled
to any voting rights in respect of the amount paid by him under sub-section (1)
until that amount has been called up.
51. Payment of dividend in proportion to amount paid up.—
A company may, if so authorised by its articles, pay dividends in proportion to
the amount paid-up on each share.
52. Application of premiums received on issue of shares.—(1) Where a
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company issues shares at a premium, whether for cash or otherwise, a sum equal
to the aggregate amount of the premium received on those shares shall be
transferred to a “securities premium account” and the provisions of this Act
relating to reduction of share capital of a company shall, except as provided in
this section, apply as if the securities premium account were the paid-up share
capital of the company.
(2) Notwithstanding anything contained in sub-section (1), the
securities premium account may be applied by the company—
(a) towards the issue of unissued shares of the company to the
members of the company as fully paid bonus shares;
(b) in writing off the preliminary expenses of the company;
(c) in writing off the expenses of, or the commission paid or
discount allowed on, any issue of shares or debentures of the company;
(d) in providing for the premium payable on the redemption of any
redeemable preference shares or of any debentures of the company; or
(e) for the purchase of its own shares or other securities under
section 68.
(3) The securities premium account may, notwithstanding anything
contained in sub-sections (1) and (2), be applied by such class of companies, as
may be prescribed and whose financial statement comply with the accounting
standards prescribed for such class of companies under section 133,—
(a) in paying up unissued equity shares of the company to be
issued to members of the company as fully paid bonus shares; or
(b) in writing off the expenses of or the commission paid or
discount allowed on any issue of equity shares of the company; or
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(c) for the purchase of its own shares or other securities under
section 68.
53. Prohibition on issue of shares at discount.— (1) Except as provided in
section 54, a company shall not issue shares at a discount.
(2) Any share issued by a company at a discounted price shall be void.
(3) Where a company contravenes the provisions of this section, the
company shall be punishable with fine which shall not be less than one lakh
rupees but which may extend to five lakh rupees and every officer who is in
default shall be punishable with imprisonment for a term which may extend to
six months or with fine which shall not be less than one lakh rupees but which
may extend to five lakh rupees, or with both.
54. Issue of sweat equity shares.— (1) Notwithstanding anything contained
in section 53, a company may issue sweat equity shares of a class of shares
already issued, if the following conditions are fulfilled, namely:—
(a) the issue is authorised by a special resolution passed by the
company;
(b) the resolution specifies the number of shares, the current market
price, consideration, if any, and the class or classes of directors or
employees to whom such equity shares are to be issued;
(c) not less than one year has, at the date of such issue, elapsed
since the date on which the company had commenced business; and
(d) where the equity shares of the company are listed on a recognised
stock exchange, the sweat equity shares are issued in accordance with the
regulations made by the Securities and Exchange Board in this behalf and if
they are not so listed, the sweat equity shares are issued in accordance
with such rules as may be prescribed.
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(2) The rights, limitations, restrictions and provisions as are for the
time being applicable to equity shares shall be applicable to the sweat equity
shares issued under this section and the holders of such shares shall rank pari
passu with other equity shareholders.
55. Issue and redemption of preference shares.— (1) No company limited
by shares shall, after the commencement of this Act, issue any preference
shares which are irredeemable.
(2) A company limited by shares may, if so authorised by its articles,
issue preference shares which are liable to be redeemed within a period not
exceeding twenty years from the date of their issue subject to such conditions
as may be prescribed:
Provided that a company may issue preference shares for a period
exceeding twenty years for infrastructure projects, subject to the redemption of
such percentage of shares as may be prescribed on an annual basis at the
option of such preferential shareholders:
Provided further that—
(a) no such shares shall be redeemed except out of the profits of
the company which would otherwise be available for dividend or out of the
proceeds of a fresh issue of shares made for the purposes of such
redemption;
(b) no such shares shall be redeemed unless they are fully paid
(c) where such shares are proposed to be redeemed out of the
profits of the company, there shall, out of such profits, be transferred, a
sum equal to the nominal amount of the shares to be redeemed, to a
reserve, to be called the Capital Redemption Reserve Account, and the
provisions of this Act relating to reduction of share capital of a company
shall, except as provided in this section, apply as if the Capital Redemption
Reserve Account were paid-up share capital of the company; and
(d) (i) in case of such class of companies, as may be prescribed
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and whose financial statement comply with the accounting standards
prescribed for such class of companies under section 133, the premium, if
any, payable on redemption shall be provided for out of the profits of the
company, before the shares are redeemed:
Provided also that premium, if any, payable on redemption of any preference
shares issued on or before the commencement of this Act by any such
company shall be provided for out of the profits of the company or out of the
company’s securities premium account, before such shares are redeemed.
(ii)
in a case not falling under sub-clause (i) above, the premium, if
any, payable on redemption shall be provided for out of the profits of
the company or out of the company’s securities premium account, before
such shares are redeemed.
(3) Where a company is not in a position to redeem any preference shares
or to pay dividend, if any, on such shares in accordance with the terms of issue
(such shares hereinafter referred to as unredeemed preference shares), it may,
with the consent of the holders of three-fourths in value of such preference
shares and with the approval of the Tribunal on a petition made by it in this
behalf, issue further redeemable preference shares equal to the amount due,
including the dividend thereon, in respect of the unredeemed preference shares,
and on the issue of such further redeemable preference shares, the unredeemed
preference shares shall be deemed to have been redeemed:
Provided that the Tribunal shall, while giving approval under this sub-
section, order the redemption forthwith of preference shares held by such
persons who have not consented to the issue of further redeemable preference
shares.
Explanation. —For the removal of doubts, it is hereby declared that the
issue of further redeemable preference shares or the redemption of preference
shares under this section shall not be deemed to be an increase or, as the case
may be, a reduction, in the share capital of the company.
(4) The capital redemption reserve account may, notwithstanding anything
in this section, be applied by the company, in paying up unissued shares of
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the company to be issued to members of the company as fully paid bonus
shares.
Explanation.—For the purposes of sub-section (2), the term “infrastructure
projects” means the infrastructure projects specified in Schedule VI.
56. Transfer and transmission of securities.— (1) A company shall not
register a transfer of securities of the company, or the interest of a member in
the company in the case of a company having no share capital, other than the
transfer between persons both of whose names are entered as holders of
beneficial interest in the records of a depository, unless a proper instrument of
transfer, in such form as may be prescribed, duly stamped, dated and executed
by or on behalf of the transferor and the transferee and specifying the name,
address and occupation, if any, of the transferee has been delivered to the
company by the transferor or the transferee within a period of sixty days from
the date of execution, along with the certificate relating to the securities, or if no
such certificate is in existence, along with the letter of allotment of securities:
Provided that where the instrument of transfer has been lost or the
instrument of transfer has not been delivered within the prescribed period, the
company may register the transfer on such terms as to indemnity as the Board
may think fit.
(2) Nothing in sub-section (1) shall prejudice the power of the company to
register, on receipt of an intimation of transmission of any right to securities by
operation of law from any person to whom such right has been transmitted.
(3) Where an application is made by the transferor alone and relates to
partly paid shares, the transfer shall not be registered, unless the company gives
the notice of the application, in such manner as may be prescribed, to the
transferee and the transferee gives no objection to the transfer within two weeks
from the receipt of notice.
(4) Every company shall, unless prohibited by any provision of law or any
84
order of Court, Tribunal or other authority, deliver the certificates of all securities
allotted, transferred or transmitted—
(a) within a period of two months from the date of incorporation, in
the case of subscribers to the memorandum;
(b) within a period of two months from the date of allotment, in
the case of any allotment of any of its shares;
(c) within a period of one month from the date of receipt by the
company of the instrument of transfer under sub-section (1) or, as the case
may be, of the intimation of transmission under sub-section (2), in the case
of a transfer or transmission of securities;
(d) within a period of six months from the date of allotment in the
case of any allotment of debenture:
Provided that where the securities are dealt with in a depository, the
company shall intimate the details of allotment of securities to depository
immediately on allotment of such securities.
(5) The transfer of any security or other interest of a deceased person in a
company made by his legal representative shall, even if the legal representative
is not a holder thereof, be valid as if he had been the holder at the time of the
execution of the instrument of transfer.
(6) Where any default is made in complying with the provisions of sub-
sections (1) to (5), the company shall be punishable with fine which shall not
be less than twenty-five thousand rupees but which may extend to five lakh
rupees and every officer of the company who is in default shall be punishable
with fine which shall not be less than ten thousand rupees but which may
extend to one lakh rupees.
(7) Without prejudice to any liability under the Depositories Act, 1996 (22
of 1996), where any depository or depository participant, with an intention to
defraud a person, has transferred shares, it shall be liable under section 447.
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57. Punishment for personation of shareholder.—If any person deceitfully
personates as an owner of any security or interest in a company, or of any share
warrant or coupon issued in pursuance of this Act, and thereby obtains or
attempts to obtain any such security or interest or any such share warrant or
coupon, or receives or attempts to receive any money due to any such owner,
he shall be punishable with imprisonment for a term which shall not be less than
one year but which may extend to three years and with fine which shall not be
less than one lakh rupees but which may extend to five lakh rupees.
58. Refusal of registration and appeal against refusal.—(1) If a privatae
company limited by shares refuses, whether in pursuance of any power of the
company under its articles or otherwise, to register the transfer of, or the
transmission by operation of law of the right to, any securities or interest of a
member in the company, it shall within a period or thirty days from the date on
which the instrument of transfer, or the intimation of such transmission, as the
case may be, was delivered to the company, send notice of the refusal to the
transferor and the transferee or to the person giving intimation of such
transmission, as the case may be, giving reasons for such refusal.
(2) Without prejudice to sub-section (1), the securities or other interest
of any member in a public company shall be freely transferable:
Provided that any contract or arrangement between two or more persons in
respect of transfer of securities shall be enforceable as a contract.
(3) The transferee may appeal to the Tribunal against the refusal within a
period of thrity days from the date of receipt of the notice or in case no notice
has been sent by the company, within a period of sixty days from the date on
which the instrument of transfer or the intimation of transmission, as the case
may be, was delivered to the company.
(4) If a public company without sufficient cause refues to register the
transfer of securities within a period of thirty days from the date on which the
instrument of transfer or the intimation of transmission, as the case may be, is
delivered to the company, the transferee may, within a period of sixty days of
such refusal or where no intimation has been received from the company, within
ninety days of the delivery of the instrument of transfer or intimation of
86
transmission, appeal to the Tribunal.
(5) The Tribunal, while dealing with an appeal made under sub-section
(3) or sub-section (4), may, after hearing the parties, either dismiss the appeal,
or by order—
(a) direct that the transfer or transmission shall be registered
by the company and the company shall comply with such order within
a period of ten days of the receipt of the order; or
(b) direct rectification of the register and also direct the
company to pay damages, if any, sustained by any party aggrieved.
(6)
If a person contravenes the order of the Tribunal under this section,
he shall be punishable with imprisonment for a term which shall not be less than
one year but which may extend to three years and with fine which shall not be
less than one lakh rupees but which may extend to five lakh rupees.
59. Rectification of register of members.—(1) If the name of any person
is, without sufficient cause, entered in the register of members of a company, or
after having been entered in the register, is, without sufficient cause, omitted
therefrom, or if a default is made, or unnecessary delay takes place in entering
in the register, the fact of any person having become or ceased to be a member,
the person aggrieved, or any member of the company, or the company may
appeal in such form as may be prescribed, to the Tribunal, or to a competent
court outside India, sepcified by the Central Government by notification, in
respect of foreign members or debenture holders residing outside India, for
rectification of the register.
(2)
The Tribunal may, after hearing the parties to the appeal under sub-
section (1) by order, either dismiss the appeal or direct that the transfer or
transmission shall be registered by the company within a period of ten days of
the receipt of the order or direct rectification of the records of the depository or
the register and in the latter case, direct the company to pay damages, if any,
sustained by the party aggrieved.
(3)
The provisions of this section shall not restrict the right of a holder
87
of securities, to transfer such securities and any person acquiring such securities
shall be entitled to voting rights unless the voting rights have been suspended
by an order of the Tribunal.
(4)
Where the transfer of securities is in contravention of any of the
provisions of the Securities Contracts (Regulation) Act, 1956 (42 of 1956), the
Securities and Exchange Board of India Act, 1992 (15 of 1992) or this Act or any
other law for the time being in force, the Tribunal may, on an application made
by the depository, company, depository participant, the holder of the securities
or the Securities and Exchange Board, direct any company or a depository to set
right the contravention and rectify its register or records concerned.
(5)
If any default is made in complying with the order of the Tribunal
under this section, the company shall be punishable with fine which shall not be
less than one lakh rupees but which may extend to five lakh rupees and every
officer of the company who is in default shall be punishable with imprisonment
for a term which may extend to one year or with fine which shall not be less
than one lakh rupees but which may extend to three lakh rupees, or with both.
60. Publication of authorised, subscribed and paid-up capital.—(1) Where
any notice, advertisement or other official publication, or any business letter,
billhead or letter paper of a company contains a statement of the amount of the
authorised capital of the company, such notice, advertisement or other official
publication, or such letter, billhead or letter paper shall also contain a statement,
in an equally prominent position and in equally conspicuous characters, of the
amount of the capital which has been subscribed and the amount paid-up.
(2) If any default is made in complying with the requirements of sub-
section (1), the company shall be liable to pay a penalty of ten thousand
rupees and every officer of the company who is in default shall be liable to pay
a penalty of five thousand rupees, for each default.
61. Power of limited company to alter its share capital.—(1) A limited
company having a share capital may, if so authorised by its articles, alter its
memorandum in its general meeting to—
(a) increase its authorised share capital by such amount as it thinks
expedient;
(b) consolidate and divide all or any of its share capital into shares of
88
a larger amount than its existing shares:
Provided that no consolidation and division which results in changes
in the voting percentage of shareholders shall take effect unless it is
approved by the Tribunal on an application made in the prescribed manner;
(c) convert all or any of its fully paid-up shares into stock, and
reconvert that stock into fully paid-up shares of any denomination;
(d) sub-divide its shares, or any of them, into shares of smaller
amount than is fixed by the memorandum, so, however, that in the sub-
division the proportion between the amount paid and the amount, if any,
unpaid on each reduced share shall be the same as it was in the case of
the share from which the reduced share is derived;
(e) cancel shares which, at the date of the passing of the resolution in
that behalf, have not been taken or agreed to be taken by any person, and
diminish the amount of its share capital by the amount of the shares so
cancelled.
(2) The cancellation of shares under sub-section (1) shall not be deemed to
be a reduction of share capital.
62.
Further issue of share capital.—(1)
Where at any time, a company
having a share capital proposes to increase its subscribed capital by the issue
of further shares, such shares shall be offered—
(a) to persons who, at the date of the offer, are holders of equity
shares of the company in proportion, as nearly as circumstances admit,
to the paid-up share capital on those shares by sending a letter of offer
subject to the following conditions, namely:—
(i) the offer shall be made by notice specifying the number
of shares offered and limiting a time not being less than fifteen
days and not exceeding thirty days from the date of the offer
within which the offer, if not accepted, shall be deemed to have
been declined;
(ii) unless the articles of the company otherwise provide, the
offer aforesaid shall be deemed to include a right exercisable by
the person concerned to renounce the shares offered to him or
any of them in favour of any other person; and the notice referred
to in clause (i) shall contain a statement of this right;
(iii) after the expiry of the time specified in the notice
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aforesaid, or on receipt of earlier intimation from the person to
whom such notice is given that he declines to accept the shares
offered, the Board of Directors may dispose of them in such
manner which is not disadvantageous to the shareholders and the
company;
(b) to employees under a scheme of employees’ stock option,
subject to special resolution passed by company and subject to such
conditions as may be prescribed; or
(c) to any persons, if it is authorised by a special resolution,
whether or not those persons include the persons referred to in clause
(a) or clause (b), either for cash or for a consideration other than
cash, if the price of such shares is determined by the valuation report
of a registered valuer subject to such conditions as may be prescribed.
(2)
The notice referred to in sub-clause (i) of clause (a) of sub-section (1)
shall be despatched through registered post or speed post or through electronic
mode to all the existing shareholders at least three days before the opening of
the issue.
(3) Nothing in this section shall apply to the increase of the subscribed
capital of a company caused by the exercise of an option as a term attached to
the debentures issued or loan raised by the company to convert such
debentures or loans into shares in the company:
Provided that the terms of issue of such debentures or loan containing
such an option have been approved before the issue of such debentures or the
raising of loan by a special resolution passed by the company in general
meeting.
(4) Notwithstanding anything contained in sub-section (3), where any
debentures have been issued, or loan has been obtained from any Government
by a company, and if that Government considers it necessary in the public
interest so to do, it may, by order, direct that such debentures or loans or any
part thereof shall be converted into shares in the company on such terms and
conditions as appear to the Government to be reasonable in the circumstances
of the case even if terms of the issue of such debentures or the raising of such
loans do not include a term for providing for an option for such conversion:
Provided that where the terms and conditions of such conversion are not
acceptable to the company, it may, within sixty days from the date of
communication of such order, appeal to the Tribunal which shall after hearing
the company and the Government pass such order as it deems fit.
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(5)
In determining the terms and conditions of conversion under sub-
section (4), the Government shall have due regard to the financial position of
the company, the terms of issue of debentures or loans, as the case may be, the
rate of interest payable on such debentures or loans and such other matters as
it may consider necessary.
(6) Where the Government has, by an order made under sub-section (4),
directed that any debenture or loan or any part thereof shall be converted into
shares in a company and where no appeal has been preferred to the Tribunal
under sub-section (4) or where such appeal has been dismissed, the
memorandum of such company shall, where such order has the effect of
increasing the authorised share capital of the company, stand altered and the
authorised share capital of such company shall stand increased by an amount
equal to the amount of the value of shares which such debentures or loans or
part thereof has been converted into.
63.
Issue of bonus shares.—(1) A company may issue fully paid-up bonus
shares to its members, in any manner whatsoever, out of—
(i) its free reserves;
(ii) the securities premium account; or
(iii) the capital redemption reserve account :
Provided that no issue of bonus shares shall be made by capitalising
reserves created by the revaluation of assets.
(2)
No company shall capitalise its profits or reserves for the purpose of
issuing fully paid-up bonus shares under sub-section (1), unless—
(a) it is authorised by its articles;
(b) it has, on the recommendation of the Board, been authorised
in the general meeting of the company;
(c) it has not defaulted in payment of interest or principal in
respect of fixed deposits or debt securities issued by it;
(d) it has not defaulted in respect of the payment of statutory
dues of the employees, such as, contribution to provident fund,
gratuity and bonus;
(e) the partly paid-up shares, if any outstanding on the date of
allotment, are made fully paid-up;
(f) it complies with such conditions as may be prescribed.
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(3) The bonus shares shall not be issued in lieu of dividend.
64. Notice to be given to Registrar for alteration of share capital.—
(1) Where—
(a) a company alters its share capital in any manner specified in
sub-section (1) of Section 61 ;
(b) an order made by the Government under sub-section (4) read
with sub-section (6) of Section 62 has the effect of increasing authorised
capital of a company; or
(c) a company redeems any redeemable preference shares,
the company shall file a notice in the prescribed form with the Registrar
within a period of thirty days of such alteration or increase or redemption,
as the case may be, along with an altered memorandum.
(2) If a company and any officer of the company who is in default
contravenes the provisions of sub-section (1), it or he shall be punishable with
fine which may extend to one thousand rupees for each day during which such
default continues, or five lakh rupees. whichever is less.
65. Unlimited company to provide for reserve share capital on conversion
into limited company.—An unlimited company having a share capital may, by a
resolution for registration as a limited company under this Act, do either or both
of the following things, namely—
(a) increase the nominal amount of its share capital by increasing the
nominal amount of each of its shares, subject to the condition that no part
of the increased capital shall be capable of being called up except in the
event and for the purposes of the company being wound up;
(b) provide that a specified portion of its uncalled share capital shall
not be capable of being called up except in the event and for the purposes
of the company being wound up.
66.
Reduction of share capital.—(1) Subject to conformation by the
Tribunal on an application by the company, a company limited by shares or
limited by guarantee and having a share capital may, by a special resolution,
reduce the share capital in any manner and in particular, may—
(a) extinguish or reduce the liability on any of its shares in respect of
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the share capital not paid-up; or
(b) either with or without extinguishing or reducing liability on any of
its shares,—
(i) cancel any paid-up share capital which is lost or is
unrepresented by available assets; or
(ii) payoff any paid-up share capital which is in excess of the
wants of the company,
alter its memorandum by reducing the amount of its share capital and
of its shares accordingly:
Provided that no such reduction shall be made if the company is in
arrears in the repayment of any deposits accepted by it, either before or
after the commencement of this Act, or the interest payable thereon.
(2) The Tribunal shall give notice of every application made to it under
sub-section (1) to the Central Government, Registrar and to the Securities and
Exchange Board, in the case of listed companies, and the creditors of the
company and shall take into consideration the representations, if any, made to it
by that Government, Registrar, the Securities and Exchange Board and the
creditors within a period of three months from the date of receipt of the notice :
Provided that where no representation has been received from the Central
Government, Registrar, the Securities and Exchange Board or the creditors within
the said period, it shall be presumed that they have no objection to the
reduction.
(3) The Tribunal may, if it is satisfied that the debt or claim of every
creditor of the company has been discharged or determined or has been secured
or his consent is obtained, make an order confirming the reduction of share
capital on such terms and conditions as it deems fit :
Provided that no application for reduction of share capital shall be
sanctioned by the Tribunal unless the accounting treatment, proposed by the
company for such reduction is in conformity with the accounting standards
specified in Section 133 or any other provision of this Act and a certificate to
that effect by the company’s auditor has been filed with the Tribunal.
(4) The order of conformation of the reduction of share capital by the
Tribunal under sub-section (3) shall be published by the company in such
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manner as the Tribunal may direct.
(5) The company shall deliver a certified copy of the order of the Tribunal
under sub-section (3) and of a minute approved by the Tribunal showing—
(a) the amount of share capital;
(b) the number of shares into which it is to be divided;
(c) the amount of each share; and
(d) the amount, if any, at the date of registration deemed to be
paid up on each share,
to the Registrar within thirty days of the receipt of the copy of the order,
who shall register the same and issue a certificate to that effect.
(6) Nothing in this section shall apply to buy-back of its own securities by
a company under Section 68.
(7) A member of the company, past or present, shall not be liable to any
call or contribution in respect of any share held by him exceeding the amount of
difference, if any, between the amount paid on the share, or reduced amount, if
any, which is to be deemed to have been paid thereon, as the case may be, and
the amount of the share as fixed by the order of reduction.
(8) Where the name of any creditor entitled to object to the reduction of
share capital under this section is, by reason of his ignorance of the
proceedings for reduction or of their nature and effect with respect to his debt
or claim, not entered on the list of creditors, and after such reduction, the
company is unable, within the meaning of sub-section (2) of Section 271, to pay
the amount of his debt or claim,—
(a) every person, who was a member of the company on the date
of the registration of the order for reduction by the Registrar, shall be
liable to contribute to the payment of that debt or claim, an amount
not exceeding the amount which he would have been liable to
contribute if the company had commenced winding up on the day
immediately before the said date; and
(b) if the company is wound up, the Tribunal may, on the
application of any such creditor and proof of his ignorance as
aforesaid, if it thinks fit, settle a list of persons so liable to contribute,
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and make and enforce calls and orders on the contributories settled on
the list, as if they were ordinary contributories in a winding up.
(9) Nothing in sub-section (8) shall affect the rights of the contributories
among themselves.
(10) If any officer of the company—
(a) knowingly conceals the name of any creditor entitled to
object to the reduction;
(b) knowingly misrepresents the nature or amount of the debt or
claim of any creditor; or
(c) abets or is privy to any such concealment or misrepresentation
as aforesaid, he shall be liable under Section 447.
(11) If a company fails to comply with the provisions of
sub-section (4), it shall be punishable with fine which shall not be less than five
lakh rupees but which may extend to twenty-five lakh rupees.
67. Restrictions on purchase by company or giving of loans by it for
purchase of its shares.—(1) No company limited by shares or by guarantee and
having a share capital shall have power to buy its own shares unless the
consequent reduction of share capital is effected under the provisions of this
Act.
(2) No public company shall give, whether directly or indirectly and whether
by means of a loan, guarantee, the provision of security or otherwise, any
financial assistance for the purpose of, or in connection with, a purchase or
subscription made or to be made, by any person of or for any shares in the
company or in its holding company.
(3) Nothing in sub-section (2) shall apply to—
(a) the lending of money by a banking company in the ordinary
course of its business;
(b) the provision by a company of money in accordance with
any scheme approved by company through special resolution and in
accordance with such requirements as may be prescribed, for the
purchase of, or subscription for, fully paid-up shares in the company
or its holding company, if the purchase of, or the subscription for, the
shares held by trustees for the benefit of the employees or such
shares held by the employee of the company ;
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(c) the giving of loans by a company to persons in the
employment of the company other than its directors or key managerial
personnel, for an amount not exceeding their salary or wages for a
period of six months with a view to enabling them to purchase or
subscribe for fully paid-up shares in the company or its holding
company to be held by them by way of beneficial ownership:
Provided that disclosures in respect of voting rights not exercised
directly by the employees in respect of shares to which the scheme
relates shall be made in the Board’s report in such manner as may be
prescribed.
(4) Nothing in this section shall affect the right of a company to redeem
any preference shares issued by it under this Act or under any previous
company law.
(5) If a company contravenes the provisions of this section, it shall be
punishable with fine which shall not be less than one lakh rupees but which
may extend to twenty-five lakh rupees and every officer of the company who is
in default shall be punishable with imprisonment for a term which may extend to
three years and with fine which shall not be less than one lakh rupees but
which may extend to twenty-five lakh rupees.
68. Power of company to purchase its own securities.—
(1) Notwithstanding anything contained in this Act, but subject to the
provisions of sub-section (2), a company may purchase its own shares or other
specified securities (hereinafter referred to as buy-back) out of—
(a) its free reserves;
(b) the securities premium account; or
(c) the proceeds of the issue of any shares or other specified
securities:
Provided that no buy-back of any kind of shares or other specified
securities shall be made out of the proceeds of an earlier issue of the same kind
of shares or same kind of other specified securities.
(2) No company shall purchase its own shares or other specified securities
under sub-section (1), unless—
(a) the buy-back is authorised by its articles;
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(b) a special resolution has been passed at a general meeting of
the company authorising the buy-back:
Provided that nothing contained in this clause shall apply to a case
where—
(i) the buy-back is, ten per cent. or less of the total paid-up
equity capital and free reserves of the company; and
(ii) such buy-back has been authorised by the Board by means of
a resolution passed at its meeting;
(c) the buy-back is twenty-five per cent. or less of the aggregate
of paid-up capital and free reserves of the company:
Provided that in respect of the buy-back of equity shares in any financial
year, the reference to twenty-five per cent. in this clause shall be construed with
respect to its total paid-up equity capital in that financial year;
(d) the ratio of the aggregate of secured and unsecured debts owed by
the company after buy-back is not more than twice the paid-up capital and
its free reserves:
Provided that the Central Government may, by order, notify a higher
ratio of the debt to capital and free reserves for a class or classes of
companies;
(e) all the shares or other specified securities for buy-back are fully
paid-up;
(f) the buy-back of the shares or other specified securities listed on
any recognised stock exchange is in accordance with the regulations made
by the Securities and Exchange Board in this behalf; and
(g) the buy-back in respect of shares or other specified securities other
than those specified in clause (f) is in accordance with such rules as may
be prescribed:
Provided that no offer of buy-back under this sub-section shall be made
within a period of one year reckoned from the date of the closure of the
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preceeding offer of buy-back, if any.
.
(3) The notice of the meeting at which the special resolution is proposed
to be passed under clause (b) of sub-section (2) shall be accompanied by an
explanatory statement stating—
(a) a full and complete disclosure of all material facts;
(b) the necessity for the buy-back;
(c) the class of shares or securities intended to be purchased
under the buy-back;
(d) the amount to be invested under the buy-back; and
(e) the time-limit for completion of buy-back.
(4) Every buy-back shall be completed within a period of one year from the
date of passing of the special resolution, or as the case may be, the resolution
passed by the Board under clause (b) of sub-section (2).
(5) The buy-back under sub-section (1) may be—
(a) from the existing shareholders or security holders on a
proportionate basis;
(b) from the open market;
(c) by purchasing the securities issued to employees of the
company pursuant to a scheme of stock option or sweat equity.
(6) Where a company proposes to buy-back its own shares or other
specified securities under this section in pursuance of a special resolution under
clause (b) of sub-section (2) or a resolution under item (ii) of the proviso
thereto, it shall, before making such buy-back, file with the Registrar and the
Securities and Exchange Board, a declaration of solvency signed by atleast two
directors of the company, one of whom shall be the managing director, if any, in
such form as may be prescribed and verified by an affidavit to the effect that
the Board of Directors of the company has made a full inquiry into the affairs of
the company as a result of which they have formed an opinion that it is
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capable of meeting its liabilities and will not be rendered insolvent within a
period of one year from the date of declaration adopted by the Board:
Provided that no declaration of solvency shall be filed with the Securities
and Exchange Board by a company whose shares are not listed on any
recognised stock exchange.
(7) Where a company buys back its own shares or other specified
securities, it shall extinguish and physically destroy the shares or securities so
bought back within seven days of the last date of completion of buy-back.
(8) Where a company completes a buy-back of its shares or other specified
securities under this section, it shall not make a further issue of the same kind of
shares or other securities including allotment of new shares under clause (a) of
sub-section (1) of section 62 or other specified securities within a period of six
months except by way of a bonus issue or in the discharge of subsisting
obligations such as conversion of warrants, stock option schemes, sweat equity
or conversion of prefence shares or debentures into equity shares.
(9) Where a company buys back its shares or other specified securities
under this section, it shall maintain a register of the shares or securities so
bought the consideration paid for the shares or securities bought back, the date
of cancellation of shares or securities, the date of extinguishing and physically
destroying the shares or securities and such other particulars as may be
prescribed.
(10) A company shall, after the completion of the buy-back under this
section, file with the Registrar and the Securities and Exchange Board a return
containing such particulars relating to the buy-back within thirty days of such
completion, as may be prescribed :
Provided that no return shall be filed with the Securities and Exchange
Board by a company whose shares are not listed on any recognised stock
exchange.
(11) If a company makes any default in complying with the provisions of
this section or any regulation made by the Securities and Exchange Board, for
the purposes of clause (f) of sub-section (2), the company shall be punishable
99
with fine which shall not be less than one lakh rupees but which may extend to
three lakh rupees and every officer of the company who is in default shall be
punishable with imprisonment for a term which may extend to three years or
with fine which shall not be less than one lakh rupees but which may extend to
three lakh rupees, or with both.
Explanation 1.—For the purposes of this section and section 70, “specified
securities” includes employees’ stock option or other securities as may be
notified by the Central Government from time to time.
Explanation II.—For the purposes of this section, “free reserves” includes
securities premium account.
69.
Transfer of certain sums to capital redemption reserve account—
(1) Where a company purchases its own shares out of free reserves or
securities premium account, a sum equal to the nominal value of the shares so
purchased shall be transferred to the capital redemption reserve account and
details of such transfer shall be disclosed in the balance sheet.
(2) The capital redemption reserve account may be applied by the
company, in paying up unissued shares of the company to be issued to members
of the company as fully paid bonus shares.
70.
Prohibition for buy-back in certain circumstances.—(1) No company
shall directly or indirectly purchase its own shares or other specified securities—
(a) through any subsidiary company including its own subsidiary
companies;
(b) through any investment company or group of investment
companies; or
(c) if a default, is made by the company, in the repayment of deposits
accepted either before or after the commencement of this Act, interest
payment thereon, redemption of debentures or preference shares or payment
of dividend to any shareholder, or repayment of any term loan or interest
payable thereon to any financial institution or banking company:
Provided that the buy-back is not prohibited, if the default is remedied
and a period of three years has lapsed after such default ceased to subsist.
(2) No company shall, directly or indirectly, purchase its own shares or
other specified securities in case such company has not complied with the
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provisions of sections 92, 123, 127 and section 129.
71.
Debentures.—(1) A company may issue debentures with an option to
convert such debentures into shares, either wholly or partly at the time of
redemption:
Provided that the issue of debentures with an option to convert such
debentures into shares, wholly or partly, shall be approved by a special
resolution passed at a general meeting.
(2) No company shall issue any debentures carrying any voting rights.
(3) Secured debentures may be issued by a company subject to such
terms and conditions as may be prescribed.
(4) Where debentures are issued by a company under this section, the
company shall create a debenture redemption reserve account out of the profits
of the company available for payment of dividend and the amount credited to
such account shall not be utilised by the company except for the redemption of
debentures.
(5) No company shall issue a prospectus or make an offer or invitation to
the public or to its members exceeding five hundred for the subscription of its
debentures, unless the company has, before such issue or offer, appointed one
or more debenture trustees and the conditions governing the appointment of
such trustees shall be such as may be prescribed.
(6) A debenture trustee shall take steps to protect the interests of the
dcbenture-holders and redress their grievances in accordance with such rules as
may be prescribed.
(7) Any provision contained in a trust deed for securing the issue of
debentures, or in any contract with the debenture-holders secured by a trust
deed, shall be void in so far as it would have the effect of exempting a trustee
thereoffrom, or indemnifying him against, any liability for breach of trust, where
he fails to show the degree of care and due diligence required of him as a
trustee, having regard to the provisions of the trust deed conferring on him any
power, authority or discretion:
Provided that the liability of the debenture trustee shall be subject to such
exemptions as may be agreed upon by a majority of debenture-holders holding
not less than three-fourths in value of the total debentures at a meeting held
for the purpose.
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(8) A company shall pay interest and redeem the debentures in
accordance with the terms and conditions of their issue.
(9) Where at any time the debenture trustee comes to a conclusion that
the assets of the company are insufficient or are likely to become insufficient to
discharge the principal amount as and when it becomes due, the debenture
trustee may file a petition before the Tribunal and the Tribunal may, after
hearing the company and any other person interested in the matter, by order,
impose such restrictions on the incurring of any further liabilities by the
company as the Tribunal may consider necessary in the interests of the
debenture-holders.
(10) Where a company fails to redeem the debentures on the date of their
maturity or fails to pay interest on the debentures when it is due, the, Tribunal
may, on the application of any or all of the debenture-holders, or debenture
trustee and, after hearing the parties concerned, direct, by order, the company to
redeem the debentures forthwith on payment of principal and interest due
thereon.
(11) If any default is made in complying with the order of the Tribunal
under this section, every officer of the company who is in default shall be
punishable with imprisonment for a term which may extend to three years or
with fine which shall not be less than two lakh rupees but which may extend to
five lakh rupees, or with both.
(12) A contract with the company to take up and pay for any debentures
of the company may be enforced by a decree for specific performance.
(13) The Central Government may prescribe the procedure, for securing
the issue of debentures, the form of debenture trust deed, the procedure for the
debenture-holders to inspect the trust deed and to obtain copies thereof quantum
of debenture redemption reserve required to be created and such other matters.
72.
Power to nominate.—(1) Every holder of securities of a company
may, at any time, nominate, in the prescribed manner, any person to whom his
securities shall vest in the event of his death.
(2) Where the securities of a company are held by more than one person
jointly, the joint holders may together nominate, in the prescribed manner, any
person to whom all the rights in the securities shall vest in the event of death
of all the joint holders.
(3) Notwithstanding anything contained in any other law for the time
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being in force or in any disposition, whether testamentary or otherwise, in
respect of the securities of a company, where a nomination made in the
prescribed manner purports to confer on any person the right to vest the
securities of the company, the nominee shall, on the death of the holder of
securities or, as the case may be, on the death of the joint holders, become
entitled to all the rights in the securities, of the holder or, as the case may be,
of all the joint holders, in relation to such securities, to the exclusion of all other
persons, unless the nomination is varied or cancelled in the prescribed manner.
(4) Where the nominee is a minor, it shall be lawful for the holder of the
securities, making the nomination to appoint, in the prescribed manner, any
person to become entitled to the securities of the company, in the event of the
death of the nominee during his minority.
CHAPTER V
ACCEPTANCE OF DEPOSITS BY COMPANIES
73.
Prohibition on acceptance of deposits from public.—(1)
On and
after the commencement of this Act, no company shall invite, accept or renew
deposits under this Act from the public except in a manner provided under this
Chapter:
Provided that nothing in this sub-section shall apply to a banking
company and non-banking financial company as defined in the Reserve Bank of
India Act, 1934 (2 of 1934) and to such other company as the Central
Government may, after consultation with the Reserve Bank of India, specify in
this behalf.
(2) A company may, subject to the passing of a resolution in general
meeting and subject to such rules as may be prescribed in consultation with the
Reserve Bank of India, accept deposits from its members on such terms and
conditions, including the provision of security, if any, or for the repayment of
such deposits with interest, as may be agreed upon between the company and
its members, subject to the fulfilment of the following conditions, namely:—
(a) issuance of a circular to its members including therein a
statement showing the financial position of the company, the credit rating
obtained, the total number of depositors and the amount due towards
deposits in respect of any previous deposits accepted by the company and
such other particulars in such form and in such manner as may be
prescribed;
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(b) filing a copy of the circular along with such statement with the
Registrar within thirty days before the date of issue of the circular;
(c) depositing such sum which shall not be less than fifteen
per cent. of the amount of its deposits maturing during a financial year and
the financial year next following, and kept in a scheduled bank in a separate
bank account to be called as deposit repayment reserve account;
(d) providing such deposit insurance in such manner and to such
extent as may be prescribed;
(e) certifying that the company has not committed any default in the
repayment of deposits accepted either before or after the commencement of
this Act or payment of interest on such deposits; and
(f) providing security, if any for the due repayment of the amount of
deposit or the interest thereon including the creation of such charge on the
property or assets of the company:
Provided that in case where a company does not secure the
deposits or secures such deposits partially, then, the deposits shall be
termed as “unsecured deposits” and shall be so quoted in every circular,
form, advertisement or in any document related to invitation or acceptance
of deposits.
(3) Every deposit accepted by a company under sub-section (2) shall be
repaid with interest in accordance with the terms and conditions of the
agreement referred to in that sub-section.
(4) Where a company fails to repay the deposit or part thereof or any
interest thereon under sub-section (3), the depositor concerned may apply to
the Tribunal for an order directing the company to pay the sum due or for any
loss or damage incurred by him as a result of such non-payment and for such
other orders as the Tribunal may deem fit.
(5) The deposit repayment reserve account referred to in clause (c) of
sub-section (2) shall not be used by the company for any purpose other than
repayment of deposits.
74. Repayment of deposits, etc., accepted before commencement of this
Act.—(1) Where in respect of any deposit accepted by a company before the
commencement of this Act, the amount of such deposit or part thereof or any
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interest due thereon remains unpaid on such commencement or becomes due at
any time thereafter, the company shall—
(a) file, within a period of three months from such commencement or
from the date on which such payments, are due, with the Registrar a
statement of all the deposits accepted by the company and sums
remaining unpaid on such amount with the interest payable thereon along
with the arrangements made for such repayment, notwithstanding
anything contained in any other law for the time being in force or under
the terms and conditions subject to which the deposit was accepted or
any scheme framed under any law; and
(b) repay within one year from such commencement or from the
date on which such payments are due, whichever is earlier.
(2) The Tribunal may on an application made by the company, after
considering the financial condition of the company, the amount of deposit or
part thereof and the interest payable thereon and such other matters, allow
further time as considered reasonable to the company to repay the deposit.
(3) If a company fails to repay the deposit or part thereof or any interest
thereon within the time specified in sub-section (1) or such further time as may
be allowed by the Tribunal under sub-section (2), the company shall, in addition
to the payment of the amount of deposit or part thereof and the interest due, be
punishable with fine which shall not be less than one crore rupees but which
may extend to ten crore rupees and every officer of the company who is in
default shall be punishable with imprisonment which may extend to seven years
or with fine which shall not be less than twenty-five lakh rupees but which may
extend to two crore rupees, or with both.
75. Damages for fraud.—(1) Where a company fails to repay the deposit
or part thereof or any interest thereon referred to in section 74 within the time
specified in sub-section (1) of that section or such further time as may be
allowed by the Tribunal under sub-section (2) of that section, and it is proved
that the deposits had been accepted with intent to defraud the depositors or for
any fraudulent purpose, every officer of the company who was responsible for
the acceptance of such deposit shall, without prejudice to the provisions
contained in sub-section (3) of that section and liability under section 447, be
personally responsible, without any limitation of liability, for all or any of the
losses or damages that may have been incurred by the depositors.
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(2) Any suit, proceedings or other action may be taken by any person,
group of persons or any association of persons who had incurred any loss as a
result of the failure of the company to repay the deposits or part thereof or any
interest thereon.
76. Acceptance of deposits from public by certain companies.—
(1) Notwithstanding anything contained in Section 73, a public company, having
such net worth or turnover as may be prescribed, may accept deposits from
persons other than its members subject to compliance with the requirements
provided in sub-section (2) of section 73 and subject to such rules as the
Central Government may, in consultation with the Reserve Bank of lndia,
prescribe:
Provided that such a company shall be required to obtain the rating
(including its networth, liquidity and ability to pay its deposits on due date) from
a recognised credit rating agency for informing the public the rating given to the
company at the time of invitation of deposits from the public which ensures
adequate safety and the rating shall be obtained for every year during the
tenure of deposits:
Provided further that every company accepting secured deposits from the
public shall within thirty days of such acceptance, create a charge on its assets
of an amount not less than the amount of deposits accepted in favour of the
deposit holders in accordance with such rules as may be prescribed.
(2) The provisions of this Chapter shall, mutatis mutandis, apply to the
acceptance of deposits from public under this section.
CHAPTER VI
REGISTRATION OF CHARGES
77. Duty to register charges, etc.—(1) It shall be the duty of every
company creating a charge within or outside India, on its property or assets or
any of its undertakings, whether tangible or otherwise, and situated in or outside
India, to register the particulars of the charge signed by the company and the
charge-holder together with the instruments, if any, creating such charge in such
form, on payment of such fees and in such manner as may be prescribed, with
the Registrar within thirty days of its creation:
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Provided that the Registrar may, on an application by the company, allow
such registration to be made within a period of three hundred days of such
creation on payment of such additional fees as may be prescribed:
Provided further that if registration is not made within a period of three
hundred days of such creation, the company shall seek extension of time in
accordance with section 87:
Provided also that any subsequent registration of a charge shall not
prejudice any right acquired in respect of any property before the charge is
actually registered.
(2) Where a charge is registered with the Registrar under sub-section (I),
he shall issue a certificate of registration of such charge in such form and in
such manner as may be prescribed to the company and, as the case may be, to
the person in whose favour the charge is created.
(3) Notwithstanding anything contained in any other law for the time
being in force, no charge created by a company shall be taken into account by
the liquidator or any other creditor unless it is duly registered under
sub-section (I) and a certificate of registration of such charge is given by the
Registrar under sub-section (2).
(4) Nothing in sub-section (3) shall prejudice any contract or obligation
for the repayment of the money secured by a charge.
78. Application for registration of charge.—Where a company fails to
register the charge within the period specified in Section 77, without prejudice to
its liability in respect of any offence under this Chapter, the person in whose
favour the charge is created may apply to the Registrar for registration of the
charge along with the instrument created for the charge, within such time and in
such form and manner as may be prescribed and the Registrar may, on such
application, within a period of fourteen days after giving notice to the company,
unless the company itself registers the charge or shows sufficient cause why
such charge should not be registered, allow such registration on payment of
such fees, as may be prescribed:
Provided that where registration is effected on application of the person in
whose favour the charge is created, that person shall be entitled to recover
from the company the amount of any fees or additional fees paid by him to the
Registrar for the purpose of registration of charge.
79. Section 77 to apply in certain matters.—The provisions of section 77
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relating to registration of charges shall, so far as may be, apply to—
(a) a company acquiring any property subject to a charge within
the meaning of that section; or
(b) any modification in the terms or conditions or the extent or
operation of any charge registered under that section.
80. Date of notice of charge.—Where any charge on any property or
assets of a company or any of its undertakings is registered under section 77,
any person acquiring such property, assets, undertakings or part thereof or any
share or interest therein shall be deemed to have notice of the charge from the
date of such registration.
81. Register of charges to be kept by Registrar.—(1) The Registrar shall,
in respect of every company, keep a register containing particulars of the charges
registered under this Chapter in such form and in such manner as may be
prescribed.
(2) A register kept in pursuance of this section shall be open to
inspection by any person on payment of such fees as may be prescribed for
each inspection.
82. Company to report satisfaction of charge.—(1) A company shall
give intimation to the Registrar in the prescribed form, of the payment or
satisfaction in full of any charge registered under this Chapter within a period of
thirty days from the date of such payment or satisfaction and the provisions of
sub-section (I) of section 77 shall, as far as may be, apply to an intimation given
under this section.
(2) The Registrar shall, on receipt of intimation under sub-section (I),
cause a notice to be sent to the holder of the charge calling upon him to
show cause within such time not exceeding fourteen days, as may be specified
in such notice, as to why payment or satisfaction in full should not be recorded
as intimated to the Registrar, and if no cause is shown, by such holder of the
charge, the Registrar shall order that a memorandum of satisfaction shall be
entered in the register of charges kept by him under section 81 and shall inform
the company that he has done so:
Provided that the notice referred to in this sub-section shall not be
required to be sent, in case the intimation to the Registrar in this regard is in
the specified form and signed by the holder of charge.
(3) If any cause is shown, the Registrar shall record a note to that effect
in the register of charges and shall inform the company.
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(4) Nothing in this section shall be deemed to affect the powers of the
Registrar to make an entry in the register of charges under section 83 or
otherwise than on receipt of an intimation from the company.
83. Power of Registrar to make entries of satisfaction and release in
absence of intimation from company.—(1) The Registrar may, on evidence being
given to his satisfaction with respect to any registered charge,—
(a) that the debt for which the charge was given has been paid or
satisfied in whole or in part; or
(b) that part of the property or undertaking charged has been released
from the charge or has ceased to form part of the company’s property or
undertaking,
enter in the register of charges a memorandum of satisfaction in whole or
in part, or of the fact that part of the property or undertaking has been
released from the charge or has ceased to form part of the company’s
property or undertaking, as the case may be notwithstanding the fact that no
intimation has been received by him from the company.
(2) The Registrar shall inform the affected parties within thirty days of
making the entry in the register of charges kept under sub-section (1) of
section 81.
84. Intimation of appointment of receiver or manager.—(1) If any person
obtains an order for the appointment of a receiver of, or of a person to manage,
the property, subject to a charge, of a company or if any person appoints such
receiver or person under any power contained in any instrument, he shall, within
a period of thirty days from the date of the passing of the order or of the
making of the appointment, give notice of such appointment to the company
and the Registrar along with a copy of the order or instrument and the Registrar
shall, on payment of the prescribed fees, register particulars of the receiver,
person or instrument in the register of charges.
(2) Any person appointed under sub-section (I) shall, on ceasing to
hold such appointment. give to the company and the Registrar a notice to that
effect and the Registrar shall register such notice.
85. Company’s register of charges.—(1) Every company shall keep at its
registered office a register of charges in such form and in such manner as may
be prescribed, which shall include therein all charges and floating charges
affecting any property or assets of the company or any of its undertakings,
indicating in each case such particulars as may be prescribed:
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Provided that a copy of the instrument creating the charge shall also be
kept at the registered office of the company along with the register of charges.
(2) The register of charges and instrument of charges, kept under sub-
section (1) shall be open for inspection during business hours.
(a) by any member or creditor without any payment of fees; or
(b) by any other person on payment of such fees as may be
prescribed,
subject to such reasonable restrictions as the company may, by its
articles, impose.
86. Punishment for contravention.—If any company contravenes any
provision of this Chapter, the company shall be punishable with fine which shall
not be less than one lakh rupees but which may extend to ten lakh rupees and
every officer of the company who is in default shall be punishable with
imprisonment for a term which may extend to six months or with fine which
shall not be less than twenty-five thousand rupees but which may extend to one
lakh rupees, or with both.
87. Rectification by Central Government in register of charges.—(1) The
Central Government on being satisfied that—
(i) (a) the omission to file with the Registrar the particulars of any
charge created by a company or any charge subject to which any property
has been acquired by a company or any modification of such charge; or
(b) the omission to register any charge within the time required
under this Chapter or the omission to give intimation to the Registrar of the
payment or the satisfaction of a charge, within the time required under this
Chapter; or
(c)
The omission or mis-statement of any particular with respect
to any such charge or modification or with respect to any
memorandum of satisfaction or other entry made in pursuance of
section 82 or section 83,
was accidental or due to inadvertence or some other sufficient cause or
it is not of a nature to prejudice the position of creditors or
shareholders of the company; or
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(ii) on any other grounds, it is just and equitable to grant relief,
it may on the application of the company or any person interested and
on such terms and conditions as it may seem to the Central Government
just and expedient, direct that the time for the filing of the particulars or
for the registration of the charge or for the giving of intimation of
payment or satisfaction shall be extended or, as the case may require, that
the omission or mis-statement shall be rectified.
(2) Where the Central Government extends the time for the registration of
a charge the order shall not prejudice any rights acquired in respect of the
property concerned before the charge is actually registered.
CHAPTER VII
MANAGEMENT AND ADMINISTRATION
88. Register of members, etc.—(1) Every company shall keep and maintain
the following registers in such form and in such manner as may be prescribed,
namely:—
(a) register of members indicating separately for each class of
equity and preference shares held by each member residing in or outside
India;
(b) register of debenture-holders; and
(c) register of any other security holders.
(2) Every register maintained under sub-section (1) shall include an index
of the names included therein.
(3) The register and index of beneficial owners maintained by a depository
under section 11 of the Depositories Act, 1996 (22 of 1996), shall be deemed to
be the corresponding register and index for the purposes of this Act.
(4) A company may, if so authorised by its articles, keep in any country
outside India, in such manner as may be prescribed, a part of the register
referred to in sub-section (1), called “foreign register” containing the names and
particulars of the members, debenture-holders, other security holders or
beneficial owners residing outside India.
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(5) If a company does not maintain a register of members or
debenture-holders or other security holders or fails to maintain them in
accordance with the provisions of sub-section (1) or sub-section (2), the
company and every officer of the company who is in default shall be punishable
with fine which shall not be less than fifty thousand rupees but which may
extend to three lakh rupees and where the failure is a continuing one, with a
further fine which may extend to one thousand rupees for every day, after the
first during which the failure continues.
89. Declaration in respect of beneficial interest in any share.—(1) Where
the name of a person is entered in the register of members of a company as the
holder of shares in that company but who does not hold the beneficial interest
in such shares, such person shall make a declaration within such time and in
such form as may be prescribed to the company specifying the name and other
particulars of the person who holds the beneficial interest in such shares.
(2) Every person who holds or acquires a beneficial interest in share of a
company shall make a declaration to the company specifying the nature of his
interest, particulars 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) Where any change occurs in the beneficial interest in such shares, the
person referred to in sub-section (1) and the beneficial owner specified in
sub section (2) shall, within a period of 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) The Central Government may make rules to provide for the manner of
holding and disclosing beneficial interest and beneficial ownership under this
section.
(5)
If any person fails, to make a declaration as required under
sub-section (1) or sub-section (2) or sub-section (3), without any reasonable
cause, he shall be punishable with fine which may extend to fifty thousand
rupees and where the failure is a continuing one, with a further fine which may
extend to one thousand rupees for every day after the first during which the
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failure continues.
(6)
Where any declaration under this section is made to a company, the
company shall make a note of such declaration in the register concerned and
shall file, within thirty days from the date of receipt of declaration by it, a return
in the prescribed form with the Registrar in respect of such declaration with such
fees or additional fees as may be prescribed, within the time specified under
section 403.
(7)
If a company, required to file a return under sub-section (6), fails to
do so before the expiry of the time specified under the first proviso to
sub-section (1) of section 403, the company and every officer of the company
who is in default shall be punishable with fine which shall not be less than five
hundred rupees but which may extend to one thousand rupees and where the
failure is a continuing one, with a further fine which may extend to one
thousand rupees for every day after the first during which the failure continues.
(8)
No right in relation to any share in respect of which a declaration is
required to be made under this section but not made by the beneficial owner,
shall be enforceable by him or by any person claiming through him.
(9)
Nothing in this section shall be deemed to prejudice the obligation
of a company to pay dividend to its members under this Act and the said
obligation shall, on such payment, stand discharged.
90.
Investigation of beneficial ownership of shares in certain cases.—
Where it appears to the Central Government that there are reasons so to do, it
may appoint one or more competent persons to investigate and report as to
beneficial ownership with regard to any share or class of shares and the
provisions of section 216 shall, as far as may be, apply to such investigation as
if it were an investigation ordered under that section.
91.
Power to close register of members or debenture-holders or other
security holders.— (1) A company may close the register of members or the
register of debenture holders or the register of other security holders for any
period or periods not exceeding in the aggregate forty-five days in each year,
but not exceeding thirty days at anyone time, subject to giving of previous
notice of at least seven days or such lesser period as may be specified by
Securities and Exchange Board for listed companies or the companies which
intend to get their securities listed, in such manner as may be prescribed.
(2)
If the register of members or of debenture-holders or of other
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security holders is closed without giving the notice as provided in sub-section
(1) or after giving shorter notice than that so provided, or for a continuous or
an aggregate period in excess of the limits specified in that sub-section, the
company and every officer of the company who is in default shall be liable to a
penalty of five thousand rupees for every day subject to a maximum of one lakh
rupees during which the register is kept closed.
92. Annual return.— (1) Every company shall prepare a return (hereinafter
referred to as the annual return) in the prescribed form containing the
particulars as they stood on the close of the financial year regarding—
(a)
its registered office, principal business activities, particulars of its
holding, subsidiary and associate companies;
(b)
its shares, debentures and other securities and shareholding
pattern;
(c)
its indebtedness;
(d)
its members and debenture-holders along with changes therein
since the close of the previous financial year;
(e)
its promoters, directors, key managerial personnel along with
changes therein since the close of the previous financial year;
(j)
meetings of members or a class thereof, Board and its various
committees along with attendance details;
(g)
remuneration of directors and key managerial personnel;
(h)
penalty or punishment imposed on the company, its directors or
officers and details of compounding of offences and appeals made against
such penalty or punishment;
(i)
matters relating to certification of compliances, disclosures as
may be prescribed;
(j)
details, as may be prescribed, in respect of shares held by or on
behalf of the Foreign Institutional Investors indicating their names,
addresses, countries of incorporation, registration and percentage of
shareholding held by them; and
(k)
such other matters as may be prescribed,
and signed by a director and the company secretary, or where there is no
company secretary, by a company secretary in practice:
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Provided that in relation to One Person Company and small company, the
annual return shall be signed by the company secretary, or where there is no
company secretary, by the director of the company.
(2)
The annual return, filed by a listed company or, by a company
having such paid-up capital and turnover as may be prescribed, shall be certified
by a company secretary in practice in the prescribed form, stating that the
annual return discloses the facts correctly and adequately and that the company
has complied with all the provisions of this Act.
(3)
An extract of the annual return in such form as may be prescribed
shall form part of the Board’s report.
(4)
Every company shall file with the Registrar a copy of the annual
return, within sixty days from the date on which the annual general meeting is
held or where no annual general meeting is held in any year within sixty days
from the date on which the annual general meeting should have been held
together with the statement specifying the reasons for not holding the annual
general meeting, with such fees or additional fees as may be prescribed, within
the time as specified, under section 403.
(5)
If a company fails to file its annual return under sub-section (4),
before the expiry of the period specified under section 403 with additional fee, the
company shall be punishable with fine which shall not be less than fifty
thousand rupees but which may extend to five lakhs rupees and every officer of
the company who is in default shall be punishable with imprisonment for a term
which may extend to six months or with fine which shall not be less than fifty
thousand rupees but which may extend to five lakh rupees, or with both.
(6)
If a company secretary in practice certifies the annual return
otherwise than in conformity with the requirements of this section or the rules
made thereunder, he shall be punishable with fine which shall not be less than
fifty thousand rupees but which may extend to five lakh rupees.
93.
Return to be filed with Registrar in case promoters stake changes.—
Every listed company shall file a return in the prescribed form with the Registrar
with respect to change in the number of shares held by promoters and top ten
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shareholders of such company, within fifteen days of such change.
94. Place of keeping and inspection of registers, returns, etc.—(1) The
registers required to be kept and maintained by a company under section 88 and
copies of the annual return filed under section 92 shall be kept at the registered
office of the company:
Provided that such registers or copies of return may also be kept at any
other place in India in which more than one-tenth of the total number of
members entered in the register of members reside, if approved by a special
resolution passed at a general meeting of the company and the Registrar has
been given a copy of the proposed special resolution in advance:
Provided further that the period for which the registers, returns and records
are required to be kept shall be such as may be prescribed.
(2)
The registers and their indices, except when they are closed under the
provisions of this Act, and the copies of all the returns shall be open for
inspection by any member, debenture-holder, other security holder or beneficial
owner, during business hours without payment of any fees and by any other
person on payment of such fees as may be prescribed.
(3)
Any such member, debenture-holder, other security holder or beneficial
owner or any other person may—
(a)
take extracts from any register, or index or return without payment
of any fee; or
(b)
require a copy of any such register or entries therein or return on
payment of such fees as may be prescribed.
(4)
If any inspection or the making of any extract or copy required under
this section is refused, the company and every officer of the company who is in
default shall be liable, for each such default, to a penalty of one thousand
rupees for every day subject to a maximum of one lakh rupees during which the
refusal or default continues.
(5) The Central Government may also, by order, direct an immediate
inspection of the document, or direct that the extract required shall forthwith be
allowed to be taken by the person requiring it.
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95. Registers, etc., to be evidence.—The registers, their indices and copies
of annual returns maintained under sections 88 and 94 shall be prima facie
evidence of any matter directed or authorised to be inserted therein by or
under this Act.
96. Annual general meeting.—(1) Every company other than a One
Person Company shall in each year hold in addition to any other meetings, a
general meeting as its annual general meeting and shall specify the meeting as
such in the notices calling it, and not more than fifteen months shall elapse
between the date of one annual general meeting of a company and that of the
next:
Provided that in case of the first annual general meeting, it shall be held
within a period of nine months from the date of closing of the first financial year
of the company and in any other case, within a period of six months, from the
date of closing of the financial year:
Provided further that if a company holds its first annual general meeting as
aforesaid, it shall not be necessary for the company to hold any annual general
meeting in the year of its incorporation:
Provided also that the Registrar may, for any special reason, extend the time
within which any annual general meeting, other than the first annual general
meeting, shall be held, by a period not exceeding three months.
(2) Every annual general meeting shall be called during business hours,
that is, between 9 a.m. and 6 p.m. on any day that is not a National Holiday and
shall be held either at the registered office of the company or at some other
place within the city, town or village in which the registered office of the
company is situate:
Provided that the Central Government may exempt any company from the
provisions of this sub-section subject to such conditions as it may impose.
Explanation.—For the purposes of this sub-section, “National Holiday”
means and includes a day declared as National Holiday by the Central
Government.
97. Power of Tribunal to call annual general meeting.—(1) If any default
is made in holding the annual general meeting of a company under section 96,
the Tribunal may, notwithstanding anything contained in this Act or the articles
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of the company, on the application of any member of the company, call, or direct
the calling of, an annual general meeting of the company and give such ancillary
or consequential directions as the Tribunal thinks expedient:
Provided that such directions may include a direction that one member of
the company present in person or by proxy shall be deemed to constitute a
meeting.
(2) A general meeting held in pursuance of sub-section (1) shall, subject
to any directions of the Tribunal, be deemed to be an annual general meeting of
the company under this Act.
98. Power of Tribunal to call meetings of members, etc.—(1) If for any
reason it is impracticable to call a meeting of a company, other than an annual
general meeting, in any manner in which meetings of the company may be
called, or to hold or conduct the meeting of the company in the manner
prescribed by this Act or the articles of the company, the Tribunal may, either
suo motu or on the application of any director or member of the company who
would be entitled to vote at the meeting,—
(a) order a meeting of the company to be called, held and conducted
in such manner as the Tribunal thinks fit; and
(b) give such ancillary or consequential directions as the Tribunal
thinks expedient, including directions modifying or supplementing in relation
to the calling, holding and conducting of the meeting, the operation of the
provisions of this Act or articles of the company:
Provided that such directions may include a direction that one member of
the company present in person or by proxy shall be deemed to constitute a
meeting.
(2) Any meeting called, held and conducted in accordance with any order
made under sub-section (1) shall, for all purposes, be deemed to be a meeting of
the company duly called, held and conducted.
99.
Punishment for default in complying with provisions of sections
96 to 98.—If any default is made in holding a meeting of the company in
accordance with section 96 or section 97 or section 98 or in complying with any
directions of the Tribunal, the company and every officer of the company who is
in default shall be punishable with fine which may extend to one lakh rupees and
in the case of a continuing default, with a further fine which may extend to five
thousand rupees for every day during which such default continues.
100.
Calling of extraordinary general meeting.—(1) The Board may,
whenever it deems fit, call an extraordinary general meeting of the company.
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(2) The Board shall, at the requisition made by,—
(a) in the case of a company having a share capital, such number
of members who hold, on the date of the receipt of the requisition, not less
than one-tenth of such of the paid-up share capital of the company as on
that date carries the right of voting;
(b) in the case of a company not having a share capital, such
number of members who have, on the date of receipt of the requisition, not
less than one-tenth of the total voting power of all the members having on
the said date a right to vote,
call an extraordinary general meeting of the company within the period specified
in sub-section (4).
(3) The requisition made under sub-section (2) shall set out the matters for
the consideration of which the meeting is to be called and shall be signed by the
requisitionists and sent to the registered office of the company.
(4) If the Board does not, within twenty-one days from the date of receipt
of a valid requisition in regard to any matter, proceed to call a meeting for the
consideration of that matter on a day not later than forty-five days from the date
of receipt of such requisition, the meeting may be called and held by the
requisitonists themselves within a period of three months from the date of the
requisition.
(5) A meeting under sub-section (4) by the requisitionists shall be called
and held in the same manner in which the meeting is called and held by the
Board.
(6) Any reasonable expenses incurred by the requisitionists in calling a
meeting under sub-section (4) shall be reimbursed to the requisitionists by the
company and the sums so paid shall be deducted from any fee or other
remuneration under section 197 payable to such of the directors who were in
default in calling the meeting.
101. Notice of meeting.—(1) A general meeting of a company may be
called by giving not less than clear twenty-one days’ notice either in writing or
through electronic mode in such manner as may be prescribed:
Provided that a general meeting may be called after giving a shorter notice
if consent is given in writing or by electronic mode by not less than ninety-five
per cent. of the members entitled to vote at such meeting.
(2) Every notice of a meeting shall specify the place, date, day and the
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hour of the meeting and shall contain a statement of the business to be
transacted at such meeting.
(3) The notice of every meeting of the company shall be given to—
(a)
every member of the company, legal representative of any
deceased member or the assignee of an insolvent member;
(b)
the auditor or auditors of the company ; and
(c)
every director of the company.
(4) Any accidental omission to give notice to, or the non-receipt of such
notice by, any member or other person who is entitled to such notice for any
meeting shall not invalidate the proceedings of the meeting.
102.
Statement to be annexed to notice.—(1) A statement setting out the
following material facts concerning each item of special business to be
transacted at a general meeting, shall be annexed to the notice calling such
meetmg, namely:—
(a)
the nature of concern or interest, financial or otherwise, if any, in
respect of each items of—
(i)
every director and the manager, if any;
(ii)
every other key managerial personnel; and
(iii) relatives of the persons mentioned in sub-clauses (i)
and (ii);
(b) any other information and facts that may enable members to
understand the meaning, scope and implications of the items of business
and to take decision thereon.
(2) For the purposes of sub-section (1),—
(a)
in the case of an annual general meeting, all business to be
transacted thereat shall be deemed special, other than—
(i)
the consideration of financial statements and the reports of
the Board of Directors and auditors;
.
(ii) the declaration of any dividend;
(iii) the appointment of directors in place of those retiring;
(iv) the appointment of, and the fixing of the remuneration of,
the auditors; and
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(b)
in the case of any other meeting, all business shall be deemed to
be special:
Provided that where any item of special business to be transacted at a
meeting of the company relates to or affects any other company, the extent of
shareholding interest in that other company of every promoter, director, manager,
if any, and of every other key managerial personnel of the first mentioned
company shall, if the extent of such shareholding is not less than two per cent.
of the paid-up share capital of that company, also be set out in the statement.
(3)
Where any item of business refers to any document, which is to be
considered at the meeting, the time and place where such document can be
inspected shall be specified in the statement under sub-section (1).
(4)
Where as a result of the non-disclosure or insufficient disclosure in
any statement referred to in sub-section (1), being made by a promoter, director,
manager, if any, or other key managerial personnel, any benefit which accrues to
such promoter, director, manager or other key managerial personnel or their
relatives, either directly or indirectly, the promoter, director, manager or other key
managerial personnel, as the case may be, shall hold such benefit in trust for the
company, and shall, without prejudice to any other action being taken against
him under this Act or under any other law for the time being in force, be liable
to compensate the company to the extent of the benefit received by him.
(5) If any default is made in complying with the provisions of this section,
every promoter, director, manager or other key managerial personnel who is in
default shall be punishable with fine which may extend to fifty thousand rupees
or five times the amount of benefit accruing to the promoter, director, manager or
other key managerial personnel or any of his relatives, whichever is more.
103.
Quorum for meetings.—(1) Unless the articles of the company
provide for a larger number,—
(a)
in case of a public company,—
(i)
five members personally present if the number of members
as on the date of meeting is not more than one thousand;
(ii) fifteen members personally present if the number of
members as on the date of meeting is more than one thousand but
up to five thousand;
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(iii) thirty members personally present if the number of
members as on the date of the meeting exceeds five thousand;
(b) in the case of a private company, two members personally present,
shall be the quorum for a meeting of the company.
(2) If the quorum is not present within half-an-hour from the time
appointed for holding a meeting of the company—
(a) the meeting shall stand adjourned to the same day in the next
week at the same time and place, or to such other date and such other time
and place as the Board may determine; or
(b)
the meeting, if called by requisitionists under section 100, shall
stand cancelled:
Provided that in case of an adjourned meeting or of a change of day, time
or place of meeting under clause (a), the company shall give not less than three
days notice to the members either individually or by publishing an advertisement
in the newspapers (one in English and one in vernacular language) which is in
circulation at the place where the registered office of the company is situated.
(3) If at the adjourned meeting also, a quorum is not present within half-
an-hour from the time appointed for holding meeting, the members present shall
be the quorum.
104.
Chairman of meetings.—(1) Unless the articles of the company
otherwise provide the members personally present at the meeting shall elect one
of themselves to be the Chairman thereof on a show of hands.
(2)
If a poll is demanded on the election of the Chairman, it shall be
taken forthwith in accordance with the provisions of this Act and the Chairman
elected on a show of hands under sub-section (1) shall continue to be the
Chairman of the meeting until some other person is elected as Chairman as a
result of the poll, and such other person shall be the Chairman for the rest of
the meeting.
105.
Proxies.— (1) Any member of a company entitled to attend and
vote at a meeting of the company shall be entitled to appoint another person as
a proxy to attend and vote at the meeting on his behalf:
Provided that a proxy shall not have the right to speak at such meeting
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and shall not be entitled to vote except on a poll:
Provided further that, unless the articles of a company otherwise provide,
this sub-section shall not apply in the case of a company not having a share
capital:
Provided also that the Central Government may prescribe a class or classes
of companies whose members shall not be entitled to appoint another person as
a proxy:
Provided also that a person appointed as proxy shall act on behalf of such
member or number of members not exceeding fifty and such number of shares
as may be prescribed.
(2) In every notice calling a meeting of a company which has a share
capital, or the articles of which provide for voting by proxy at the meeting, there
shall appear with reasonable prominence a statement that a member entitled to
attend and vote is entitled to appoint a proxy, or, where that is allowed, one or
more proxies, to attend and vote instead of himself, and that a proxy need not
be a member.
(3) If default is made in complying with sub-section (2), every officer of
the company who is in default shall be punishable with fine which may extend
to five thousand rupees.
(4) Any provision contained in the articles of a company which specifies
or requires a longer period than forty-eight hours before a meeting of the
company, for depositing with the company or any other person any instrument
appointing a proxy or any other document necessary to show the validity or
otherwise relating to the appointment of a proxy in order that the appointment
may be effective at such meeting, shall have effect as if a period of forty-eight
hours had been specified in or required by such provision for such deposit.
(5) If for the purpose of any meeting of a company, invitations to appoint
as proxy a person or one of a number of persons specified in the invitations are
issued at the company’s expense to any member entitled to have a notice of the
meeting sent to him and to vote thereat by proxy, every officer of the company
who knowingly issues the invitations as aforesaid or wilfully authorises or
permits their issue shall be punishable with fine which may extend to one lakh
rupees:
Provided that an officer shall not be punishable under this sub-section by
reason only of the issue to a member at his request in writing of a form of
appointment naming the proxy, or of a list of persons willing to act as proxies, if
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the form or list is available on request in writing to every member entitled to
vote at the meeting by proxy.
(6) The instrument appointing a proxy shall—
(a) be in writing; and
(b) be signed by the appointer or his attorney duly authorised in
writing or, if the appointer is a body corporate, be under its seal or be
signed by an officer or an attorney duly authorised by it.
(7) An instrument appointing a proxy, if in the form as may be prescribed,
shall not be questioned on the ground that it fails to comply with any special
requirements specified for such instrument by the articles of a company.
(8) Every member entitled to vote at a meeting of the company, or on any
resolution to be moved thereat, shall be entitled during the period beginning
twenty-four hours before the time fixed for the commencement of the meeting
and ending with the conclusion of the meeting, to inspect the proxies lodged, at
any time during the business hours of the company, provided not less than
three days’ notice in writing of the intention so to inspect is given to the
company.
106. Restriction on voting rights.—(1) Notwithstanding anything contained
in this Act, the articles of a company may provide that no member shall exercise
any voting right in respect of any shares registered in his name on which any
calls or other sums presently payable by him have not been paid, or in regard to
which the company has exercised any right of lien.
(2) A company shall not, except on the grounds specified in sub-section
(1), prohibit any member from exercising his voting right on any other ground.
(3) On a poll taken at a meeting of a company, a member entitled to more
than one vote, or his proxy, where allowed, or other person entitled to vote for
him, as the case may be, need not, if he votes, use all his votes or “cast in the
same way all the votes he uses.
107. Voting by show of hands.—(1) At any general meeting, a resolution
put to the vote of the meeting shall, unless a poll is demanded under section
109 or the voting is carried out electronically, be decided on a show of hands.
(2) A declaration by the Chairman of the meeting of the passing of a
resolution or otherwise by show of hands under sub-section (1) and an entry
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(b)
may, in respect of any item of business, other than ordinary
business and any business in respect of which directors or auditors have
a right to be heard at any meeting, transact by means of postal ballot,
in such manner as may be prescribed, instead of transacting such business at a
general meeting.
(2) If a resolution is assented to by the requisite majority of the
shareholders by means of postal ballot, it shall be deemed to have been duly
passed at a general meeting convened in that behalf.
111. Circulation of members resolution.— (1) A company shall, on
requisition in writing of such number of members, as required in section 100,—
(a) give notice to members of any resolution which may properly be
moved and is intended to be moved at a meeting; and
(b) circulate to members any statement with respect to the matters
referred to in proposed resolution or business to be dealt with at that
meeting.
(2) A company shall not be bound under this section to give notice of
any resolution or to circulate any statement unless—
(a) a copy of the requisition signed by the requisitionists (or two or
more copies which, between them, contain the signatures of all the
requisitionists) is deposited at the registered office of the company,—
(i)
in the case of a requisition requiring notice of a resolution,
not less than six weeks before the meeting;
(ii)
in the case of any other requisition, not less than two weeks
before the meeting; and
(b) there is deposited or tendered with the requisition, a sum reasonably
sufficient to meet the company’s expenses in giving effect thereto:
Provided that if, after a copy of a requisition requiring notice of a
resolution has been deposited at the registered office of the company, an annual
general meeting is called on a date within six weeks after the copy has been
deposited, the copy, although not deposited within the time required by this
sub-section, shall be deemed to have been properly deposited for the purposes
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thereof.
(3) The company shall not be bound to circulate any statement as required
by clause (b) of sub-section (I), if on the application either of the company or of
any other person who claims to be aggrieved, the Central Government, by order,
declares that the rights conferred by this section are being abused to secure
needless publicity for defamatory matter.
(4) An order made under sub-section (3) may also direct that the cost
incurred by the company by virtue of this section shall be paid to the company
by the requisitionists, notwithstanding that they are not parties to the
application.
(5) If any default is made in complying with the provisions of this section,
the company and every officer of the company who is in default shall be liable
to a penalty of twenty-five thousand rupees.
112. Representation of President and Governors in meetings.—(1) The
President of India or the Governor of a State, if he is a member of a company,
may appoint such person as he thinks fit to act as his representative at any
meeting of the company or at any meeting of any class of members of the
company.
(2) A person appointed to act under sub-section (1) shall, for the purposes
of this Act, be deemed to be a member of such a company and shall be entitled
to exercise the same rights and powers, including the right to vote by proxy and
postal ballot as the President or, as the case may be, the Governor could exercise
as a member of the company.
113. Representation of corporations at meeting of companies and of
creditors.—(1) A body corporate, whether a company within the meaning of this
Act or not, may,—
(a) if it is a member of a company within the meaning of this Act, by
resolution of its Board of Directors or other governing body, authorise
such person as it thinks fit to act as its representative at any meeting of
the company, or at any meeting of any class of members of the company;
(b)
if it is a creditor, including a holder of debentures, of a company
within the meaning of this Act, by resolution of its directors or other
governing body, authorise such person as it thinks fit to act as its
representative at any meeting of any creditors of the company held in
pursuance of this Act or of any rules made thereunder, or in pursuance of
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the provisions contained in any debenture or trust deed, as the case
may be.
(2) A person authorised by resolution under sub-section (I) shall be
entitled to exercise the same rights and powers, including the right to vote by
proxy and by postal ballot, on behalf of the body corporate which he represents
as that body could exercise if it were an individual member, creditor or holder of
debentures of the company.
114. Ordinary and special resolutions.— (I) A resolution shall be an
ordinary resolution if the notice required under this Act has be duly given and
it is required to be passed by the votes cast, whether on a show of hands, or
electronically or on a poll, as the case may be, in favour of the resolution,
including the casting vote, if any, of the Chairman, by members who, being
entitled so to do, vote in person, or where proxies are allowed, by proxy or by
postal ballot, exceed the votes, if any, cast against the resolution by members, so
entitled and voting.
(2) A resolution shall be a special resolution when—
(a) the intention to propose the resolution as a special resolution has
been duly specified in the notice calling the general meeting or other
intimation given to the members of the resolution;
(b) the notice required under this Act has been duly given; and
(c) the votes cast in favour of the resolution, whether on a show of
hands, or electronically or on a poll, as the case may be, by members who,
being entitled so to do, vote in person or by proxy or by postal ballot, are
required to be not less than three times the number of the votes, if any, cast
against the resolution by members so entitled and voting.
115. Resolutions requiring special notice.— Where, by any provision
contained in this Act or in the articles of a company, special notice is required
of any resolution, notice of the intention to move such resolution shall be given
to the company by such number of members holding not less than one per cent.
of total voting power or holding shares on which such aggregate sum not
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exceeding five lakh rupees, as may be prescribed, has been paid-up and the
company shall give its members notice of the resolution in such manner as may
be prescribed.
116. Resolutions passed at adjourned meeting.— Where a resolution is
passed at an adjourned meeting of—
(a)
a company; or
(b)
the holders of any class of shares in a company; or
(c)
the Board of Directors of a company,
the resolution shall, for all purposes, be treated as having been passed on the
date on which it was in fact passed, and shall not be deemed to have been
passed on any earlier date.
117. Resolutions and agreements to be filed.— (1) A copy of every
resolution or any agreement, in respect of matters specified in sub-section (3)
together with the explanatory statement under section 102, if any, annexed to the
notice calling the meeting in which the resolution is proposed, shall be filed
with the Registrar within thirty days of the passing or making thereof in such
manner and with such fees as may be prescribed within the time specified under
section 403:
Provided that the copy of every resolution which has the effect of altering
the articles and the copy of every agreement referred to in sub-section (3) shall
be embodied in or annexed to every copy of the articles issued after passing of
the resolution or making of the agreement.
(2) If a company fails to file the resolution or the agreement under sub-
section (I) before the expiry of the period specified under section 403 with
additional fee, the company shall be punishable with fine which shall not be
less than five lakh rupees but which may extend to twenty-five lakh rupees and
every officer of the company who is in default, including liquidator of the
company, if any, shall be punishable with fine which shall not be less than one
lakh rupees but which may extend to five lakh rupees.
(3) The provisions of this section shall apply to—
(a)
special resolutions;
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(b)
resolutions which have been agreed to by all the members of a
company, but which, if not so agreed to, would not have been effective
for their purpose unless they had been passed as special resolutions;
(c)
any resolution of the Board of Directors of a company or
agreement executed by a company, relating to the appointment,
re-appointment or renewal of the appointment, or variation of the terms of
appointment, of a managing director;
(d)
resolutions or agreements which have been agreed to by any
class of members but which, if not so agreed to, would not have been
effective for their purpose unless they had been passed by a specified
majority or otherwise in some particular manner; and all resolutions or
agreements which effectively bind such class of members though not
agreed to by all those members;
(e)
resolutions passed by a company according consent to the
exercise by its Board of Directors of any of the powers under clause (a)
and clause (c) of sub-section (1) of section 180;
(f)
resolutions requiring a company to be wound up voluntarily
passed in pursuance of section 304;
(g)
resolutions passed in pursuance of sub-section (3) of section
179; and
(h)
any other resolution or agreement as may be prescribed and
placed in the public domain.
118. Minutes of proceedings of general meeting, meeting of Board of
Directors and other meeting and resolutions passed by postal ballot.—(1) Every
company shall cause minutes of the proceedings of every general meeting of
any class of shareholders or creditors, and every resolution passed by postal
ballot and every meeting of its Board of Directors or of every committee of the
Board, to be prepared and signed in such manner as may be prescribed and kept
within thirty days of the conclusion of every such meeting concerned, or
passing of resolution by postal ballot in books kept for that purpose with their
pages consecutively numbered.
(2) The minutes of each meeting shall contain a fair and correct summary
of the proceedings thereat.
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(3) All appointments made at any of the meetings aforesaid shall be
included in the minutes of the meeting.
(4) In the case of a meeting of the Board of Directors or of a committee of
the Board, the minutes shall also contain—
(a) the names of the directors present at the meeting; and
(b) in the case of each resolution passed at the meeting, the names of
the directors, if any, dissenting from, or not concurring with the
resolution.
(5) There shall not be included in the minutes, any matter which, in the
opinion of the Chairman of the meeting,—
(a) is or could reasonably be regarded as defamatory of any person; or
(b) is irrelevant or immaterial to the proceedings; or
(c) is detrimental to the interests of the company.
(6) The Chairman shall exercise absolute discretion in regard to the
inclusion or non-inclusion of any matter in the minutes on the grounds specified
in sub-section (5).
(7) The minutes kept in accordance with the provisions of this section shall
be evidence of the proceedings recorded therein.
(8) Where the minutes have been kept in accordance with sub-section (1)
then, until the contrary is proved, the meeting shall be deemed to have been
duly called and held, and all proceedings thereat to have duly taken place, and
the resolutions passed by postal ballot to have been duly passed and in
particular, all appointments of directors, key managerial personnel, auditors or
company secretary in practice, shall be deemed to be valid.
(9) No document purporting to be a report of the proceedings of any
general meeting of a company shall be circulated or advertised at the expense of
the company, unless it includes the matters required by this section to be
contained in the minutes of the proceedings of such meeting.
(10) Every company shall observe secretarial standards with respect to
general and Board meetings specified by the Institute of Company Secretaries of
India constituted under section 3 of the Company Secretaries Act, 1980 (56 of
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1980), and approved as such by the Central Government.
(11) If any default is made in complying with the provisions of this section
in respect of any meeting, the company shall be liable to a penalty of twenty-five
thousand rupees and every officer of the company who is in default shall be
liable to a penalty of five thousand rupees.
(12) If a person is found guilty of tampering with the minutes of the
proceedings of meeting, he shall be punishable with imprisonment for a term
which may extend to two years and with fine which shall not be less than
twenty-five thousand rupees but which may extend to one lakh rupees.
119. Inspection of minute-books of general meeting.— (1) The books
containing the minutes of the proceedings of any general meeting of a company
or of a resolution passed by postal ballot, shall—
(a)
be kept at the registered office of the company; and
(b)
be open, during business hours, to the inspection by any member
without charge, subject to such reasonable restrictions as the company
may, by its articles or in general meeting, impose, so, however, that not
less than two hours in each business day are allowed for inspection.
(2) Any member shall be entitled to be furnished, within seven working
days after he has made a request in that behalf to the company, and on
payment of such fees as may be prescribed, with a copy of any minutes referred
to in sub-section (1).
(3) If any inspection under sub-section (1) is refused, or if any copy
required under sub-section (2) is not furnished within the time specified therein,
the company shall be liable to a penalty of twenty-five thousand rupees and
every officer of the company who is in default shall be liable to a penalty of
five thousand rupees for each such refusal or default, as the case may be.
(4) In the case of any such refusal or default, the Tribunal may, without
prejudice to any action being taken under sub-section (3), by order, direct an
immediate inspection of the minute-books or direct that the copy required shall
forthwith be sent to the person requiring it.
120. Maintenance and inspection of documents in electronic form.—
Without prejudice to any other provisions of this Act, any document, record,
register, minutes, etc.,— .
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(a)
required to be kept by a company; or
(b)
allowed to be inspected or copies to be given to,any person by a
company under this Act, may be kept or inspected or copies given, as the
case may be, in electronic form in such form and manner as may be
prescribed.
121. Report on annual general meeting.— (1) Every listed public
company shall prepare in the prescribed manner a report on each annual general
meeting including the confirmation to the effect that the meeting was convened,
held and conducted as per the provisions of this Act and the rules made
thereunder.
(2) The company shall file with the Registrar a copy of the report referred
to in sub-section (1) within thirty days of the conclusion of the annual general
meeting with such fees as may be prescribed, or with such additional fees as
may be prescribed, within the time as specified, under section 403.
(3) If the company fails to file the report under sub-section (2) before the
expiry of the period specified under section 403 with additional fee, the company
shall be punishable with fine which shall not be less than one lakh rupees but
which may extend to five lakh rupees and every officer of the company who is
in default shall be punishable with fine which shall not be less than twenty-five
thousand rupees but which may extend to one lakh rupees.
122. Applicability of this Chapter to One Person Company.— (1) The
provisions of section 98 and sections 100 to 111 (both inclusive) shall not apply
to a One Person Company.
(2) The ordinary businesses as mentioned under clause (a) of sub-section
(2) of section 102 which a company, other than a One Person Company, is
required to transact at its annual general meeting, shall be transacted, in case of
One Person Company, as provided in sub-section (3).
(3) For the purposes of section 114, any business which is required to
be transacted at an annual general meeting or other general meeting of a
company by means of an ordinary or special resolution, it shall be sufficient if,
in case of One Person Company, the resolution is communicated by the member
to the company and entered in the minutes-book required to be maintained
under section 118 and signed and dated by the member and such date shall be
deemed to be the date of the meeting for all the purposes under this Act.
(4) Notwithstanding anything in this Act, where there is only one director
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on the Board of Director of a One Person Company, any business which is
required to be transacted at the meeting of the Board of Directors of a
company, it shall be sufficient if, in case of such One Person Company, the
resolution by such director is entered in the minutes-book required to be
maintained under section 118 and signed and dated by such director and such
date shall be deemed to be the date of the meeting of the Board of Directors for
all the purposes under this Act.
CHAPTER VIII
DECLARATION AND PAYMENT OF DIVIDEND
123. Declaration of dividend.— (1) No dividend shall be declared or paid
by a company for any financial year except—
(a)
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), or out of the profits of the company for any previous financial year or
years arrived at after providing for depreciation in accordance with the
provisions of that sub-section and remaining undistributed, or out of both;
or
(b)
out of money provided by the Central Government or a State
Government for the payment of dividend by the company in pursuance of
a guarantee given by that Government:
Provided that a company may, before the declaration of any dividend in
any financial year, transfer such percentage of its profits for that financial year
as it may consider appropriate to the reserves of the company:
Provided further that where, owing to inadequacy or absence of profits in
any financial year, any company proposes to declare dividend out of the
accumulated profits earned by it in previous years and transferred by the
company to the reserves, such declaration of dividend shall not be made except
in accordance with such rules as may be prescribed in this behalf:
Provided also that no dividend shall be declared or paid by a company
from its reserves other than free reserves.
(2)
For the purposes of clause (a) of sub-section (1), depreciation shall be
provided in accordance with the provisions of Schedule II.
(3)
The Board of Directors of a company may declare interim dividend
during any financial year out of the surplus in the profit and loss account and
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out of profits of the financial year in which such interim dividend is sought to
be declared:
Provided that in case the company has incurred loss during the current
financial year up to the end of the quarter immediately preceding the date of
declaration of interim dividend, such interim dividend shall not be declared at a
rate higher than the average dividends declared by the company during the
immediately preceding three financial years.
(4) The amount of the dividend, including interim dividend, shall be
deposited in a scheduled bank in a separate account within five days from the
date of declaration of such dividend.
(5) No dividend shall be paid by a company in respect of any share
therein except to the registered shareholder of such share or to his order or to
his banker and shall not be payable except in cash:
Provided that nothing in this sub-section shall be deemed to prohibit the
capitalisation of profits or reserves of a company for the purpose of issuing fully
paid-up bonus shares or paying up any amount for the time being unpaid on
any shares held by the members of the company:
Provided further that any dividend payable in cash may be paid by
cheque or warrant or in any electronic mode to the shareholder entitled to the
payment of the dividend.
(6) A company which fails to comply with the provisions of sections 73
and 74 shall not, so long as such failure continues, declare any dividend on its
equity shares.
124. Unpaid dividend Account. —(1) Where a dividend has been declared
by a company but has not been paid or claimed within thirty 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 thirty days, transfer the total amount of dividend which remains unpaid or
unclaimed to a special account to be opened by the company in that behalf in
any scheduled bank to be called the Unpaid Dividend Account.
(2) The company shall, within a period of ninety days of making any
transfer of an amount under sub-section (1) to the Unpaid Dividend Account,
prepare a statement containing the names, their last known addresses and the
unpaid dividend to be paid to each person and place it on the website of the
company, if any, and also on any other website approved by the Central
Government for this purpose, in such form, manner and other particulars as may
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be prescribed.
(3) If any default is made in transferring the total amount referred to in
sub-section (1) or any part thereof to the Unpaid Dividend Account of the
company, it 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.
(4)
Any person claiming to be entitled to any money transferred under
sub-section (1) to the Unpaid Dividend Account of the company may apply to
the company for payment of the money claimed.
(5)
Any money transferred to the Unpaid Dividend Account of a
company in pursuance of this section which remains unpaid or unclaimed for a
period of seven years from the date of such transfer shall be transferred by the
company along with interest accrued, if any, thereon to the Fund established
under sub-section (1) of section 125 and the company shall send a statement in
the prescribed form of the details of such transfer to the authority which
administers the said Fund and that authority shall issue a receipt to the
company as evidence of such transfer.
(6)
All shares in respect of which unpaid or unclaimed dividend has
been transferred under sub-section (5) shall also be transferred by the company
in the name of Investor Education and Protection Fund along with a statement
containing such details as may be prescribed:
Provided that any claimant of shares transferred above shall be entitled to
claim the transfer of shares from Investor Education and Protection Fund in
accordance with such procedure and on submission of such documents as may
be prescribed.
(7) If a company fails to comply with any of the requirements of this
section, the company shall be punishable with fine which shall not be less than
five lakh rupees but which may extend to twenty-five lakh rupees and every
officer of the company who is in default shall be punishable with fine which
shall not be less than one lakh rupees but which may extend to five lakh rupees.
125. Investor Education and Protection Fund.—(1) The Central
Government shall establish a Fund to be called the Investor Education and
Protection Fund (herein referred to as the Fund).
(2) There shall be credited to the Fund—
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(a) the amount given by the Central Government by way of grants
after due appropriation made by Parliament by law in this behalf for being
utilised for the purposes of the Fund;
(b) donations given to the Fund by the Central Government, State
Governments, companies or any other institution for the purposes of the
Fund;
(c) the amount in the Unpaid Dividend Account of companies
transferred to the Fund under sub-section (5) of section 124;
(d) the amount in the general revenue account of the Central
Government which had been transferred to that account under sub-section (5)
of section 205A of the Companies Act, 1956 (1 of 1956) as it stood
immediately before the commencement of the Companies (Amendment) Act,
1999 (21 of 1999) and remaining unpaid or unclaimed on the commencement
of this Act;
(e) the amount lying in the Investor Education and Protection Fund
under section 205C of the Companies Act, 1956 (1 of 1956);
(f) the interest or other income received out of investments made from
the Fund;
(g) the amount received under sub-section (4) of section 38;
(h) the application money received by companies for allotment of any
securities and due for refund;
(i) matured deposits with companies other than banking companies;
(j) matured debentures with companies;
(k) interest accrued on the amounts referred to in clauses (h) to (j);
(l) sale proceeds of fractional shares arising out of issuance of bonus
shares, merger and amalgamation for seven or more years;
(m) redemption amount of preference shares remaining unpaid or
unclaimed for seven or more years; and
(n) such other amount as may be prescribed:
Provided that no such amount referred to in clauses (h) to (j) shall form part of
the Fund unless such amount has remained unclaimed and unpaid for a
period of seven years from the date it became due for payment.
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(3) The Fund shall be utilised for—
(a) the refund in respect of unclaimed dividends, matured deposits,
matured debentures, the application money due for refund and interest thereon;
(b) promotion of investors’ education, awareness and protection;
(c) distribution of any disgorged amount among eligible and
identifiable applicants for shares or debentures, shareholders, debenture-
holders or depositors who have suffered losses due to wrong actions by any
person, in accordance with the orders made by the Court which had ordered
disgorgement;
(d) reimbursement of legal expenses incurred in pursuing class action
suits under sections 37 and 245 by members, debenture-holders or depositors
as may be sanctioned by the Tribunal; and
(e) any other purpose incidental thereto,
in accordance with such rules as may be prescribed:
Provided that the person whose amounts referred to in clauses (a) to (d) of
sub-section (2) of section 205C transferred to Investor Education and Protection
Fund, after the expiry of the period of seven years as per provisions of the
Companies Act, 1956 (1 of 1956) shall be entitled to get refund out of the Fund
in respect of such claims in accordance with rules made under this section.
Explanation.—The disgorged amount refers to the amount received
through disgorgement or disposal of securities.
(4) Any person claiming to be entitled to the amount referred in sub-
section (2) may apply to the authority constituted under sub-section (5) for the
payment of the money claimed.
(5) The Central Government shall constitute, by notification, an authority
for administration of the fund consisting of a chairperson and such other
members, not exceeding seven and a chief executive officer, as the Central
Government may appoint.
(6) The manner of administration of the fund, appointment of chairperson,
members and chief executive officer, holding of meetings of the authority shall
be in accordance with such rules as may be prescribed.
(7) The Central Government may provide to the authority such offices,
officers, employees and other resources in accordance with such rules as may
be prescribed.
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(8) The authority shall administer the fund and maintain separate
accounts and other relevant records in relation to the fund in such form as may be
prescribed after consultation with the Comptroller and Auditor-General of India.
(9) It shall be competent for the authority constituted under sub-section
(5) to spend money out of the Fund for carrying out the objects specified in
sub-section (3).
(10) The accounts of the Fund shall be audited by the Comptroller and
Auditor-General of India at such intervals as may be specified by him and such
audited accounts together with the audit report thereon shall be forwarded
annually by the authority to the Central Government.
(11) The authority shall prepare in such form and at such time for each
financial year as may be prescribed its annual report giving a full account of its
activities during the financial year and forward a copy thereof to the Central
Government and the Central Government shall cause the annual report and the
audit report given by the Comptroller and Auditor-General of India to be laid
before each House of Parliament.
126. Right to dividend, rights shares and bonus shares to be held in
abeyance pending registration of transfer of shares.— Where any instrument of
transfer of shares has been delivered to any company for registration and the
transfer of such shares has not been registered by the company, it shall,
notwithstanding anything contained in any other provision of this Act,—
(a) transfer the dividend in relation to such shares to the Unpaid
Dividend Account referred to in section 124 unless the company is
authorised by the registered holder of such shares in writing to pay such
dividend to the transferee specified in such instrument of transfer; and
(b) keep in abeyance in relation to such shares, any offer of rights
shares under clause (a) of sub-section (1) of section 62 and any issue of
fully paid-up bonus shares in pursuance of first proviso to sub-section (5)
of section 123.
127. Punishment for failure to distribute dividends.—Where a dividend
has been declared by a company but has not been paid or the warrant in respect
thereof has not been posted within thirty days from the date of declaration to
any shareholder entitled to the payment of the dividend, every director of the
company shall, if he is knowingly a party to the default, be punishable with
imprisonment which may extend to two years and with fine which shall not be
less than one thousand rupees for every day during which such default
continues and the company shall be liable to pay simple interest at the rate of
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eighteen per cent. per annum during the period for which such default
continues:
Provided that no offence under this section shall be deemed to have been
committed:—
(a)
where the dividend could not be paid by reason of the operation
of any law;
(b)
where a shareholder has given directions to the company
regarding the payment of the dividend and those directions cannot be
complied with and the same has been communicated to him;
(c)
where there is a dispute regarding the right to receive the
dividend;
(d)
where the dividend has been lawfully adjusted by the company
against any sum due to it from the shareholder; or
(e)
where, for any other reason, the failure to pay the dividend or to
post the warrant within the period under this section was not due to any
default on the part of the company.
CHAPTER IX
ACCOUNTS OF COMPANIES
128. Books of account etc., to be kept by company.—(1) Every company
shall prepare and keep at its registered office books of account and other
relevant books and papers and financial statement for every financial year which
give a true and fair view of the state of the affairs of the company, including
that of its branch office or offices, if any, and explain the transactions effected
both at the registered office and its branches and such books shall be kept on
accrual basis and according to the double entry system of accounting:
Provided that all or any of the books of account aforesaid and other
relevant papers may be kept at such other place in India as the Board of
Directors may decide and where such a decision is taken, the company shall,
within seven days thereof, file with the Registrar a notice in writing giving the
full address of that other place:
Provided further that the company may keep such books of account or
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other relevant papers in electronic mode in such manner as may be prescribed.
(2) Where a company has a branch office in India or outside India, it
shall be deemed to have complied with the provisions of sub-section (1), if
proper books of account relating to the transactions effected at the branch office
are kept at that office and proper summarised returns periodically are sent by
the branch office to the company at its registered office or the other place
referred to in sub-section (1).
(3) The books of account and other books and papers maintained by
the company within India shall be open for inspection at the registered office of
the company or at such other place in India by any director during business
hours, and in the case of financial information, if any, maintained outside the
country, copies of such financial information shall be maintained and produced
for inspection by any director subject to such conditions as may be prescribed:
Provided that the inspection in respect of any subsidiary of the company
shall be done only by the person authorised in this behalf by a resolution of
the Board of Directors.
(4) Where an inspection is made under sub-section (3), the officers and
other employees of the company shall give to the person making such
inspection all assistance in connection with the inspection which the company
may reasonably be expected to give.
(5) The books of account of every company relating to a period of not
less than eight financial years immediately preceding a financial year, or where
the company had been in existence for a period less than eight years, in respect
of all the preceding years together with the vouchers relevant to any entry in
such books of account shall be kept in good order:
Provided that where an investigation has been ordered in respect of the
company under Chapter XIV, the Central Government may direct that the books
of account may be kept for such longer period as it may deem fit.
(6) If the managing director, the whole-time director in charge of finance,
the Chief Financial Officer or any other person of a company charged by the
Board with the duty of complying with the provisions of this section,
contravenes such provisions, such managing director, whole-time director in
charge of finance, Chief Financial officer or such other person of the company
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shall be punishable with imprisonment for a term which may extend to one year
or with fine which shall not be less than fifty thousand rupees but which may
extend to five lakh rupees or with both.
129. Financial statement.—(1) The financial statements shall give a true
and fair view of the state of affairs of the company or companies, comply
with the accounting standards notified under section 133 and shall be in the
form or forms as may be provided for different class or classes of companies in
Schedule III:
Provided that the items contained in such financial statements shall be in
accordance with the accounting standards:
Provided further that nothing contained in this sub-section shall apply to
any insurance or banking company or any company engaged in the generation
or supply of electricity, or to any other class of company for which a form of
financial statement has been specified in or under the Act governing such class
of company:
Provided also that the financial statements shall not be treated as not
disclosing a true and fair view of the state of affairs of the company, merely by
reason of the fact that they do not disclose—
(a) in the case of an insurance company, any matters which are not
required to be disclosed by the Insurance Act, 1938 (4 of 1938),
or the Insurance Regulatory and Development Authority Act, 1999
(41 of 1999);
(b) in the case of a banking company, any matters which are
not required to be disclosed by the Banking Regulation Act, 1949
(10 of 1949);
(c) in the case of a company engaged in the generation or supply of
electricity, any matters which are not required to be disclosed by the
Electricity Act, 2003 (36 of 2003);
(d) in the case of a company governed by any other law for the time
being in force, any matters which are not required to be disclosed by that
law.
(2) At every annual general meeting of a company, the Board of Directors
of the company shall lay before such meeting financial statements for the
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financial year.
(3) Where a company has one or more subsidiaries, it shall, in addition to
financial statements provided under sub-section (2), prepare a consolidated
financial statement of the company and of all the subsidiaries in the same form
and manner as that of its own which shall also be laid before the annual general
meeting of the company along with the laying of its financial statement under
sub-section (2):
Provided that the company shall also attach along with its financial
statement, a separate statement containing the salient features of the financial
statement of its subsidiary or subsidiaries in such form as may be prescribed:
Provided further that the Central Government may provide for the
consolidation of accounts of companies in such manner as may be prescribed.
Explanation.—For the purposes of this sub-section, the word “subsidiary”
shall include associate company and joint venture.
(4) The provisions of this Act applicable to the preparation, adoption and
audit of the financial statements of a holding company shall, mutatis mutandis,
apply to the consolidated financial statements referred to in sub-section (3).
(5) Without prejudice to sub-section (1), where the financial statements of
a company do not comply with the accounting standards referred to in
sub-section (1), the company shall disclose in its financial statements, the
deviation from the accounting standards, the reasons for such deviation and the
financial effects, if any, arising out of such deviation.
(6) The Central Government may, on its own or on an application by a
class or classes of companies, by notification, exempt any class or classes of
companies from complying with any of the requirements of this section or the
rules made thereunder, if it is considered necessary to grant such exemption in
the public interest and any such exemption may be granted either
unconditionally or subject to such conditions as may be specified in the
notification.
(7) If a company contravenes the provisions of this section, the managing
director, the whole-time director in charge of finance, the Chief Financial Officer
or any other person charged by the Board with the duty of complying with the
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requirements of this section and in the absence of any of the officers mentioned
above, all the directors shall be punishable with imprisonment for a term which
may extend to one year or with fine which shall not be less than fifty thousand
rupees but which may extend to five lakh rupees, or with both.
Explanation.—For the purposes of this section, except where the context
otherwise requires, any reference to the financial statement shall include any
notes annexed to or forming part of such financial statement, giving information
required to be given and allowed to be given in the form of such notes under
this Act.
130. Re-opening of accounts on court’s or Tribunal’s orders.—(1) A
company shall not re-open its books of account and not recast its financial
statements, unless an application in this regard is made by the Central
Government, the Income-tax authorities, the Securities and Exchange Board, any
other statutory regulatory body or authority or any person concerned and an
order is made by a court of competent jurisdiction or the Tribunal to the effect
that—
(i) the relevant earlier accounts were prepared in a fraudulent
manner; or
(ii) the affairs of the company were mismanaged during the
relevant period, casting a doubt on the reliability of financial statement:
Provided that the court or the Tribunal, as the case may be, shall
give notice to the Central Government, the Income-tax authorities, the
Securities and Exchange Board or any other statutory regulatory body or
authority concerned and shall take into consideration the representations,
if any, made by that Government or the authorities, Securities and
Exchange Board or the body or authority concerned before passing any
order under this section.
(2) Without prejudice to the provisions contained in this Act the accounts
so revised or re-cast under sub-section (1) shall be final.
131. Voluntary revision of financial statements or Board’s report.—(1) If it
appears to the directors of a company that—
(a) the financial statement of the company; or
(b) the report of the Board,
do not comply with the provisions of section 129 or section 134 they may
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prepare revised financial statement or a revised report in respect of any of the
three preceding financial years after obtaining approval of the Tribunal on an
application made by the company in such form and manner as may be
prescribed and a copy of the order passed by the Tribunal shall be filed with the
Registrar:
Provided that the Tribunal shall give notice to the Central Government and
the Income-tax authorities and shall take into consideration the representations,
if any, made by that Government or the authorities before passing any order
under this section:
Provided further that such revised financial statement or report shall not be
prepared or filed more than once in a financial year:
Provided also that the detailed reasons for revision of such financial
statement or report shall also be disclosed in the Board’s report in the relevant
financial year in which such revision is being made.
(2) Where copies of the previous financial statement or report have been
sent out to members or delivered to the Registrar or laid before the company in
general meeting, the revisions must be confined to—
(a) the correction in respect of which the previous financial statement
or report do not comply with the provisions of section 129 or section 134;
and
(b) the making of any necessary consequential alternation.
(3) The Central Government may make rules as to the application of the
provisions of this Act in relation to revised financial statement or a revised
director’s report and such rules may, in particular—
(a) make different provisions according to which the previous financial
statement or report are replaced or are supplemented by a document
indicating the corrections to be made;
(b) make provisions with respect to the functions of the company’s
auditor in relation to the revised financial statement or report;
(c) require the directors to take such step as may be prescribed.
132. Constitution of National Financial Reporting Authority.—(1) The
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Central Government may, by notification, constitute a National Financial
Reporting Authority to provide for matters relating to accounting and auditing
standards under this Act.
(2) Notwithstanding anything contained in any other law for the time being
in force, the National Financial Reporting Authority shall—
(a) make recommendations to the Central Government on the
formulation and laying down of accounting and auditing policies and
standards for adoption by companies or class of companies or their
auditors, as the case may be;
(b) monitor and enforce the compliance with accounting standards and
auditing standards in such manner as may be prescribed;
(c) oversee the quality of service of the professions associated
with ensuring compliance with such standards, and suggest measures
required for improvement in quality of service and such other related
matters as may be prescribed; and
(d) perform such other functions relating to clauses (a), (b) and (c)
as may be prescribed.
(3) The National Financial Reporting Authority shall consist of a
chairperson, who shall be a person of eminence and having expertise in
accountancy, auditing, finance or law to be appointed by the Central Government
and such other members not exceeding fifteen consisting of part-time and
full-time members as may be prescribed:
Provided that the terms and conditions and the manner of appointment of
the chairperson and members shall be such as may be prescribed:
Provided further that the chairperson and members shall make a declaration
to the Central Government in the prescribed form regarding no conflict of
interest or lack of independence in respect of his or their appointment:
Provided also that the chairperson and members, who are in full-time
employment with National Financial Reporting Authority shall not be associated
with any audit firm (including related consultancy firms) during the course of their
appointment and two years after ceasing to hold such appointment.
(4) Notwithstanding anything contained in any other law for the time
being in force, the National Financial Reporting Authority shall—
(a) have the power to investigate, either suo motu or on a
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reference made to it by the Central Government, for such class of
bodies corporate or persons, in such manner as may be prescribed into
the matters of professional or other misconduct committed by any
member or firm of chartered accountants, registered under the Chartered
Accountants Act, 1949 (38 of 1949):
Provided that no other institute or body shall initiate or continue
any proceedings in such matters of misconduct where the National
Financial Reporting Authority has initiated an investigation under this
section;
(b) have the same powers as are vested in a civil court under the
Code of Civil Procedure, 1908 (5 of 1908), while trying a suit, in respect
of the following matters, namely:—
(i)
discovery and production of books of account and other
documents, at such place and at such time as may be specified by
the National Financial Reporting Authority;
(ii)
summoning and enforcing the attendance of persons and
examining them on oath;
(iii)
inspection of any books, registers and other documents of
any person referred to in clause (b) at any place;
(iv)
issuing commissions for examination of witnesses or
documents;
(c) where professional or other misconduct is proved, have the
power to make order for—
(A) imposing penalty of—
(I) not less than one lakh rupees, but which may extend to
five times of the fees received, in case of individuals; and
(II) not less than ten lakh rupees, but which may extend to
ten times of the fees received, in case of firms;
(B) debarring the member or the firm from engaging himself or
itself from practice as member of the Institute of Chartered
Accountant of India referred to in clause (e) of sub-section (1) of
section 2 of the Chartered Accountants Act, 1949 (38 of 1949), for a
minimum period of six months or for such higher period not
exceeding ten years as may be decided by the National Financial
Reporting Authority.
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Explanation.—For the purposes of his sub-section, the expression
“professional or other misconduct” shall have the same meaning assigned to it
under section 22 of the Chartered Accountants Act, 1949 (38 of 1949).
(5) Any person aggrieved by any order of the National Financial Reporting
Authority issued under clause (c) of sub-section (4), may prefer an appeal
before the Appellate Authority constituted under sub-section (6) in such manner
as may be prescribed.
(6) The Central Government may, by notification, constitute, with effect
from such date as may be specified therein, an Appellate Authority consisting of
a Chairperson and not more then two other members, to be appointed by the
Central Government, for hearing appeals arising out of the orders of the National
Financial Reporting Authority.
(7) The qualifications for appointment of the chairperson and members of
the Appellate Authority, the manner of selection, the terms and conditions of
their service and the requirement of the supporting staff and procedure
(including places of hearing the appeals, form and manner in which the appeals
shall be filed) to be followed by the Appellate Authority shall be such as may be
prescribed.
(8) The fee for filing the appeal shall be such as may be prescribed.
(9) The officer authorised by the Appellate Authority shall prepare in such
form and at such time as may be prescribed its annual report giving a full
account of its activities and forward a copy thereof to the Central Government
and the Central Government shall cause the annual report to be laid before each
House of Parliament.
(10) The National Financial Reporting Authority shall meet at such times
and places and shall observe such rules of procedure in regard to the
transaction of business at its meetings in such manner as may be prescribed.
(11) The Central Government may appoint a secretary and such other
employees as it may consider necessary for the efficient performance of
functions by the National Financial Reporting Authority under this Act and the
terms and conditions of service of the secretary and employees shall be such as
may be prescribed.
(12) The head office of the National Financial Reporting Authority shall be
at New Delhi and the National Financial Reporting Authority may, meet at such
other places in India as it deems fit.
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(13) The National Financial Reporting Authority shall cause to be
maintained such books of account and other books in relation to its accounts in
such form and in such manner as the Central Government may, in consultation
with the Comptroller and Auditor-General of India prescribe.
(14) The accounts of the National Financial Reporting Authority shall be
audited by the Comptroller and Auditor-General of India at such intervals as may
be specified by him and such accounts as certified by the Comptroller and
Auditor-General of India together with the audit report thereon shall be
forwarded annually to the Central Government by the National Financial
Reporting Authority.
(15) The National Financial Reporting Authority shall prepare in such form
and at such time for each financial year as may be prescribed its annual report
giving a full account of its activities during the financial year and forward a copy
thereof to the Central Government and the Central Government shall cause the
annual report and the audit report given by the Comptroller and Auditor-General
of India to be laid before each House of Parliament.
133. Central Government to prescribe accounting standards.—The Central
Government may prescribe the standards of accounting or any addendum thereto,
as recommended by the Institute of Chartered Accountants of India, constituted
under section 3 of the Chartered Accountants Act, 1949 (38 of 1949), in
consultation with and after examination of the recommendations made by the
National Financial Reporting Authority.
134. Financial Statement, Board’s report, etc.—(1) The financial statement,
including consolidated financial statement, if any, shall be approved by the
Board of Directors before they are signed on behalf of the Board at least by the
chairperson of the company where he is authorised by the Board or by two
directors out of which one shall be managing director and the Chief Executive
Officer, if he is a director in the company, the Chief Financial Officer and the
company secretary of the company, wherever they are appointed, or in the case
of a One Person Company, only by one director, for submission to the auditor
for his report thereon.
(2) The auditors’ report shall be attached to every financial statement.
(3) There shall be attached to statements laid before a company in
general meeting, a report by its Board of Directors, which shall include—
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(a)
the extract of the annual return as provided under sub-section
(3) of section 92;
(b)
number of meetings of the Board;
(c)
Directors’ Responsibility Statement;
(d)
a statement on declaration given by independent directors under
sub-section (6) of section 149;
(e)
in case of a company covered under sub-section (1) of section
178, company’s policy on directors’ appointment and remuneration
including criteria for determining qualifications, positive attributes,
independence of a director and other matters provided under sub-section
(3) of section 178;
(f)
explanations or comments by the Board on every qualification,
reservation or adverse remark or disclaimer made—
(i)
by the auditor in his report; and
(ii)
by the company secretary in practice in his secretarial
audit report;
(g)
particulars of loans, guarantees or investments under section
186;
(h)
particulars of contracts or arrangements with related parties
referred to in sub-section (1) of section 188 in the prescribed form;
(i)
the state of the company’s affairs;
(j)
the amounts, if any, which it proposes to carry to any reserves;
(k)
the amount, if any, which it recommends should be paid by way
of dividend;
(l)
material changes and commitments, if any, affecting the financial
position of the company which have occurred between the end of the
financial year of the company to which the financial statements relate and
the date of the report;
(m)
the conservation of energy, technology absorption, foreign
exchange earnings and outgo, in such manner as may be prescribed;
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(n)
a statement indicating development and implementation of a risk
management policy for the company including identification therein of
elements of risk, if any, which in the opinion of the Board may threaten
the existence of the company;
(o)
the details about the policy developed and implemented by the
company on corporate social responsibility initiatives taken during the
year;
(p)
in case of a listed company and every other public company
having such paid-up share capital as may be prescribed, a statement
indicating the manner in which formal annual evaluation has been made by
the Board of its own performance and that of its committees and
individual directors;
(q)
such other matters as may be prescribed.
(4) The report of the Board of Directors to be attached to the financial
statement under this section shall, in case of a One Person Company, mean a
report containing explanations or comments by the Board on every qualification,
reservation or adverse remark or disclaimer made by the auditor in his report.
(5) The Directors’ Responsibility Statement referred to in clause (c) of
sub-section (3) shall state that—
(a)
in the preparation of the annual accounts, the applicable
accounting standards had been followed along with proper explanation
relating to material departures;
(b)
the directors had selected such accounting policies and applied
them consistently and made judgments and estimates that are reasonable
and prudent so as to give a true and fair view of the state of affairs of
the company at the end of the financial year and of the profit and loss
of the company for that period;
(c)
the directors had taken proper and sufficient care for the
maintenance of adequate accounting records in accordance with the
provisions of this Act for safeguarding the assets of the company and for
preventing and detecting fraud and other irregularities;
(d)
the directors had prepared the annual accounts on a going
concern basis; and
(e)
the directors, in the case of a listed company, had laid down
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internal financial controls to be followed by the company and that such
internal financial controls are adequate and were operating effectively.
Explanation.—For the purposes of this clause, the term “internal
financial controls” means the policies and procedures adopted by the
company for ensuring the orderly and efficient conduct of its business,
including adherence to company’s policies, the safeguarding of its assets,
the prevention and detection of frauds and errors, the accuracy and
completeness of the accounting records, and the timely preparation of
reliable financial information;
(f)
the directors had devised proper systems to ensure compliance
with the provisions of all applicable laws and that such systems were
adequate and operating effectively.
(6) The Board’s report and any annexures thereto under sub-section (3)
shall be signed by its chairperson of the company if he is authorised by the
Board and where he is not so authorised, shall be signed by at least two
directors, one of whom shall be a managing director, or by the director where
there is one director.
(7) A signed copy of every financial statement, including consolidated
financial statement, if any, shall be issued, circulated or published along with a
copy each of—
(a) any notes annexed to or forming part of such financial
statement;
(b) the auditor’s report; and
(c) the Board’s report referred to in sub-section (3).
(8) If a company contravenes the provisions of this section, the company
shall be punishable with fine which shall not be less than fifty thousand rupees
but which may extend to twenty-five lakh rupees and every officer of the
company who is in default shall be punishable with imprisonment for a term
which may extend to three years or with fine which shall not be less than fifty
thousand rupees but which may extend to five lakh rupees, or with both.
135. Corporate Social Responsibility.—(1) Every company having net
worth of rupees five hundred crore or more, or turnover of rupees one thousand
crore or more or a net profit of rupees five crore or more during any financial
year shall constitute a Corporate Social Responsibility Committee of the Board
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consisting of three or more directors, out of which at least one director shall be
an independent director.
(2) The Board’s report under sub-section (3) of section 134 shall
disclose the composition of the Corporate Social Responsibility Committee.
(3) The Corporate Social Responsibility Committee shall,—
(a) formulate and recommend to the Board, a Corporate Social
Responsibility Policy which shall indicate the activities to be undertaken
by the company as specified in Schedule VII;
(b) recommend the amount of expenditure to be incurred on the
activities referred to in clause (a); and
(c) monitor the Corporate Social Responsibility Policy of the
company from time to time.
(4) The Board of every company referred to in sub-section (1) shall,—
(a)
after taking into account the recommendations made by the
Corporate Social Responsibility Committee, approve the Corporate Social
Responsibility Policy for the company and disclose contents of such
Policy in its report and also place it on the company’s website, if any, in
such manner as may be prescribed; and
(b) ensure that the activities as are included in Corporate Social
Responsibility Policy of the company are undertaken by the company.
(5) The Board of every company referred to in sub-section (1), shall
ensure that the company spends, in every financial year, at least two per cent.
of the average net profits of the company made during the three immediately
preceding financial years, in pursuance of its Corporate Social Responsibility
Policy:
Provided that the company shall give preference to the local area and
areas around it where it operates, for spending the amount earmarked for
Corporate Social Responsibility activities:
Provided further that if the company fails to spend such amount, the
Board shall, in its report made under clause (o) of sub-section (3) of section 134,
specify the reasons for not spending the amount.
Explanation.—For the purposes of this section “average net profit” shall
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be calculated in accordance with the provisions of section 198.
136. Right of member to copies of audited financial statement.—
(1) Without prejudice to the provisions of section 101, a copy of the financial
statements, including consolidated financial statements, if any, auditor’s report
and every other document required by law to be annexed or attached to the
financial statements, which are to be laid before a company in its general
meeting, shall be sent to every member of the company, to every trustee for the
debenture-holder of any debentures issued by the company, and to all persons
other than such member or trustee, being the person so entitled, not less than
twenty-one days before the date of the meeting:
Provided that in the case of a listed company, the provisions of this sub-
section shall be deemed to be complied with, if the copies of the documents are
made available for inspection at its registered office during working hours for a
period of twenty-one days before the date of the meeting and a statement
containing the salient features of such documents in the prescribed form or
copies of the documents, as the company may deem fit, is sent to every member
of the company and to every trustee for the holders of any debentures issued
by the company not less than twenty-one days before the date of the meeting
unless the shareholders ask for full financial statements:
Provided further that the Central Government may prescribe the manner of
circulation of financial statements of companies having such net worth and
turnover as may be prescribed:
Provided also that a listed company shall also place its financial
statements including consolidated financial statements, if any, and al1 other
documents required to be attached thereto, on its website, which is maintained
by or on behalf of the company :
Provided also that every company having a subsidiary or subsidiaries
shal1,—
(a)
place separate audited accounts in respect of each of its
subsidiary on its website, if any ;
(b)
provide a copy of separate audited financial statements in respect
of each of its subsidiary, to any shareholder of the company who asks for it.
(2)
A company shall allow every member or trustee of the holder of any
debentures issued by the company to inspect the documents stated under sub-
section (1) at its registered office during business hours.
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(3) If any default is made in complying with the provisions of this
section, the company shal1 be liable to a penalty of twenty-five thousand
rupees and every officer of the company who is in default shall be liable to a
penalty of five thousand rupees.
137. Copy of financial statement to be filed with Registrar.—
(1) A copy of the finacial statements, including consolidated financial statement,
if any, along with all the documents which are required to be or attached to
such financial statements under this Act, duly adopted at the annual general
meeting of the company, shall be filed with the Registrar within thirty days of
the date of annual general meeting in such manner, with such fees or additional
fees as may be prescribed within the time specified under section 403:
Provided that where the financial statements under sub-section (1) are not
adopted at annual general meeting or adjourned annual general meeting, such
unadopted financial statements along with the required documents under sub-
section (1) shal1 be filed with the Registrar within thirty days of the date of
annual general meeting and the Registrar shal1 take them in his records as
provisional till the financial statements are filed with him after their adoption in
the adjourned annual general meeting for that purpose:
Provided further that financial statements adopted in the adjourned annual
general meeting shall be filed with the Registrar within thirty days of the date of
such adjourned annual general meeting with such fees or such additional fees as
may be prescribed within the time specified under section 403:
Provided also that a One Person Company shall file a copy of the financial
statements duly adopted by its member, along with all the documents which are
required to be attached to such financial statements, within one hundred eighty
days from the closure of the financial year:
Provided also that a company shall, along with its financial statements to
be filed with the Registrar, attach the accounts of its subsidiary or subsidiaries
which have been incorporated outside India and which have not established
their place of business in India
(2) Where the annual general meeting of a company for any year has not
been held, the financial statements along with the documents required to be
attached under sub-section (I), duly signed along with the statement of facts
and reasons for not holding the annual general meeting shall be filed with the
154
Registrar within thirty days of the last date before which the annual general
meeting should have been held and in such manner, with such fees or additional
fees as may be prescribed within the time specified, under section 403.
(3) If a company fails to file the copy of the financial statements under
sub-section (I) or sub-section (2), as the case may be, before the expiry of the
period specified in section 403, the company shall be punishable with fine of
one thousand rupees for every day during which the failure continues but
which shall not be more than ten lakh rupees, and the managing director and
the Chief Financial Officer of the cpmpany, if any, and, in the absence of the
managing director and the Chief Financial Officer, any other director who is
charged by the Board with the responsibility of complying with the provisions
of this section, and, in the absence of any such director, all the directors of the
company, shal1 be punishable with imprisonment for a term which may extend to
six months or with fine which shall not be less than one lakh rupees but which
may extend to five lakh rupees, or with both.
138. Internal Audit—(I) Such class or classes of companies as may be
prescribed shall be required to appoint an internal auditor, who shall either be a
chartered accountant or a cost accountant, or such other professional as may
be decided by the Board to conduct internal audit of the functions and
activities of the company.
(2) The Central Government may, by rules, prescribe the manner and the
intervals in which the internal audit shall be conducted and reported to the
Board.
CHAPTER X
AUDIT AND AUDITORS
139. Appointment of auditors.—(1) Subject to the provisions of this
Chapter, every company shall, at the first annual general meeting, appoint an
individual or a firm as an auditor who shall hold office from the conclusion of
that meeting till the conclusion of its sixth annual general meeting and thereafter
till the conclusion of every sixth meeting and the manner and procedure of
selection of auditors by the members of the company at such meeting shall be
such as may be prescribed:
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Provided that the company shall place the matter relating to such
appointment for ratification by members at every annual general meeting:
Provided further that before such appointment is made, the written consent
of the auditor to such appointment, and a certificate from him or it that the
appointment, if made, shall be in accordance with the conditions as may be
prescribed, shall be obtained from the auditor:
Provided also that the certificate shall also indicate whether the auditor
satisfies the criteria provided in section 141 :
Provided also that the company shall inform the auditor concerned of his
or its appointment, and also file a notice of such appointment with the Registrar
within fifteen days of the meeting in which the auditor is appointed.
Explanation.—For the purposes of this Chapter, “appointment” includes
re-appointment.
(2) No listed company or a company belonging to such class or classes of
companies as may be prescribed, shall appoint or re-appoint—
(a)
an individual as auditor for more than one term of five
consecutive years; and
(b)
an audit firm as auditor for more than two terms of
five consecutive years:
Provided that—
(i)
an individual auditor who has completed his term under
clause (a) shall not be eligible for re-appointment as auditor in the
same company for five years from the completion of his term;
(ii)
an audit firm which has completed its term under clause (b),
shall not be eligible for re-appointment as auditor in the same
company for five years from the completion of such term:
Provided further that as on the date of appointment no audit firm having a
common partner or partners to the other audit firm, whose tenure has expired in
a company immediately preceding the financial year, shall be appointed as
auditor of the same company for a period of five years:
Provided also that every company, existing on or before the commencement
156
of this Act which is required to comply with provisions of this sub-section, shall
comply with the requirements of this sub-section within three years from the
date of commencement of this Act:
Provided also that, nothing contained in this sub-section shall prejudice the
right of the company to remove an auditor or the right of the auditor to resign
from such office of the company.
(3) Subject to the provisions of this Act, members of a company may
resolve to provide that—
(a)
in the audit firm appointed by it, the auditing partner and his team
shall be rotated at such intervals as may be resolved by members; or
(b)
the audit shall be conducted by more than one auditor.
(4) The Central Government may, by rules, prescribe the manner in which
the companies shall rotate their auditors in pursuance of sub-section (2).
Explanation.—For the purposes of this Chapter, the word “firm” shall include a
limited liability partnership incorporated under the Limited Liability Partnership
Act, 2008 (6 of 2009).
(5) Notwithstanding anything contained in sub-section (1), in the case of a
Government company or any other company owned or controlled, directly or
indirectly, by the Central Government, or by any State Government or
Governments, or partly by the Central Government and partly by one or more
State Governments, the Comptroller and Auditor-General of lndia shall, in respect
of a financial year, appoint an auditor duly qualified to be appointed as an
auditor of companies under this Act, within a period of one hundred and eighty
days from the commencement of the financial year, who shall hold office till the
conclusion of the annual general meeting.
(6) Notwithstanding anything contained in sub-section (1), the first auditor
of a company, other than a Government company, shall be appointed by the
Board of Directors within thirty days from the date of registration of the
company and in the case of failure of the Board to appoint such auditor, it shall
inform the members of the company, who shall within ninety days at an
extraordinary general meeting appoint such auditor and such auditor shall hold
office till the conclusion of the first annual general meeting.
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(7) Notwithstanding anything contained in sub-section (1) or sub-section
(5), in the case of a Government company or any other company owned or
controlled, directly or indirectly, by the Central Government, or by any State
Government, or Governments, or partly by the Central Government and partly by
one or more State Governments, the first auditor shall be appointed by the
Comptroller and Auditor-General of lndia within sixty days from the date of
registration of the company and in case the Comptroller and Auditor-General of
India does not appoint such auditor within the said period, the Board of
Directors of the company shall appoint such auditor within the next thirty days;
and in the case of failure of the Board to appoint such auditor within the next
thirty days, it shall inform the members of the company who shall appoint such
auditor within the sixty days at an extraordinary general meeting, who shall hold
office till the conclusion of the first annual general meeting.
(8) Any casual vacancy in the office of an auditor shall—
(i) in the case of a company other than a company whose accounts are
subject to audit by an auditor appointed by the Comptroller and Auditor-
General of lndia, be filled by the Board of Directors within thirty days, but
if such casual vacancy is as a result of the resignation of an auditor, such
appointment shall also be approved by the company at a general meeting
convened within three months of the recommendation of the Board and he
shall hold the office till the conclusion of the next annual general meeting;
(ii) in the case of a company whose accounts are subject to audit by
an auditor appointed by the Comptroller and Auditor-General of India, be
filled by the Comptroller and Auditor-General of India within thirty days:
Provided that in case the Comptroller and Auditor-General of India does
not fill the vacancy within the said period, the Board of Directors shall fill
the vacancy within next thirty days.
(9) Subject to the provisions of sub-section (1) and the rules made
thereunder, a, retiring auditor may be re-appointed at an annual general
meeting, if—
(a)
he is not disqualified for re-appointment;
(b)
he has not given the company a notice in writing of his
unwillingness to be re-appointed; and
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(c)
a special resolution has not been passed at that meeting
appointing some other auditor or providing expressly that he shall not be
re-appointed.
(10) Where at any annual general meeting, no auditor is appointed or
re-appointed, the existing auditor shall continue to be the auditor of the
company.
(11) Where a company is required to constitute an Audit Committee under
section 177, all appointments, including the filling of a casual vacancy of an
auditor under this section shall be made after taking into account the
recommendations of such committee.
140. Removal, resignation of auditior and giving of special notice.— (1)
The auditor appointed under section 139 may be removed from his office
before the expiry of his term only by a special resolution of the company, after
obtaining the previous approval of the Central Government in that behalf in the
prescribed manner:
Provided that before taking any action under this sub-section, the auditor
concerned shall be given a reasonable opportunity of being heard.
(2) The auditor who has resigned from the company shall file within a
period of thirty days from the date of resignation, a statement in the prescribed
form with the company and the Registrar, and in case of companies referred to in
sub-section (5) of section 139, the auditor shall also file such statement with the
Comptroller and Auditor-General of India, indicating the reasons and other facts
as may be relevant with regard to his resignation.
(3) If the auditor does not comply with sub-section (2), he or it shall be
punishable with fine which shall not be less than fifty thousand rupees but
which may extend to five lakh rupees.
(4) (i) Special notice shall be required for a resolution at an annual general
meeting appointing as auditor a person other than a retiring auditor, or
providing expressly that a retiring auditor shall not be re-appointed, except
where the retiring auditor has completed a consecutive tenure of five years or,
as the case may be, ten years, as provided under sub-section (2) of section 139.
(ii) On receipt of notice of such a resolution, the company shall forthwith
send a copy thereof to the retiring auditor.
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(iii) Where notice is given of such a resolution and the retiring auditor
makes with respect thereto representation in writing to the company (not
exceeding a reasonable length) and requests its notification to members of the
company, the company shall, unless the representation is received by it too late
for it to do so,—
(a)
in any notice of the resolution given to members of the company,
state the fact of the representation having been made; and
(b)
send a copy of the representation to every member of the
company to whom notice of the meeting is sent, whether before or after the
receipt of the representation by the company,
and if a copy of the representation is not sent as aforesaid because it was
received too late or because of the company’s default, the auditor may (without
prejudice to his right to be heard orally) require that the representation shall be
read out at the meeting:
Provided that if a copy of representation is not sent as aforesaid, a copy
thereof shall be filed with the Registrar:
Provided further that if the Tribunal is satisfied on an application either of
the company or of any other aggrieved person that the rights conferred by this
sub-section are being abused by the auditor, then, the copy of the representation
may not be sent and the representation need not be read out at the meeting.
(5) Without prejudice to any action under the provisions of this Act or
any other law for the time being in force, the Tribunal either suo motu or on an
application made to it by the Central Government or by any person concerned,
if it is satisfied that the auditor of a company has, whether directly or indirectly,
acted in a fraudulent manner or abetted or colluded in any fraud by, or in
relation to, the company or its directors or officers, it may, by order, direct the
company to change its auditors:
Provided that if the application is made by the Central Government and the
Tribunal is satisfied that any change of the auditor is required, it shall within
fifteen days of receipt of such application, make an order that he shall not
function as an auditor and the Central Government may appoint another auditor
in his place:
Provided further that an auditor, whether individual, or firm, against whom
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final order has been passed by the Tribunal under this section shall not be
eligible to be appointed as an auditor of any company for a period of five years
from the date of passing of the order and the auditor shall also be liable for
action under section 447.
Explanation I.—It is hereby clarified that the case of a firm, the liability
shall be of the firm and that of every partner or partners who acted in a
fraudulent
manner
or
abetted
or
colluded
in
any
fraud
by,
or in relation to, the company or its director or officers.
Explanation II.—For the purposes of this Chapter the word “auditor”
includes a firm of auditors.
141. Eligibility, qualifications and disqualifications of auditors.—(1) A
person shall be eligible for appointment as an auditor of a company only if he
is a chartered accountant:
Provided that a firm whereof majority of partners practising in India are
qualified for appointment as aforesaid may be appointed by its firm name to be
auditor of a company.
(2) Where a firm including a limited liability partnership is appointed as an
auditor of a company, only the partners who are chartered accountants shall be
authorised to act and sign on behalf of the firm.
(3) The following persons shall not be eligible for appointment as an
auditor of a company, namely:—
(a)
a body corporate other than a limited liability partnership
registered under the Limited Liability Partnership Act, 2008
(6 of 2009);
(b)
an officer or employee of the company;
(c)
a person who is a partner, or who is in the employment, of an
officer or employee of the company;
(d)
a person who, or his relative or partner—
(i)
is holding any security of or interest in the company or its
subsidiary, or of its holding or associate company or a subsidiary of such
holding company:
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Provided that the relative may hold security or interest in the company
of face value not exceeding one thousand rupees or such sum as may be
prescribed;
(ii)
is indebted to the company, or its subsidiary, or its holding or
associate company or a subsidiary of such holding company, in excess of
such amount as may be prescribed; or
(iii)
has given a guarantee or provided any security in connection
with the indebtedness of any third person to the company, or its subsidiary,
or its holding or associate company or a subsidiary of such holding
company, for such amount as may be prescribed;
(e)
a person or a firm who, whether directly or indirectly, has
business relationship with the company, or its subsidiary, or its holding or
associate company or subsidiary of such holding company or associate
company of such nature as may be prescribed;
(f)
a person whose relative is a director or is in the employment of
the company as a director or key managerial personnel;
(g)
a person who is in full time employment elsewhere or a person or
a partner of a firm holding appointment as its auditor, if such persons or
partner is at the date of such appointment or reappointment holding
appointment as auditor of more than twenty companies;
(h)
a person who has been convicted by a court of an offence
involving fraud and a period of ten years has not elapsed from the date of
such conviction;
(i)
any person whose subsidiary or associate company or any other
form of entity, is engaged as on the date of appointment in consulting and
specialised services as provided in section 144.
(4) Where a person appointed as an auditor of a company incurs any of
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the disqualifications mentioned in sub-section (3) after his appointment, he shall
vacate his office as such auditor and such vacation shall be deemed to be a
casual vacancy in the office of the auditor.
142. Remuneration of auditors.— (1) The remuneration of the auditor of a
company shall be fixed in its general meeting or in such manner as may be
determined therein:
Provided that the Board may fix remuneration of the first auditor appointed
by it.
(2) The remuneration under sub-section (1) shall, in addition to the fee
payable to an auditor, include the expenses, if any, incurred by the auditor in
connection with the audit of the company and any facility extended to him but
does not include any remuneration paid to him for any other service rendered
by him at the request of the company.
143. Powers and duties of auditors and auditing standards.—(1) Every
auditor of a company shall have a right of access at all times to the books of
account and vouchers of the company, whether kept at the registered office of
the company or at any other place and shall be entitled to require from the
officers of the company such information and explanation as he may consider
necessary for the performance of his duties as auditor and amongst other
matters inquire into the following matters, namely:—
(a)
whether loans and advances made by the company on the basis
of security have been properly secured and whether the terms on which they
have been made are prejudicial to the interests of the company or its
members;
(b)
whether transactions of the company which are represented
merely by book entries are prejudicial to the interests of the company;
(c)
where the company not being an investment company or a
banking company, whether so much of the assets of the company as consist
of shares, debentures and other securities have been sold at a price less than
that at which they were purchased by the company;
(d)
whether loans and advances made by the company have been
shown as deposits;
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(e)
whether personal expenses have been charged to revenue
account;
(f)
where it is stated in the books and documents of the company
that any shares have been allotted for cash, whether cash has actually been
received in respect of such allotment, and if no cash has actually been so
received, whether the position as stated in the account books and the
balance sheet is correct, regular and not misleading.
Provided that the auditor of a company which is a holding company shall
also have the right of access to the records of all its subsidiaries in so far as it
relates to the consolidation of its financial statements with that of its
subsidiaries.
(2) The auditor shall make a report to the members of the company on
the accounts examined by him and on every financial statements which are
required by or under this Act to be laid before the company in general meeting
and the report shall after taking into account the provisions of this Act, the
accounting and auditing standards and matters which are required to be
included in the audit report under the provisions of this Act or any rules made
thereunder or under any order made under sub-section (11) and to the best of
his information and knowledge, the said accounts, financial statements give a
true and fair view of the state of the company’s affairs as at the end of its
financial year and profit or loss and cash flow for the year and such other
matters as may be prescribed.
(3) The auditor’s report shall also state—
(a)
whether he has sought and obtained all the information and
explanations which to the best of his knowledge and belief were necessary
for the purpose of his audit and if not, the details thereof and the effect of
such information on the financial statements;
(b)
whether, in his opinion, proper books of account as required by
law have been kept by the company so far as appears from his examination
of those books and proper returns adequate for the purposes of his audit
have been received from branches not visited by him;
(c)
whether the report on the accounts of any branch office of the
company audited under sub-section (8) by a person other than the
company’s auditor has been sent to him under the proviso to that sub-
164
section and the manner in which he has dealt with it in preparing his report;
(d)
whether the company’s balance sheet and profit and loss account
dealt with in the report are in agreement with the books of account and
returns;
(e)
whether, in his opinion, the financial statements comply with the
accounting standards;
(f)
the observations or comments of the auditors on financial
transactions or matters which have any adverse effect on the functioning of
the company;
(g)
whether any director is disqualified from being appointed as a
director under sub-section (2) of section 164;
(h)
any qualification, reservation or adverse remark relating to the
maintenance of accounts and other matters connected therewith;
(i)
whether the company has adequate internal financial controls
system in place and the operating effectiveness of such controls;
(j)
such other matters as may be prescribed.
(4) Where any of the matters required to be included in the audit report
under this section is answered in the negative or with a qualification, the report
shall state the reasons therefor.
(5) In the case of a Government company, the Comptroller and Auditor-
General of India shall appoint the auditor under sub-section (5) or sub-section
(7) of section 139 and direct such auditor the manner in which the accounts of
the Government company are required to be audited and thereupon the auditor
so appointed shall submit a copy of the audit report to the Comptroller and
Auditor-General of India which, among other things, include the directions, if
any, issued by the Comptroller and Auditor-General of India, the action taken
thereon and its impact on the accounts and financial statement of the company.
(6) The Comptroller and Auditor-General of India shall within sixty days
165
from the date of receipt of the audit report under sub-section (5) have a
right to,—
(a)
conduct a supplementary audit of the financial statement of the
company by such person or persons as he may authorise in this behalf; and
for the purposes of such audit, require information or additional information
to be furnished to any person or persons, so authorised, on such matters,
by such person or persons, and in such form, as the Comptroller and
Auditor-General of India may direct; and
(b)
comment upon or supplement such audit report:
Provided that any comments given by the Comptroller and Auditor-
General of India upon, or supplement to, the audit report shall be sent by the
company to every person entitled to copies of audited financial statements
under sub section (/) of section 136 and also be placed before the annual
general meeting of the company at the same time and in the same manner as
the audit report.
(7) Without prejudice to the provisions of this Chapter, the Comptroller
and Auditor-General of India may, in case of any company covered under sub-
section (5) or sub-section (7) of section 139, if he considers necessary, by an
order, cause test audit to be conducted of the accounts of such company and
the provisions of section 19A of the Comptroller and Auditor-General’s (Duties,
Powers and Conditions of Service) Act, 1971 (56 of 1971), shall apply to the
report of such test audit.”
(8) Where a company has a branch office, the accounts of that office shall
be audited either by the auditor appointed for the company (herein referred to as
the company’s auditor) under this Act or by any other person qualified for
appointment as an auditor of the company under this Act and appointed as
such under section 139, or where the branch office is situated in a country
outside India, the accounts of the branch office shall be audited either by the
company’s auditor or by an accountant or by any other person duly qualified to
act as an auditor of the accounts of the branch office in accordance with the
laws of that country and the duties and powers of the company’s auditor with
reference to the audit of the branch and the branch auditor, if any, shall be
such as may be prescribed:
166
Provided that the branch auditor shall prepare a report on the accounts of
the branch examined by him and send it to the auditor of the company who
shall deal with it in his report in such manner as he considers necessary.
(9) Every auditor shall comply with the auditing standards.
(10) The Central Government may prescribe the standards of auditing or
any addendum thereto, as recommended by the Institute of Chartered
Accountants of India, constituted under section 3 of the Chartered Accountants
Act, 1949. (38 of 1949) in consultation with and after examination of the
recommendations made by the National Financial Reporting Authority:
Provided that until any auditing standards are notified, any standard or
standards of auditing specified by the Institute of Chartered Accountants of
India shall be deemed to be the auditing standards.
(11) The Central Government may, in consultation with the National
Financial Reporting Authority, by general or special order, direct, in respect of
such class or description of companies, as may be specified in the order, that
the auditor’s report shall also include a statement on such matters as may be
specified therein.
(12) Notwithstanding anything contained in this section, if an auditor of a
company, in the course of the performancc of his duties as auditor, has reason
to believe that an offence involving fraud is being or has been committed
against the company by officers or employees of the company, he shall
immediately report the matter to the Central Government within such time and in
such manner as may be prescribed.
(13) No duty to which an auditor of a company may be subject to shall be
regarded as having been contravened by reason of his reporting the matter
referred to in sub-section (12) if it is done in good faith.
(14) The provisions of this section shall mutatis mutandis apply to—
(a)
the cost accountant in practice conducting cost audit
under section 148; or
(b)
the company secretary in practice conducting secretarial audit
under section 204.
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(15) If any auditor, cost accountant or company secretary in practice do
not comply with the provisions of sub-section (12), he shall be punishable with
fine which shall not be less than one lakh rupees but which may extend to
twenty-five lakh rupees.
144. Auditor not to render certain services. — An auditor appointed under
this Act shall provide to the company only such other services as are approved
by the Board of Directors or the audit committee, as the case may be, but
which shall not include any of the following services whether such services are
rendered directly or indirectly to the company or its holding company or
subsidiary company, namely:—
(a)
accounting and book keeping services;
(b)
internal audit;
(c)
design and implementation of any financial information
system;
(d)
actuarial services;
(e)
investment advisory services;
(f)
investment banking services;
(g)
rendering of outsourced financial services;
(h)
management services; and
(i)
any other kind of services as may be prescribed:
Provided that an auditor or audit firm who or which has been performing
any non-audit services on or before the commencement of this Act shall comply
with the provisions of this section before the closure of the first financial year
after the date of such commencement.
Explanation.—For the purposes of this sub-section, the term “directly or
indirectly” shall include rendering of services by the auditor,—
(i)
in case of auditor being an individual, either himself or through his
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146.
Auditors to attend general meeting.—All notices of, and other
communications relating to, any general meeting shall be forwarded to the
auditor of the company, and the auditor shall, unless otherwise exempted by the
company, attend either by himself or through his authorised representative, who
shall also be qualified to be an auditor, any general meeting and shall have right
to be heard at such meeting on any part of the business which concerns him as
the auditor.
147.
Punishment for contravention.—(1) If any of the provisions of
Sections 139 to 146 (both inclusive) is contravened, the company shall be
punishable with fine which shall not be less than twenty-five thousand rupees
but which may extend to five lakh rupees and every officer of the company who
is in default shall be punishable with imprisonment for a term which may
extend to one year or with fine which shall not be less than ten thousand
rupees but which may extend to one lakh rupees, or with both.
(2) If an auditor of a company contravenes any of the provisions of
section 139, section 143, section 144 or section 145, the auditor shall be
punishable with fine which shall not be less than twenty-five thousand rupees
but which may extend to five lakh rupees :
Provided that if an auditor has contravened such provisions knowingly
or wilfully with the intention to deceive the company or its shareholders or
creditors or tax authorities, he shall be punishable with imprisonment for a term
which may extend to one year and with fine which shall not be less than one
lakh rupees but which may extend to twenty-five lakh rupees.
(3) Where an auditor has been convicted under sub-section (2), he
shall be liable to
(i) refund the remuneration received by him to the company; and
(ii) pay for damages to the company, statutory bodies or authorities
or to any other persons for loss arising out of incorrect or misleading
statements of particulars made in his audit report.
(4) The Central Government shall, by notification, specify any statutory
body or authority or an officer for ensuring prompt payment of damages to the
company or the persons under clause (ii) of sub-section (3) and such body,
authority or officer shall after payment of damages to such company or persons
file a report with the Central Government in respect of making such damages in
such manner as may be specified in the said notification.
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(5) Where, in case of audit of a company being conducted by an audit
firm, it is proved that the partner or partners of the audit firm has or have acted
in a fraudulent manner or abetted or colluded in any fraud by, or in relation to
or by, the company or its directors or officers, the liability, whether civil or
criminal as provided in this Act or in any other law for the time being in force,
for such act shall be of the partner or partners concerned of the audit firm and
of the firm jointly and severally.
148. Central Government to specify audit of items of cost in respect of
certain companies.—(1) Notwithstanding anything contained in this Chapter, the
Central Government may, by order, in respect of such class of companies
engaged in the production of such goods or providing such services as may be
prescribed, direct that particulars relating to the utilisation of material or labour
or to other items of cost, as may be prescribed shall also be included in the
books of account kept by that class of companies :
Provided that the Central Government shall, before issuing such order in
respect of any class of companies regulated under a special Act, consult the
regulatory body constituted or established under such special Act.
(2) If the Central Government is of the opinion, that it is necessary to do
so, it may, by order, direct that the audit of cost records of class of companies,
which are covered under sub-section (1) and which have a net worth of such
amount as may be prescribed or a turnover of such amount as may be
prescribed, shall be conducted in the manner specified in the order.
(3) The audit under sub-section (2) shall be conducted by a Cost
Accountant in practice who shall be appointed by the Board on such
remuneration as may be determined by the members in such manner as may be
prescribed :
Provided that no person appointed under section 139 as an auditor of the
company shall be appointed for conducting the audit of cost records:
Provided further that the auditor conducting the cost audit shall comply
with the cost auditing standards.
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Explanation.—For the purposes of this sub-section, the expression
“cost auditing standards” mean such standards as are issued by the
Institute of Cost and Works Accountants of India, constituted under the
Cost and Works Accountants Act, 1959 (23 of 1959) with the approval of
the Central Government.
(4) An audit conducted under this section shall be in addition to
the audit conducted under Section 143.
(5) The qualifications, disqualifications, rights, duties and obligations
applicable to auditors under this Chapter shall, so far as may be applicable,
apply to a cost auditor appointed under this section and it shall be the
duty of the company to give all assistance and facilities to the cost auditor
appointed under this section for auditing the cost records of the company:
Provided that the report on the audit of cost records shall be
submitted by the cost accountant in practice to the Board of Directors of
the company.
(6) A company shall within thirty days from the date of receipt of a
copy of the cost audit report prepared in pursuance of a direction under
sub-section (2) furnish the Central Government with such report along with
full information and explanation on every reservation or qualification
contained therein.
(7) If, after considering the cost audit report referred to under this
section and the information and explanation furnished by the company
under sub-section (6), the Central Government is of the opinion that any
further information or explanation is necessary, it may call for such further
information and explanation and the company shall furnish the same within
such time as may be specified by that Government.
(8) If any default is made in complying with the provisions of this
section,—
(a) the company and every officer of the company who is in
default shall be punishable in the manner as provided in sub-section
(1) of section 147;
(b) the cost auditor of the company who is in default shall be
punishable in the manner as provided in sub-sections (2) to (4) of
Section 147.
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CHAPTER XI
APPOINTMENT AND QUALIFICATIONS OF DIRECTORS
149.
Company to have Board of Directors.—(1) Every company shall
have a Board of Directors consisting of individuals as directors and shall have—
(a) a minimum number of three directors in the case of a public
company, two directors in the case of a private company, and one director
in the case of a One Person Company ; and
(b) a maximum of fifteen directors :
Provided that a company may appoint more than fifteen directors after
passing a special resolution:
Provided further that such class or classes of companies as may be
prescribed, shall have at least one woman director.
(2) Every company existing on or before the date of commencement of
this Act shall within one year from such commencement comply with the
requirements of the provisions of sub-section (I).
(3) Every company shall have at least one director who has stayed in
India for a total period of not less than one hundred and eighty-two days in the
previous calendar year.
(4) Every listed public company shall have at least one-third of the total
number of directors as independent directors and the Central Government may
prescribe the minimum number of independent directors in case of any class or
classes of public companies.
Explanation.—For the purposes of this sub-section, any fraction
contained in such one-third number shall be rounded off as one.
(5) Every company existing on or before the date of commencement of
this Act shall, within one year from such commencement or from the date of
notification of the rules in this regard as may be applicable, comply with the
requirements of the provisions of sub-section (4).
(6) An independent director in relation to a company, means a director
other than a managing director or a whole-time .director or a nominee director,—
172
(a) who, in the opinion of the Board, is a person of integrity and
possesses
relevant expertise and experience;
(b) (i) who is or was not a promoter of the company or its holding,
subsidiary or associate company;
(ii)
who is not related to promoters or directors in the
company, its holding, subsidiary or associate company;
(c) who has or had no pecuniary relationship with the company, its
holding, subsidiary or associate company, or their promoters, or directors,
during the two immediately preceding financial years or during the
current financial year;
(d) none of whose relatives has or had pecuniary relationship or
transaction with the company, its holding, subsidiary or associate
company, or their promoters, or directors, amounting to two per cent. or
more of its gross turnover or total income or fifty lakh rupees or such
higher amount as may be prescribed, whichever is lower, during the two
immediately preceding financial years or during the current financial year;
(e) who, neither himself nor any of his relatives—
(i) holds or has held the position of a key managerial personnel
or is or has been employee of the company or its holding, subsidiary
or associate company in any of the three financial years immediately
preceding the financial year in which he is proposed to be
appointed;
(ii) is or has been an employee or proprietor or a partner,
in any of the three financial years immediately preceding the
financial year in which he is proposed to be appointed, of—
(A) a firm of auditors or company secretaries in practice
or cost auditors of the company or its holding, subsidiary or
associate company; or
(B) any legal or a consulting firm that has or had any
transaction with the company, its holding, subsidiary or associate
company amounting to ten per cent. or more of the gross turnover of
such firm;
(iii) holds together with his relatives two per cent. or more of
173
the total voting power of the company; or
(iv) is a Chief Executive or director, by whatever name called, of
any non-profit organisation that receives twenty-five per cent. or
more of its receipts from the company, any of its promoters, directors
or its holding, subsidiary or associate company or that holds two
per cent. or more or the total voting power of the company; or
(f) who possesses such other qualifications as may be
prescribed.
(7) Every independent director shall at the first meeting of the Board
in which he participates as a director and thereafter at the first meeting of
the Board in every financial year or whenever there is any change in the
circumstances which may affect his status as an independent director, give
a declaration that he meets the criteria of independence as provided in
sub-section (6).
Explanation.—For the purposes of this section, “nominee director”
means a director nominated by any financial institution in pursuance of the
provisions of any law for the time being in force, or of any agreement, or
appointed by any Govemment, or any other person to represent its
interests.
(8) The company and independent directors shall abide by the
provisions specified in Schedule IV.
(9) Notwithstanding anything contained in any other provision of this
Act, but subject to the provisions of sections 197 and 198, an independent
director shall not be entitled to any stock option and may receive
remuneration by way of fee provided under sub-section (5) of section 197,
reimbursement of expenses for participation in the Board and other
meetings and profit related commission as may be approved by the
members.
(10) Subject to the provisions of section 152, an independent director
shall hold office for a term up to five consecutive years on the Board of a
company, but shall be eligible for re-appointment on passing of a special
resolution by the company and disclosure of such appointment in the
Board’s report.
(11) Notwithstanding anything contained in sub-section (10), no
independent director shall hold office for more than two consecutive terms,
174
but such independent director shall be eligible for appointment after the
expiration of three years of ceasing to become an independent director:
Provided that an independent director shall not, during the said period of
three years, be appointed in or be associated with the company in any other
capacity, either directly or indirectly.
Explanation.—For the purposes of sub-sections (10) and (II), any tenure
of an independent director on the date of commencement of this Act shall not
be counted as a term under those sub-sections.
(12)
Notwithstanding anything contained in this Act,—
(i)
an independent director;
(ii) a non-executive director not being promoter or key managerial
personnel,
shall be held liable, only in respect of such acts of omission or
commission by a company which had occurred with his knowledge, attributable
through Board processes, and with his consent or connivance or where he had
not acted diligently.
(13)
The provisions of sub-sections (6) and (7) of section 152 in respect
of retirement of directors by rotation shall not be applicable to appointment of
independent directors.
150.
Manner of selection of independent directors and maintenance of
data bank of independent directors.— (1) Subject to the provisions contained
in sub-section (5) of section 149, an independent director may be selected from
a data bank containing names, addresses and qualifications of persons who are
eligible and willing to act as independent directors, maintained by any body,
institute or association, as may by notified by the Central Government, having
expertise in creation and maintenance of such data bank and put on their
website for the use by the company making the appointment of such directors:
Provided that responsibility of exercising due diligence before selecting a
person from the data bank referred to above, as an independent director shall lie
with the company making such appointment.
(2) The appointment of independent director shall be approved by the
company in general meeting as provided in sub-section (2) of section 152 and
the explanatory statement annexed to the notice of the general meeting called to
consider the said appointment shall indicate the justification for choosing the
appointee for appointment as independent director.
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(3) The data bank referred to in sub-section (I), shall create and
maintain data of persons willing to act as independent director in accordance
with such rules as may be prescribed.
(4)
The Central Government may prescribe the manner and procedure of
selection of independent directors who fulfil the qualifications and requirements
specified under section 149.
151.
Appointment of director elected by small shareholders.—A listed
company may have one director elected by such small shareholders in such
manner and with such terms and conditions as may be prescribed.
Explanation.—For the purposes of this section “small shareholders”
means a shareholder holding shares of nominal value of not more than twenty
thousand rupees or such other sum as may be prescribed.
152.
Appointment of directors.—(1) Where no provision is made in the
articles of a company for the appointment of the first director, the subscribers to
the memorandum who are individuals shall be deemed to be the first directors of
the company until the directors are duly appointed and in case of a One Person
Company an individual being member shall be deemed to be its first director
until the director or directors are duly appointed by the member in accordance
with the provisions of this section.
(2) Save as otherwise expressly provided in this Act, every director shall
be appointed by the company in general meeting.
(3) No person shall be appointed as a director of a company unless he
has been allotted the Director Identification number under section 154.
(4) Every person proposed to be appointed as a director by the
company in general meeting or otherwise, shall furnish his Director Identification
Number and a declaration that he is not disqualified to become a director under
this Act.
(5) A person appointed as a director shall not act as a director unless
he gives his consent to hold the office as director and such consent has been
filed with the Registrar within thirty days of his appointment in such manner as
may be prescribed:
Provided that in the case of appointment of an independent director in
the general meeting, an explanatory statement for such appointment, annexed to
the notice for the general meeting, shall include a statement that in the opinion
of the Board, he fulfils the conditions specified in this Act for such an
appointment.
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(6) (a)Unless the articles provide for the retirement of all directors at
every annual general meeting, not less than two-thirds of the total number of
directors of a public company shall—
(i)
be persons whose period of office is liable to
determination by retirement of directors by rotation; and
(ii)
save as otherwise expressly provided in this Act, be
appointed by the company in general meeting.
(b) The remaining directors in the case of any such company shall, in
default of, and subject to any regulations in the articles of the
company, also be appointed by the company in general meeting.
(c) At the first annual general meeting of a public company held next
after the date of the general meeting at which the first directors are
appointed in accordance with clauses (a) and (b) and at every subsequent
annual general meeting, one-third of such of the directors for the time being
as are liable to retire by rotation, or if their number is neither three nor a
multiple of three, then, the number nearest to one-third, shall retire from
office.
(d) The directors to retire by rotation at every annual general meeting
shall be those who have been longest in office since their last appointment
but as between persons who became directors on the same day, those who
are to retire shall, in default of and subject to any agreement among
themselves, be determined by lot.
(e) At the annual general meeting at which a director retires as
aforesaid, the company may fill up the vacancy by appointing the retiring
director or some other person thereto.
Explanation.—For the purposes of this sub-section, “total number of
directors” shall not include independent directors, whether appointed under
this Act or any other law for the time being in force, on the Board of a
company.
(7) (a)If the vacancy of the retiring director is not so filled-up and the
meeting has not expressly resolved not to fill the vacancy, the meeting shall
stand adjourned till the same day in the next week, at the same time and
place, or if that day is a national holiday, till the next succeeding day which
is not a holiday, at the same time and place.
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(b) If at the adjourned meeting also, the vacancy of the retiring
director is not filled up and that meeting also has not expressly resolved
not to till the vacancy, the retiring director shall be deemed to have been
re-appointed at the adjourned meeting, unless—
(i) at that meeting or at the previous meeting a resolution for
the re-appointment of such director has been put to the meeting and
lost;
(ii) the retiring director has, by a notice in writing addressed to
the company or its Board of directors, expressed his unwillingness to be
so re-appointed;
(iii) he is not qualified or is disqualified for appointment;
(iv) a resolution, whether special or ordinary, is required for his
appointment or re-appointment by virtue of any provisions of this Act; or
(v) section 162 is applicable to the case.
Explanation.—For the purposes of this section and section 160, the
expression “retiring director” means a director retiring by rotation.
153.
Application for allotment of Director Identification Number.—Every
individual intending to be appointed as director of a company shall make an
application for allotment of Director Identification Number to the Central
Government in such form and manner and along with such fees as may be
prescribed.
154.
Allotment of Director Identification Number.—The Central
Government shall, within one month from the receipt of the application under
section 153, allot a Director Identification Number to an applicant in such manner
as may be prescribed.
155.
Prohibition to obtain more than one Director Identification
Number.—No individual, who has already been allotted a Director Identification
Number under section 154, shall apply for, obtain or possess another Director
Identification Number.
156.
Director to intimate Director Identification Number.—Every existing
director shall, within one month of the receipt of Director Identification Number
from the Central Government, intimate his Director Identification Number to the
company or all companies wherein he is a director.
157.
Company to inform Director Identification Number to Registrar.—
(1) Every company shall, within fifteen days of the receipt of intimation under
178
section 156, furnish the Director Identification Number of all its directors to the
Registrar or any other officer or authority as may be specified by the Central
Government with such fees as may be prescribed or with such additional fees as
may be prescribed within the time specified under section 403 and every such
intimation shall be furnished in such form and manner as may be prescribed.
(2) If a company fails to furnish Director Identification Number under
sub-section (1), before the expiry of the period specified under section 403 with
additional fee, the company shall be punishable with fine which shall not be
less than twenty-five thousand rupees but which may extend to one lakh rupees
and every officer of the company who is in default shall be punishable with fine
which shall not be less than twenty-five thousand rupees but which may extend
to one lakh rupees.
158.
Obligation to Indicate Director dentification Number.—Every
person or company, while furnishing any return, information or particulars as are
required to be furnished under this Act, shall mention the Director Identification
Number in such return, information or particulars in case such return,
information or particulars relate to the director or contain any reference of any
director.
159.
Punishment for contravention.—If any individual or director of a
company, contravenes any of the provisions of section 152, section 155 and
section 156, such individual or director of the company shall be punishable with
imprisonment for a term which may extend to six months or with fine which may
extend to fifty thousand rupees and where the contravention is a continuing
one, with a further fine which may extend to five hundred rupees for every day
after the first during which the contravention continues.
160.
Right of persons other than retiring directors to stand for
directorship.—(1) A person who is not a retiring director in terms of section 152
shall, subject to the provisions of this Act, be eligible for appointment to the
office of a director at any general meeting, if he, or some member intending to
propose him as a director, has, not less than fourteen days before the meeting,
left at the registered office of the company, a notice in writing under his hand
signifying his candidature as a director or, as the case may be, the intention of
such member to propose him as a candidate for that office, along with the
deposit of one lakh rupees or such higher amount as may be prescribed which
shall be refunded to such person or, as the case may be, to the member, if the
person proposed gets elected as a director or gets more than twenty-five per
179
cent. of total valid votes cast either on show of hands or on poll on such
resolution.
(2) The company shall inform its members of the candidature of a
person for the office of director under sub-section (1) in such manner as may be
prescribed.
161.
Appointment of additional director, alternate director and nominee
director.—(1) The artic1es of a company may confer on its Board of Directors
the power to appoint any prerson, other than a person who fails to get
appointed as a director in a general meeting, as an additional director at any
time who shall hold office up to the date of the next annual general meeting or
the last date on which the annual general meeting should have been held,
whichever is earlier.
(2) The Board of Directors of a company may, if so authorised by its
articles or by a resolution passed by the company in general meeting, appoint a
person, not being a person holding any alternate directorship for any other
director in the company, to act as an alternate director for a director during his
absence for a period of not less than three months from India:
Provided that no person shall be appointed as an alternate director for
an independent director unless he is qualified to be appointed as an
independent director under the provisions of this Act:
Provided further that an alternate director shall not hold office for a
period longer than that permissible to the director in whose place he has been
appointed and shall vacate the office if and when the director in whose place he
has been appointed returns to India:
Provided also that if the term of office of the original director is
determined before he so retums to India, any provision for .the automatic re-
appointment of retiring directors in default of another appointment shall apply to
the original, and not to the alternate director.
(3) Subject to the articles of a company, the Board may appoint any
person as a director nominated by any institution in pursuance of the provisions
of any law for the time being in force or of any agreement or by the Central
Government or the State Government by virtue of its shareholding in a
Government company.
(4) In the case of a public company, if the office of any director
appointed by the company in general meeting is vacated before his term of
180
office expires in the normal course, the resulting casual vacancy may, in default
of and subject to any regulations in the articles of the company, be filled by the
Board of Directors at a meeting of the Board:
Provided that any person so appointed shall hold office only up to the
date up to which the director in whose place he is appointed would have held
office if it had not been vacated.
162.
Appointment of directors to be voted individually.—(1) At a general
meeting of a company, a motion for the appointment of two or more persons as
directors of the company by a single resolution shall not be moved unless a
proposal to move such a motion has first been agreed to at the meeting without
any vote being cast against it.
(2) A resolution moved in contravention of sub-section (1) shall be
void, whether or not any objection was taken when it was moved.
(3) A motion for approving a person for appointment, or for nominating
a person for appointment as a director, shall be treated as a motion for his
appointment.
163.
Option to adopt principle of proportional represenation for
appointment of directors.—Notwithstanding anything contained in this Act, the
articles of a company may provide for the appointment of not less than two-
thirds of the total number of the directors of a company in accordance with the
principle of proportional representation, whether by the single transferable vote
or by a system of cumulative voting or otherwise and such appointments may be
made once in every three years and casual vacancies of such directors shall be
filled as provided in sub-section (4) of section 161.
164.
Disqualifications for appointment of director.— (1) A person shall
not be eligible for appointment as a director of a company, if—
(a) he is of unsound mind and stands so declared by a competent
court;
(b) he is an undischarged insolvent;
(c) he has applied to be adjudicated as an insolvent and his
application is pending;
(d) he has been convicted by a court of any offence, whether
181
involving moral turpitude or otherwise, and sentenced in respect thereof
to imprisonment for not less than six months and a period of five years
has not elapsed from the date of expiry of the sentence:
Provided that if a person has been convicted of any offence and
sentenced in respect thereof to imprisonment for a period of seven years
or more, he shall not be eligible to be appointed as a director in any
company;
(e) an order disqualifying him for appointment as a director has
been passed by a court or Tribunal and the order is in force;
(f) he has not paid any calls in respect of any shares of the
company held by him, whether alone or jointly with others, and six
months have elapsed from the last day fixed for the payment of the call;
(g) he has been convicted of the offence dealing with related party
transactions under section 188 at any time during the last preceding five
years; or
(h) he has not complied with sub-section (3) of section 152.
(2) No person who is or has been a director of a company which—
(a)has not filed financial statements or annual returns for any
continuous period of three financial years; or
(b)has failed to repay the deposits accepted by it or pay interest
thereon or to redeem any debentures on the due date or pay interest due
thereon or pay any dividend declared and such failure to pay or redeem
continues for one year or more,
shall be eligible to be re-appointed as a director of that company or
appointed in other company for a period of five years from the date on
which the said company fails to do so.
(3) A private company may by its articles provide for any
disqualifications for appointment as a director in addition to those specified
in sub-sections (1) and (2):
Provided that the disqualifications referred to in clauses (d), (e) and (g)
of sub-section (1) shall not take effect—
(i)
for thirty days from the date of conviction or order of
disqualification;
182
(ii)
where an appeal or petition is preferred within thirty
days as aforesaid against the conviction resulting in sentence or order,
until expiry of seven days from the date on which such appeal or
petition is disposed off; or
(iii)
where any further appeal or petition is preferred
against order or sentence within seven days, until such further appeal
or petition is disposed off.
165.
Number of directorships.—(1) No person, after the commencement
of this-Act, shall hold office as a director, including any alternate directorship, in
more than twenty companies at the same time:
Provided that the maximum number of public companies in which a
person can be appointed as a director shall not exceed ten.
Explanation.—For reckoning the limit of public companies in which a
person can be appointed as director, directorship in private companies that are
either holding or subsidiary company of a public company shall be included.
(2) Subject to the provisions of sub-section (1), the members of a
company may, by special resolution, specify any lesser number of companies in
which a director of the company may act as directors.
(3) Any person holding office as director in companies more than the
limits as specified in sub-section (1), immediately before the commencement of
this Act shall, within a period of one year from such commencement,—
(a)choose not more than the specified limit of those companies, as
companies in which he wishes to continue to hold the office of director;
(b)resign his office as director in the other remaining companies;
and
(c) intimate the choice made by him under clause (a), to each of the
companies in which he was holding the office of director before such
commencement and to the Registrar having jurisdiction in respect of
each such company.
(4) Any resignation made in pursuance of clause (b) of sub-section (3)
shall become effective immediately on the despatch thereof to the company
concerned.
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(5) No such person shall act as director in more than the specified
number of companies,—
(a)after despatching the resignation of his office as director or non-
executive director thereof, in pursuance of clause (b) of sub-section (3);
or
(b)after the expiry of one year from the commencement of this Act,
whichever is earlier.
(6) If a person accepts an appointment as a director in contravention of
sub-section (1), he shall be punishable with fine which shall not be less than
five thousand rupees but which may extend to twenty-five thousand rupees for
every day after the first during which the contravention continues.
166.
Duties of Directors.—(1) Subject to the provisions of this Act, a
director of a company shall act in accordance with the articles of the company.
(2) A director of a company shall act in good faith in order to promote
the objects of the company for the benefit of its members as a whole, and in
the best interests of the company, its employees, the shareholders, the
community and for the protection of environment.
(3) A director of a company shall exercise his duties with due and
reasonable care, skill and diligence and shall exercise independent judgment.
(4) A director of a company shall not involve in a situation in which he
may have a direct or indirect interest that conflicts, or possibly may conflict, with
the interest of the company.
(5) A director of a company shall not achieve or attempt to achieve any
undue gain or advantage either to himself or to his relatives, partners, or
associates and if such director is found guilty of making any undue gain, he
shall be liable to pay an amount equal to that gain to the company.
(6) A director of a company shall not assign his office and any
assignment so made shall be void.
(7) If a director of the company contravenes the provisions of this
section such director shall be punishable with fine which shall not be less than
one lakh rupees but which may extend to five lakh rupees.
167.
Vacation of Office of director.—(1) The office of a director shall
become vacant in case—
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(a) he incurs any of the disqualifications specified in section 164;
(b) he absents himself from all the meetings of the Board of
Directors held during a period of twelve months with or without seeking
leave of absence of the Board;
(c) he acts in contravention of the provisions of section 184 relating
to entering into contracts or arrangements in which he is directly or
indirectly interested;
(d)he fails to disclose his interest in any contract or arrangement in
which he is directly or indirectly interested, in contravention of the
provisions of section 184;
(e) he becomes disqualified by an order of a court or the Tribunal;
(f) he is convicted by a court of any offence, whether involving
moral turpitude or otherwise and sentenced in respect thereof to
imprisonment for not less than six months:
Provided that the office shall be vacated by the director even if he
has filed an appeal against the order of such court;
(g)he is removed in pursuance of the provisions of this Act;
(h)he, having been appointed a director by virtue of his holding
any office or other employment in the holding, subsidiary or associate
company, ceases to hold such office or other employment in that company.
(2) If a person, functions as a director even when he knows that the
office of director held by him has become vacant on account of any of the
disqualifications specified in sub-section (1), he shall be punishable with
imprisonment for a term which may extend to one year or with fine which shall
not be less than one lakh rupees but which may extend to five lakh rupees, or
with both.
(3) Where all the directors of a company vacate their offices under any
of the disqualifications specified in sub-section (1), the promoter or, in his
absence, the Central Government shall appoint the required number of directors
who shall hold office till the directors are appointed by the company in the
general meeting.
(4) A private company may, by its articles, provide any other ground for
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the vacation of the office of a director in addition to those specified in sub-
section (1).
168.
Resignation of director.—(1) A director may resign from his office
by giving a notice in writing to the company and the Board shall on receipt of
such notice take note of the same and the company shall intimate the Registrar
in such manner, within such time and in such form as may be prescribed and
shall also place the fact of such resignation in the report of directors laid in the
immediately following general meeting by the company:
Provided that a director shall also forward a copy of his resignation
along with detailed reasons for the resignation to the Registrar within thirty days
of resignation in such manner as may be prescribed.
(2) The resignation of a director shall take effect from the date on
which the notice is received by the company or the date, if any, specified by
the director in the notice, whichever is later:
Provided that the director who has resigned shall be liable even after his
resignation for the offences which occurred during his tenure.
(3) Where all the directors of a company resign from their offices, or
vacate their offices under section 167, the promoter or, in his absence, the
Central Government shall appoint the required number of directors who shall
hold office till the directors are appointed by the company in general meeting.
169.
Removal of directors.—(1) A company may, by ordinary resolution,
remove a director, not being a director appointed by the Tribunal under section
242, before the expiry of the period of his office after giving him a reasonable
opportunity of being heard:
Provided that nothing contained in this sub-section shall apply where
the company has availed itself of the option given to it under section 163 to
appoint not less than two-thirds of the total number of directors according to
the principle of proportional representation.
(2) A special notice shall be required of any resolution, to remove a
director under this section, or to appoint somebody in place of a director so
removed, at the meeting at which he is removed.
(3) On receipt of notice of a resolution to remove a director under this
186
section, the company shall forthwith send a copy thereof to the director
concerned, and the director, whether or not he is a member of the company,
shall be entitled to be heard on the resolution at the meeting.
(4) Where notice has been given of a resolution to remove a director
under this section and the director concerned makes with respect thereto
representation in writing to the company and requests its notification to members
of the company, the company shall, if the time permits it to do so,—
(a) in any notice of the resolution given to members of the
company, state the fact of the representation having been made; and
(b) send a copy of the representation to every member of the
company to whom notice of the meeting is sent (whether before or after
receipt of the representation by the company),
and if a copy of the representation is not sent as aforesaid due to
insufficient time or for the company’s default, the director may without
prejudice to his right to be heard orally require that the representation shall
be read out at the meeting:
Provided that copy of the representation need not be sent out and
the representation need not be read out at the meeting if, on the
application either of the company or of any other person who claims to be
aggrieved, the Tribunal is satisfied that the rights conferred by this sub-
section are being abused to secure needless publicity for defamatory matter;
and the Tribunal may order the company’s costs on the application to be
paid in whole or in part by the director notwithstanding that he is not a
party to it.
(5)
A vacancy created by the removal of a director under this
section may, if he had been appointed by the company in general meeting
or by the Board, be filled by the appointment of another director in his
place at the meeting at which he is removed, provided special notice of the
intended appointment has been given under sub-section (2).
(6)
A director so appointed shall hold office till the date up to
which his predecessor would have held office if he had not been removed.
(7)
If the vacancy is not tilled under sub-section (5), it may be filled
as a casual vacancy in accordance with the provisions of this Act:
Provided that the director who was removed from office shall not be
re-appointed as a director by the Board of Directors.
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(8)
Nothing in this section shall be taken—
(a) as depriving a person removed under this section of any
compensation or damages payable to him in respect of the
termination of his appointment as director as per the terms of
contract or terms of his appointment as director, or of any other
appointment terminating with that as director; or
(b) as derogating from any power to remove a director under
other provisions of this Act.
170.
Register of directors and key managerial personnel and their
shareholding.—(1) Every company shall keep at its registered office a register
containing such particulars of its directors and key managerial personnel as may
be prescribed, which shall include the details of securities held by each of them
in the company or its holding, subsidiary, subsidiary of company’s holding
company or associate companies.
(2) A return containing such particulars and documents as may be
prescribed, of the directors and the key managerial personnel shall be filed with
the Registrar within thirty days from the appointment of every director and key
managerial personnel, as the case may be, and within thirty days of any change
taking place.
171.
Members right to inspect.— (1) The register kept under sub-section
(1) of section 170,—
(a)shall be open for inspection during business hours and the
members shall have a right to take extracts therefrom and copies thereof, on
a request by the members, be provided to them free of cost within thirty
days; and
(b)shall also be kept open for inspection at every annual general
meeting of the company and shall be made accessible to any person
attending the meeting.
(2) If any inspection as provided in clause (a) of sub-section (I) is
refused, or if any copy required under that clause is not sent within thirty days
188
from the date of receipt of such request, the Registrar shall on an application
made to him order immediate inspection and supply of copies required
thereunder.
172.
Punishment.—If a company contravenes any of the provisions of
this Chapter and for which no specific punishment is provided therein, the
company and every officer of the company who is in default shall be punishable
with fine which shall not be less than fifty thousand rupees but which may
extend to five lakh rupees.
CHAPTER XII
MEETINGS OF BOARD AND ITS POWERS
173.
Meetings of Board.— (1) Every company shall hold the first meeting
of the Board of Directors within thirty days of the date of its incorporation and
thereafter hold a minimum number of four meetings of its Board of Directors
every year in such a manner that not more than one hundred and twenty days
shall intervene between two consecutive meetings of the Board:
Provided that the Central Government may, by notification, direct that the
provisions of this sub-section shall not apply in relation to any class or
description of companies or shall apply subject to such exceptions, modifications
or conditions as may be specified in the notification.
(2)
The participation of directors in a meeting of the Board may be
either in person or through video conferencing or other audio visual means, as
may be prescribed, which are capable of recording and recognising the
participation of the directors and of recording and storing the proceedings of
such meetings along with date and time:
Provided that the Central Government may, by notification, specify such
matters which shall not be dealt with in a meeting through video
conferencing or other audio visual means.
(3) A meeting of the Board shall be called by giving not less than
seven days’ notice in writing to every director at his address registered
with the company and such notice shall be sent by hand delivery or by
post or by electronic means:
189
Provided that a meeting of the Board may be called at shorter
notice to transact urgent business subject to the condition that at least
one independent director, if any, shall be present at the meeting:
Provided further that in case of absence of independent directors
from such a meeting of the Board, decisions taken at such a meeting
shall be circulated to all the directors and shall be final only on
ratification thereof by at least one independent director, if any.
(4)
Every officer of the company whose duty is to give notice under
this section and who fails to do so shall be liable to a penalty of twenty-five
thousand rupees.
(5)
A One Person Company, small company and dormant company shall
be deemed to have complied with the provisions of this section if at least one
meeting of the Board of Directors has been conducted in each half of a calendar
year and the gap between the two meetings is not less than ninety days:
Provided that nothing contained in this sub-section and in section 174
shall apply to One Person Company in which there is only one director on its
Board of Directors.
174.
Quorum for meetings of Board.—(1) The quorum for a meeting of
the Board of Directors of a company shall be one-third of its total strength or
two directors, whichever is higher, and the participation of the directors by video
conferencing or by other audio visual means shall also be counted for the
purposes of quorum under this sub-section.
(2)
The continuing directors may act notwithstanding any vacancy in
the Board; but, if and so long as their number is reduced below the quorum
fixed by the Act for a meeting of the Board, the continuing directors or director
may act for the purpose of increasing the number of directors to that fixed for
the quorum, or of summoning a general meeting of the company and for no
other purpose.
(3)
Where at any time the number of interested directors exceeds or is
equal to two-thirds of the total strength of the Board of Directors, the number of
directors who are not interested directors and present at the meeting, being not
less than two, shall be the quorum during such time.
Explanation.—For the purposes of this sub-section, “interested
director” means a director within the meaning of sub-section (2) of
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section 184.
(4) Where a meeting of the Board could not be held for want of
quorum, then, unless the articles of the company otherwise provide, the meeting
shall automatically stand adjourned to the same day at the same time and place
in the next week or if that day is a national holiday, till the next succeeding day,
which is not a national holiday, at the same time and place.
Explanation.—For the purposes of this section,—
(i)
any fraction of a number shall be rounded off as one;
(ii) “total strength” shall not include directors whose places are
vacant.
175.
Passing of resolution by circulation.—(1) No resolution shall be
deemed to have been duly passed by the Board or by a committee there of by
circulation, unless the resolution has been circulated in draft, together with the
necessary papers, if any, to all the directors, or members of the committee, as
the case may be, at their addresses registered with the company in India by
hand delivery or by post or by courier, or through such electronic means as may
be prescribed and has been approved by a majority of the directors or members,
who are entitled to vote on the resolution:
Provided that, where not less than one-third of the total number of
directors of the company for the time being require that any resolution under
circulation must be decided at a meeting, the chairperson shall put the resolution
to be, decided at a meeting of the Board.
(2) A resolution under sub-section (1) shall be noted at a subsequent
meeting of the Board or the committee there of, as the case may be, and made
part of the minutes of such meeting.
176.
Defects in appointment of directors not to invalidate actions
taken.—No act done by a person as a director shall be deemed to be invalid,
notwithstanding that it was subsequently noticed that his appointment was
invalid by reason of any defect or disqualification or had terminated by virtue of
any provision contained in this Act or in the articles of the company:
Provided that nothing in this section shall be deemed to give validity to
any act done by the director after his appointment has been noticed by the
company to be invalid or to have terminated.
177.
Audit Committee.—(1) The Board of Directors of every listed
company and such other class or classes of companies, as may be prescribed,
shall constitute an Audit Committee.
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(2) The Audit Committee shall consist of a minimum of three directors
with independent directors forming a majority:
Provided that majority of members of Audit Committee including its
Chairperson shall be persons with ability to read and understand, the
financial statement.
(3) Every Audit Committee of a company existing immediately before the
commencement of this Act shall, within one year of such commencement, be
reconstituted in accordance with sub-section (2).
(4) Every Audit Committee shall act in accordance with the terms of
reference specified in writing by the Board which shall, inter alia, include,—
(i) the recominendation for appointment, remuneration and terms of
appointment of auditors of the company;
(ii) review and monitor the auditor’s independence and performance,
and effectiveness of audit process;
(iii) examination of the financial statement and the auditors’ report
thereon;
(iv) approval or any subsequent modification of transactions of the
company with related parties;
(v) scrutiny of inter-corporate loans and investments;
(vi) valuation of undertakings or assets of the company, wherever it
is necessary;
(vii) evaluation of internal financial controls and risk management
systems;
(viii) monitoring the end use of funds raised through public offers
and related matters.
5)
The Audit Committee may call for the comments of the auditors
about internal control systems, the scope of audit, including the
observations of the auditors and review of financial statement before their
submission to the Board and may also discuss any related issues with the
internal and statutory auditors and the management of the company.
(6)
The Audit Committee shall have authority to investigate into any
192
matter in relation to the items specified in sub-section (4) or referred to it
by the Board and for this purpose shall have power to obtain professional
advice from external sources and have full access to information contained
in the records of the company.
(7)
The auditors of a company and the key managerial personnel
shall have a right to be heard in the meetings of the Audit Committee when
it considers the auditor’s report but shall not have the right to vote.
(8)
The Board’s report under sub-section (3) of section 134 shall
disclose the composition of an Audit Committee and where the Board had
not accepted any recommendation of the Audit Committee, the same shall
be disclosed in such report along with the reasons therefor.
(9) Every listed company or such class or classes of companies, as may
be prescribed, shall establish a vigil mechanism for directors and employees to
report genuine concerns in such manner as may be prescribed.
(10) The vigil mechanism under sub-section (9) shall provide for
adequate safeguards against victimisation of persons who use such mechanism
and make provision for direct access to the chairperson of the Audit Committee
in appropriate or exceptional cases:
Provided that the details of establishment of such mechanism shall be
disclosed by the company on its website, if any, and in the Board’s report.
178.
Nomination and Remuneration Committee and Stakeholders
Relationship Committee.—(1) The Board of Directors of every listed company
and such other class or classes of companies, as may be prescribed shall
constitute the Nomination and Remuneration Committee consisting of three or
more non-executive directors out of which not less than one-half shall be
independent directors:
Provided that the chairperson of the company (whether executive or non-
executive) may be appointed as a member of the Nomination and Remuneration
Committee but shall not chair such Committee.
(2) The Nomination and Remuneration Committee shall identify persons
who are qualified to become directors and who may be appointed in senior
management in accordance with the criteria laid down, recommend to the Board
their appointment and removal and shall carry out evaluation of every director’s
193
performance.
(3) The Nomination and Remuneration Committee shall formulate the
criteria for determining qualifications, positive attributes and independence of a
director and recommend to the Board a policy, relating to the remuneration for
the directors, key managerial personnel and other employees.
(4) The Nomination and Remuneration Committee shall, while
formulating the policy under sub-section (3) ensure that—
(a)the level and composition of remuneration is reasonable and
sufficient to attract, retain and motivate directors of the quality required
to run the company successfully;
(b)relationship of remuneration to performance is clear and meets
appropriate performance benchmarks; and
(c) remuneration to directors, key managerial personnel and senior
management involves a balance between fixed and incentive pay
reflecting short and long-term performance objectives appropriate to the
working of the company and its goals:
Provided that such policy shall be disclosed in the Board’s report
(5) The Board of Directors of a company which consists of more than
one thousand shareholders, debenture-holders, deposit-holders and any other
security holders at any time during a financial year shall constitute a
Stakeholders Relationship Committee consisting of a chairperson who shall be a
non-executive director and such other members as may be decided by the Board.
(6) The Stakeholders Relationship Committee shall consider and resolve
the grievances of security holders of the company.
(7) The chairperson of each of the committees constituted under this
section or, in his absence, any other member of the committee authorised by him
in this behalf shall attend the general meetings of the company.
(8) In case of any contravention of the provisions of section 177 and
this section, the company shall be punishable with fine which shall not be less
than one lakh rupees but which may extend to five lakh rupees and every officer
194
of the company who is in default shall be punishable with imprisonment for a
term which may extend to one year or with fine which shall not be less than
twenty-five thousand rupees but which may extend to one lakh rupees, or with
both:
Provided that non-consideration of resolution of any grievance by the
Stake holders Relationship Committee in good faith shall not constitute a
contravention of this section.
Explanation.—The expression “senior management” means personnel of the
company who are members of its core management team excluding Board of
Directors comprising all members of management one level below the executive
directors, including the functional heads.
179.
Powers of Board.—(1)The Board of Directors of a company shall
be entitled to exercise all such powers, and to do all such acts and things, as
the company is authorised to exercise and do:
Provided that in exercising such power or doing such act or thing, the
Board shall be subject to the provisions contained in that behalf in this Act, or
in the memorandum or articles, or in any regulations not inconsistent therewith
and duly made thereunder, including regulations made by the company in
general meeting:
Provided further that the Board shall not exercise any power or do any
act or thing which is directed or required, whether under this Act or by the
memorandum or articles of the company or otherwise, to be exercised or done by
the company in general meeting.
(2) No regulation made by the company in general meeting shall
invalidate any prior act of the Board which would have been valid if that
regulation had not been made.
(3) The Board of Directors of a company shall exercise the following
powers on behalf of the company by means of resolutions passed at meetings
of the Board, namely:—
(a)to make calls on shareholders in respect of money unpaid on
their shares;
(b)to authorise buy-back of securities under section 68;
(c) to issue securities, including debentures, whether in or outside
India;
195
(d)to borrow monies;
(e) to invest the funds of the company;
(f) to grant loans or give guarantee or provide security in respect
of loans;
(g) to approve financial statement and the Board’s report;
(h) to diversify the business of the company;
(i) to approve amalgamation, merger or reconstruction;
(j) to take over a company or acquire a controlling or substantial
stake in another company;
(k) any other matter which may be prescribed:
Provided that the Board may, by a resolution passed at a meeting,
delegate to any committee of directors, the managing director, the manager or
any other principal officer of the company or in the case of a branch office of
the company, the principal officer of the branch office, the powers specified in
clauses (d) to (f) on such conditions as it may specify:
Provided further that the acceptance by a banking company in the
ordinary course of its business of deposits of money from the public repayable
on demand or otherwise and withdrawable by cheque, draft, order or otherwise,
or the placing of monies on deposit by a banking company with another
banking company on such conditions as the Board may prescribe, shall not be
deemed to be a borrowing of monies or, as the case may be, a making of loans
by a banking company within the meaning of this section.
Explanation I.—Nothing in clause (d) shall apply to borrowings by a
banking company from other banking companies or from the Reserve Bank of
India, the State Bank of India or any other banks established by or under any
Act.
Explanation II—In respect of dealings between a company and its
bankers, the exercise by the company of the power specified in clause (d) shall
mean the arrangement made by the company with its bankers for the borrowing
of money by way of overdraft or cash credit or otherwise and not the actual
day-to-day operation on overdraft, cash credit or other accounts by means of
196
which the arrangement so made is actually availed of.
(4) Nothing in this section shall be deemed to affect the right of the
company in general meeting to impose restrictions and conditions on the
exercise by the Board of any of the powers specified in this section.
180.
Restrictions on powers of Board.— (1)The Board of Directors of a
company shall exercise the following powers only with the consent of the
company by a special resolution, namely:—
(a) to sell, lease or otherwise dispose of the whole or substantially
the whole of the undertaking of the company or where the company owns
more than one undertaking, of the whole or substantially the whole of any
of such undertakings.
Explanation.—For the purposes of this clause,—
(i) “undertaking” shall mean an undertaking in which the
investment of the company exceeds twenty per cent. of its net worth as
per the audited balance sheet of the preceding financial year or an
undertaking which generates twenty per cent. of the total income of the
company during the previous financial year;
(ii) the expression “substantially the whole of the undertaking” in
any financial year shall mean twenty per cent. or more of the value of the
undertaking as per the audited balance sheet of the preceding financial year;
(b) to invest otherwise in trust securities the amount of compensation
received by it as a result of any merger or amalgamation;
(c) to borrow money, where the money to be borrowed, together with the
money already borrowed by the company will exceed aggregate of its
paid-up share capital and free reserves, apart from temporary loans obtained
from the company’s bankers in the ordinary course of business:
Provided that the acceptance by a banking company, in the ordinary
course of its business, of deposits of money from the public, repayable on
demand or otherwise, and withdrawable by cheque, draft, order or otherwise,
shall not be deemed to be a borrowing of monies by the banking company
within the meaning of this clause.
Explanation.—For the purposes of this clause, the expression
“temporary loans” means loans repayable on demand or within six months
from the date of the loan such as short-term, cash credit arrangements, the
197
discounting of bills and the issue of other short-term loans of a seasonal
character, but does not include loans raised for the purpose of financial
expenditure of a capital nature;
(d) to remit, or give time for the repayment of, any debt due from a
director.
(2) Every special resolution passed by the company in general meeting
in relation to the exercise of the powers referred to in clause (c) of
sub-section (1) shall specify the total amount up to which monies may be
borrowed by the Board of Directors.
(3) Nothing contained in clause (a) of sub-section (1) shall affect—
(a) the title of a buyer or other person who buys or takes on lease
any property, investment or undertaking as is referred to in that clause,
in good faith; or
(b) the sale or lease of any property of the company where the
ordinary business of the company consists of, or comprises, such selling
or leasing.
(4) Any special resolution passed by the company consenting to the
transaction as is referred to in clause (a) of sub-section (1) may stipulate
such conditions as may be specified in such resolution, including
conditions regarding the use, disposal or investment of the sale proceeds
which may result from the transactions:
Provided that this sub-section shall not be deemed to authorise the
company to effect any reduction in its capital except in accordance with the
provisions contained in this Act.
(5) No debt incurred by the company in excess of the limit imposed by
clause (c) of sub-section (I) shall be valid or effectual, unless the lender
proves that he advanced the loan in good faith and without knowledge that
the limit imposed by that clause had been exceeded.
181.
Company to contribute to bona fide and charitable funds etc.—
The Board of Directors of a company may contribute to bona fide charitable and
other funds :
Provided that prior permission of the company in general meeting shall be
required for such contribution in case any amount the aggregate of which, in
any financial year, exceed five per cent. of its average net profits for the three
immediately preceding financial years.
182.
Prohibitions and restrictions regarding political contributions.—
198
(1) Notwithstanding anything contained in any other provision of this Act, a
company, other than a Government company and a company which has been in
existence for less than three financial years, may contribute any amount directly
or indirectly to any political party:
Provided that the amount referred to in sub-section (I) or, as the case
may be, the aggregate of the amount which may be so contributed by the
company in any financial year shall not exceed seven and a half per cent. of its
average net profits during the three immediately preceding financial years:
Provided further that no such contribution shall be made by a company
unless a resolution authorising the making of such contribution is passed at a
meeting of the Board of Directors and such resolution shall, subject to the other
provisions
of
this
section,
be
deemed
to
be
justification
in law for the making and the acceptance of the contribution authorised by it.
(2) Without prejudice to the generality of the provisions of
sub-section (1),—
(a) a donation or subscription or payment caused to be given by a
company on its behalf or on its account to a person who, to its knowledge,
is carrying on any activity which, at the time at which such donation or
subscription or payment was given or made, can reasonably be regarded as
likely to affect public support for a political party sha!l also be deemed to
be contribution of the amount of such donation, subscription or payment
to such person for a political purpose;
(b)the amount of expenditure incurred, directly or indirectly, by a
company on an advertisement in any publication, being a publication in the
nature of a souvenir, brochure, tract, pamphlet or the like, shalI also be
deemed,-
(i) where such publication is by or on behalf of a political party, to
be a contribution of such amount to such political party, and
(ii) where such publication is not by or on behalf of, but for the
advantage of a political party, to be a contribution for a political purpose.
(3) Every company shalI disclose in its profit and loss account any
amount or amounts contributed by it to any political party during the
financial year to which that account relates, giving particulars of the total
amount contributed and the name of the party to which such amount has
been contributed.
(4) If a company makes any contribution in contravention of the
provisions of this section, the company shalI be punishable with fine which
may extend to five times the amount so contributed and every officer of the
company who is in default shalI be punishable with imprisonment for a term
199
which may extend to six months and with fine which may extend to five
times the amount so contributed.
Explanation.—For the purposes of this section, “political party”
means a political party registered under section 29A of the Representation
of the People Act, 1951 (43 of 1951).
183.
Power of Board and other persons to make contributions to
national defence fund, etc.—(1) The Board of Directors of any company or any
person or authority exercising the powers of the Board of Directors of a
company, or of the company in general meeting, may, notwithstanding anything
contained in sections 180, 181 and section 182 or any other provision of this
Act or in the memorandum, articles or any other instrument relating to the
company, contribute such amount as it thinks fit to the National Defence Fund or
any other Fund approved by the Central Government for the purpose of national
defence.
(2) Every company shalI disclose in its profits and loss account the
total amount or amounts contributed by it to the Fund referred to in
sub-section (1) during the financial year to which the amount relates.
184.
Disclosure of interest by director.—(1) Every director shall at the
first meeting of the Board in which he participates as a director and thereafter
at the first meeting of the Board in every financial year or whenever there is
any change in the disclosures already made, then at the first Board meeting held
after such change, disclose his concern or interest in any company or companies
or bodies corporate, firms, or other association of individuals which shall
include the shareholding, in such manner as may be prescribed.
(2) Every director of a company who is in any way, whether directly or
indirectly, concerned or interested in a contract or arrangement or proposed
contract or arrangement entered into or to be entered into—
(a) with a body corporate in which such director or such director in
association with any other director, holds more than two per cent.
shareholding of that body corporate, or is a promoter, manager, Chief
Executive Officer of that body corporate; or
(b) with a firm or other entity in which, such director is a
partner, owner or member, as the case may be,
shall disclose the nature of his concern or interest at the meeting of the
Board in which the contract or arrangement is discussed and shall not
participate in such meeting:
Provided that where any director who is not so concerned or interested
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at the time of entering into such contract or arrangement, he shall, if he
becomes concerned or interested after the contract or arrangement is entered
into, disclose his concern or interest forthwith when he becomes concerned
or interested or at the first meeting of the Board held after he becomes so
concerned or interested.
(3)
A contract or arrangement entered into by the company without
disclosure under sub-section (2) or with participation by a director who is
concerned or interested in any way, directly or indirectly, in the contract or
arrangement, shall be voidable at the option of the company.
(4)
If a director of the company contravenes the provisions of
sub-section (1) or sub-section (2), such director shall be punishable with
imprisonment for a term which may extend to one year or with fine which
shall not be less than fifty thousand rupees but which may extend to one
lakh rupees, or with both.
(5)
Nothing in this section—
(a)shall be taken to prejudice the operation of any rule of law
restricting a director of a company from having any concern or interest
in any contract or arrangement with the company;
(b)shall apply to any contract or arrangement entered into or to be
entered into between two companies where any of the directors of the
one company or two or more of them together holds or hold not more
than two per cent. of the paid-up share capital in the other company.
185.
Loan to directors, etc.—(1) Save as otherwise provided in this Act,
no company shall, directly or indirectly, advance any loan, including any loan
represented by a book debt, to any of its directors or to any other person in
whom the director is interested or give any guarantee or provide any security in
connection with any loan taken by him or such other person :
Provided that nothing contained in this sub-section shall apply to—
(a)the giving of any loan to a managing or whole-time director—
(i) as a part of the conditions of service extended by the
company to all its employees; or
(ii) pursuant to any scheme approved by the members by a
special resolution; or
(b) a company which in the ordinary course of its business
provides loans or gives guarantees or securities for the due repayment
of any loan and in respect of such loans an interest is charged at a rate
not less than the bank rate declared by the Reserve Bank of India.
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Explanation.—For the purposes of this section, the expression
“to any other person in whom director is interested” means—
(a) any Director of the lending company, or of a company which
is its holding company or any partner or relative of any such
director;
(b) any firm in which any such director or relative is a partner;
(c) any private company of which any such director is a director
or member;
(d) any body corporate at a general meeting of which not less
than twenty-five per cent. of the total voting power may be exercised
or controlled by any such director, or by two or more such directors,
together; or
(e) any body corporate, the Board of directors, managing director
or manager, whereof is accustomed to act in accordance with the
directions or instructions of the Board, or of any director or directors,
of the lending company.
(2) If any loan is advanced or a guarantee or security is given or
provided .in contravention of the provisions of sub-section (1), the
company shall be punishable with fine which shall not be less than five
lakh rupees but which may extend to twenty-five lakh rupees, and the
director or the other person to whom any loan is advanced or guarantee or
security is given or provided in connection with any loan taken by him or
the other person, shall be punishable with imprisonment which may extend
to six months or with fine which shall not be less than five lakh rupees but
which may extend to twenty-five lakh rupees, or with both.
186.
Loan and investment by company.—(1) Without prejudice to the
provisions contained in this Act, a company shall unless otherwise prescribed,
make investment through not more than two layers of investment companies:
Provided that the provisions of this sub-section shall not affect,—
(i) a company from acquiring any other company incorporated in a
country outside India if such other company has investment, subsidiaries
beyond two layers as per the laws of such country;
(ii) a subsidiary company from having any investment subsidiary
for the purposes of meeting the requirements under any law or under
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any rule or regulation framed under any law for the time being in force.
(2) No company shall directly or indirectly—
(a) give any loan to any person or other body corporate;
(b) give any guarantee or provide security in connection with a loan
to any other body corporate or. person; and
(c) acquire by way of subscription, purchase or otherwise, the
securities of any other body corporate,
exceeding sixty per cent. of its paid-up share capital, free
reserves and securities premium account or one hundred per cent. of its free
reserves and securities premium account, whichever is more.
(3) Where the giving of any loan or guarantee or providing any
security or the acquisition under sub-section (2) exceeds the limits
specified in that sub-section, prior approval by means of a special
resolution passed at a general meeting shall be necessary.
(4) The company shall disclose to the members in the financial
statement the full particulars of the loans given, investment made or
guarantee given or security provided and the purpose for which the loan
or guarantee or security is proposed to be utilised by the recipient of the
loan or guarantee or security.
(5) No investment shall be made or loan or guarantee or security given
by the company unless the resolution sanctioning it is passed at a meeting
of the Board with the consent of all the directors present at the meeting
and the prior approval of the public financial institution concerned where
any term loan is subsisting, is obtained:
Provided that prior approval of a public financial institution shall not
be required where the aggregate of the loans and investments so far made,
the amount for which guarantee or security so far provided to or in all
other bodies corporate, along with the investments, loans, guarantee or
security proposed to be made or given does not exceed the limit as
specified in sub-section (2), and there is no default in repayment of loan
instalments or payment of interest thereon as per the terms and conditions
of such loan to the public financial institution.
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(6) No company, which is registered under section 12 of the Securities
and Exchange Board of India Act, 1992 15 of 1992 and covered under such
class or classes of companies as may be prescribed, shall take inter-
corporate loan or deposits exceeding the prescribed limit and such company
shall furnish in its financial statement the details of the loan or deposits.
(7) No loan shall be given under this section at a rate of interest lower
than the prevailing yield of one year, three year, five year or ten year
Government Security closest to the tenor of the loan.
(8) No company which is in default in the repayment of any deposits
accepted before or after the commencement of this Act or in payment of
interest thereon, shall give any loan or give any guarantee or provide any
security or make an acquisition till such default is subsisting.
(9) Every company giving loan or giving a guarantee or providing
security or making an acquisition under this section shall keep a register
which shall contain such particulars and shall be maintained in such
manner as may be prescribed.
(10)
The register referred to in sub-section (9) shall be kept at the
registered office of the company and—
(a) shall be open to inspection at such office; and
(b) extracts may be taken therefrom by any member, and copies
thereof may be furnished to any member of the company on
payment of such fees as may be prescribed.
(11)
Nothing contained in this section, except sub-section (I), shall
apply—
(a) to a loan made, guarantee given or security provided by a
banking company or an insurance company or a housing finance
company in the ordinary course of its business or a company
engaged in the business of financing of companies or of providing
infrastructural facilities;
(b) to any acquisition—
(i) made by a non-banking financial company registered under
Chapter IIIB of the Reserve Bank of India Act, 934 (2 of 1934)and
whose principal business is acquisition of securities:
Provided that exemption to non-banking financial company
shall be in respect of its investment and lending activities;
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(ii) made by a company whose principal business is the
acquisition of securities;
(iii) of shares allotted in pursuance of clause (a) of sub-section
(I) of section 62.
(12)
The Central Government may make rules for the purposes of this
section.
(13)
If a company contravenes the provisions of this section, the
company shall be punishable with fine which shall not be less than
twenty-five thousand rupees but which may extend to five lakh rupees and
every officer of the company who is in default shall be punishable with
imprisonment for a term which may extend to two years and with fine
which shall not be less than twenty-five thousand rupees but which may
extend to one lakh rupees.
Explanation.—For the purposes of this section,—
(a) the expression “investment company” means a_ company whose
principal business is the acquisition of shares, debentures or other
securities;
(b) the expression “infrastructure facilities” means the facilities
specified in Schedule VI.
187. Investments of company to be held in its own name.—(1) All
investments made or held by a company in any property, security or other asset
shall be made and held by it in its own name:
Provided that the company may hold any shares in its subsidiary
company in the name of any nominee or nominees of the company, if it is
“necessary to do so, to ensure that the number of members of the subsidiary
company is not reduced below the statutory limit
(2)
Nothing in this section shall be deemed to prevent a company—
(a) from depositing with a bank, being the bankers of the company,
any shares or securities for the collection of any dividend or interest
payable thereon; or
(b) from depositing with, or transferring to, or holding in the name of,
the State Bank of India or a scheduled bank, being the bankers of the
company, shares or securities, in order to facilitate the transfer thereof:
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Provided that if within a period of six months from the date on
which the shares or securities are transferred by the company to, or
are first held by the company in the name of, the State Bank of India
or a scheduled bank as aforesaid, no transfer of such shares or
securities takes place, the company shall, as soon as practicable after
the expiry of that period, have the shares or securities re-transferred to
it from the State Bank of India or the scheduled bank or, as the case
may be, again hold the shares or securities in its own name; or
(c) from depositing with, or transferring to, any person any shares
or securities, by way of security for the repayment of any loan
advanced to the company or the performance of any obligation
undertaken by it;
(d) from holding investments in the name of a depository when such
investments are in the form of securities held by the company as a
beneficial owner.
(3)
Where in pursuance of clause (d) of sub-section (2), any
shares or securities in which investments have been made by a company
are not held by it in its own name, the company shall maintain a register
which shall contain such particulars as may be prescribed and such register
shall be open to inspection by any member or debenture-holder of the
company without any charge during business hours subject to such
reasonable restrictions as the company may by its articles or in general
meeting impose.
(4)
If a company contravenes the provisions of this section, the
company shall be punishable with fine which shall not be less than
twenty-five thousand rupees but which may extend to twenty-five lakh
rupees and every officer of the company who is in default shall be
punishable with imprisonment for a term which may extend to six months or
with fine which shall not be less than twenty-five thousand rupees but
which may extend to one lakh rupees, or with both.
188.
Related party transactions.—(1) Except with the consent of the
Board of Directors given by a resolution at a meeting of the Board and subject
to such conditions as may be prescribed, no company shall enter into any
contract or arrangement with a related party with respect to—
(a) sale, purchase or supply of any goods or materials;
(b) selling or otherwise disposing of, or buying, property of any
kind;
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(c) leasing of property of any kind;
(d) availing or rendering of any services;
(e) appointment of any agent for purchase or sale of goods,
materials, services or property;
(f) such related party’s appointment to any office or place of profit
in the company, its subsidiary company or associate company; and
(g) underwriting the subscription of any securities or derivatives
thereof, of the company:
Provided that no contract or arrangement, in the case of a company
having a paid-up share capital of not less than such amount, or transactions not
exceeding such sums, as may be prescribed, shall be entered into except with
the prior approval of the company by a special resolution:
Provided further that no member of the company shall vote on such
special resolution, to approve any contract or arrangement which may be
entered into by the company, if such member is a related party:
Provided also that nothing in this sub-section shaH apply to any
transactions entered into by the company in its ordinary course of
business other than transactions which are not on an arm’s length basis.
Explanation.—In this sub-section,—
(a)the expression “office or place of profit” means any office or
place.—
(i)
where such office or place is held by a director, if the
director holding it receives from the company anything by way of
remuneration over and above the remuneration to which he is entitled
as director, by way of salary, fee, commission, perquisites, any rent-
free accommodation, or otherwise;
(ii) where such office or place is held by an individual other
than a director or by any firm, private company or other body
corporate, if the individual, firm, private company or body corporate
holding it receives from the company anything by way of
remuneration, salary, fee, commission, perquisites, any rent-free
accommodation, or otherwise;
(b)the expression “arm’s length transaction” means a transaction
between two related parties that is conducted as if they were unrelated,
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so that there is no conflict of interest.
(2)
Every contract or arrangement entered into under sub-section (1)
shall be referred to in the Board’s report to the shareholders along with the
justification for entering into such contract or arrangement.
(3) Where any contract or arrangement is entered into by a director or
any other employee, without obtaining the consent of the Board or
approval by a special resolution in the general meeting under sub-section
(1) and if it is not ratified by the Board or, as the case may be, by the
shareholders at a meeting within three months from the date on which such
contract or arrangement was entered into, such contract or arrangement
shall be voidable at the option of the Board and if the contract or
arrangement is with a related party to any director, or is authorised by any
other director, the directors concerned shall indemnify the company against
any loss incurred by it.
(4)
Without prejudice to anything contained in sub-section (3), it shall
be open to the company to proceed against a director or any other
employee who had entered into such contract or arrangement in
contravention of the provisions of this section for recovery of any loss
sustained by it as a result of such contract or arrangement.
(5) Any director or any other employee of a company, who had entered
into or authorised the contract or arrangement in violation of the provisions
of this section shall,—
(i) in case of Iisted company, be punishable with imprisonment for a
term which may extend to one year or with fine which shall not be less
than twenty-five thousand rupees but which may extend to five lakh
rupees, or with both; and
(ii) in case of any other company, be punishable with fine which
shall not be less than twenty-five thousand rupees but which may
extend to five lakh rupees.
189.
Register of contracts or arrangements in which directors are
interested.—(1) Every company shall keep one or more registers giving
separately the particulars of all contracts or arrangements to which sub-section
(2) of section 184 or section 188 applies, in such manner and containing such
particulars as may be prescribed and after entering the particulars, such register
or registers shall be placed before the next meeting of the Board and signed by
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all the directors present at the meeting.
(2) Every director or key managerial personnel shall, within a period of
thirty days of his appointment, or relinquishment of his office, as the case may
be, disclose to the company the particulars specified in sub-section (1) of
section 184 relating to his concern or interest in the other associations which are
required to be included in the register under that sub-section or such other
information relating to himself as may be prescribed.
(3) The register referred to in sub-section (I) shall be kept at the registered
office of the company and it shall be open for inspection at such office during
business hours and extracts may be taken therefrom, and copies thereof as may
be required by any member of the company shall be furnished by the company
to such extent, in such manner, and on payment of such fees as may be
prescribed.
(4) The register to be kept under this section shall also be
produced at the commencement of every annual general meeting of the company
and shall remain open and accessible during the continuance of the meeting to
any person having the right to attend the meeting.
(5) Nothing contained in sub-section (1) shall apply to any contract
or arrangement—
(a)
for the sale, purchase or supply of any goods,
materials or services if the value of such goods and materials or the
cost of such services does not exceed five lakh rupees in the aggregate
in any year; or
(b) by a banking company for the collection of bills in the
ordinary course of its business.
(6)
Every director who fails to comply with the provisions of this
section and the rules made thereunder shall be liable to a penalty of twenty-five
thousand rupees.
190.
Contract of employment with managing or whole-time directors.—
(1) Every company shall keep at its registered office,—
(a)
where a contract of service with a managing or whole-
time director is in writing, a copy of the contract; or
(b)
where such a contract is not in writing, a written
memorandum setting out its terms.
(2)The copies of the contract or the memorandum kept under sub-
209
section (1) shall be open to inspection by any member of the company
without payment of fee.
(3)If any default is made in complying with the provisions of sub-
section (1) or sub-section (2), the company shall be liable to a penalty of
twenty-five thousand rupees and every officer of the company who is in
default shall be liable to a penalty of five thousand rupees for each default.
(4)The provisions of this section shall not apply to a private
company.
191.
Payment to director for loss of office, etc., in connection with
transfer of undertaking, property or shares —(1) No directer of a company
shall, in connection with—
(a)the transfer of the whole or any part of any undertaking or
property of the company; or
(b)the transfer to any person of all or any of the shares in a
company being a transfer resulting from—
(i)
an offer made to the general body of shareholders;
(ii) an offer made by or on behalf of some other body corporate
with a view to a company becoming a subsidiary company of such
body corporate or a subsidiary company of its holding company;
(iii) an offer made by or on behalf of an individual with a view
to his obtaining the right to exercise, or control the exercise of, not
less than one-third of the total voting power at any general meeting of
the company; or
(iv) any other offer which is conditional on acceptance to a
given extent, receive any payment by way of compensation for loss of
office or as consideration for retirement from office, or in connection
with such loss or retirement from such company or from the transferee
of such undertaking or property, or from the transferees of shares or
from any other person, not being such company, unless particulars as
may be prescribed with respect to the payment proposed to be made by
such transferee or person, including the amount thereof, have been
disclosed to the members of the company and the proposal has been
approved by the company in general meeting.
(2) Nothing in sub-section (1) shall affect any payment made by a
company to a managing director or whole-time director or manager of the
company by way of compensation for loss of office or as consideration for
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retirement from office or in connection with such loss or retirement subject
to limits or priorities, as may be prescribed.
(3) If the payment under sub-section (1) or sub-section (2) is not
approved for want of quorum either in a meeting or an adjourned meeting,
the proposal shall not be deemed to have been approved.
(4) Where a director of a company receives payment of any amount in
contravention of sub-section (1) or the proposed payment is made before
it is approved in the meeting, the amount so received by the director shall
be deemed to have been received by him in trust for the company. .
(5) If a director of the company contravenes the provisions of this
section, such director shall be punishable with fine which shall not be less
than twenty-five thousand rupees but which may extend to one lakh
rupees.
(6) Nothing in this section shall be taken to prejudice the operation of
any law requiring disclosure to be made with respect to any payment
received under this section or such other like payments made to a director.
192.
Restriction on non-cash transactions involving directors.—(1) No
company shall enter into an arrangement by which—
(a) a director of the company or its holding, subsidiary or associate
company or a person connected with him acquires or is to acquire assets
for consideration other than cash, from the company; or
(b) the company acquires or is to acquire assets for consideration
other than cash, from such director or person so connected,
unless prior approval for such arrangement is accorded by a resolution of
the company in general meeting and if the director or connected person is
a director of its holding company, approval under this sub-section shall also
be required to be obtained by passing a resolution in general meeting of
the holding company.
(2) The notice for approval of the resolution by the company or
holding company in general meeting under sub-section (1) shall include the
particulars of the arrangement along with the value of the assets involved
in such arrangement duly calculated by a registered valuer.
(3) Any arrangement entered into by a company or its holding
company in contravention of the provisions of this section shalI be voidable
at the instance of the company unless—
211
(a) the restitution of any money or other consideration which is the
subject-matter of the arrangement is no longer possible and the
company has been indemnified by any other person for any loss or
damage caused to it; or
(b) any rights are acquired bona fide for value and without notice
of the contravention of the provisions of this section by any other
person.
193.
Contract by One Person Company.—(1) Where One Person
Company limited by shares or by guarantee enters into a contract with the sole
member of the company who is also the director of the company, the company
shall, unless the contract is in writing, ensure that the terms of the contract or
offer are contained in a memorandum or are recorded in the minutes of the first
meeting of the Board of Directors of the company held next after entering into
contract:
Provided that nothing in this sub-section shalI apply to contracts
entered into by the company in the ordinary course of its business.
(2) The company shalI inform the Registrar about every contract entered
into by the company and recorded in the minutes of the meeting of its
Board of Directors under sub-section (1) within a period of fifteen days of
the date of approval by the Board of Directors.
194.
Prohibition on forward dealings in securities of company by
director or key managerial personnel.—(1) No director of a company or any of
its key managerial personnel shall buy in the company, or in its holding,
subsidiary or associate company—
(a) a right to call for delivery or a right to make delivery at a
specified price and within a specified time, of a specified number of
relevant shares or a specified amount of relevant debentures; or
(b) a right, as he may elect, to call for delivery or to make
delivery at a specified price and within a specified time, of a specified
number of relevant shares or a specified amount of relevant debentures.
(2) If a director or any key managerial personnel of the company
contravenes the provisions of sub-section (1), such director or key
managerial personnel shall be punishable with imprisonment for a term
which may extend to two years or with fine which shall not be less than
one lakh rupees but which may extend to five lakh rupees, or with both.
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(3) Where a director or other key managerial personnel acquires any
securities in contravention of sub-section (1), he shall, subject to the
provisions contained in sub-section (2), be liable to surrender the same to
the company and the company shall not register the securities so acquired
in his name in the register, and if they are in dematerialised form, it shall
inform the depository not to record such acquisition and such securities, in
both the cases, shall continue to remain in the names of the transferors.
Explanation.—For the purposes of this section, “relevant shares” and
“relevant debentures” mean shares and debentures of the company in
which the concerned person is a whole-time director or other key
managerial personnel or shares and debentures of its holding and subsidiary
companies.
195.
Prohibition on insider trading of securities.—(1) No person
including any director or key managerial personnel of a company shall enter into
insider trading:
Provided that nothing contained in this sub-section shall apply to
any communication required in the ordinary course of business or
profession or employment or under any law.
Explanation.—For the purposes of this section,—
(a)“insider trading” means—
(i)
an act of subscribing, buying, selling, dealing or agreeing
to subscribe, buy, sell or deal in any securities by any director or
key managerial personnel or any other officer of a company either as
principal or agent if such director or key managerial personnel or
any other officer of the company is reasonably expected to have
access to any non-public price sensitive information in respect of
securities of company; or
(ii)
an act of counselling about procuring or communicating
directly or indirectly any non-public price-sensitive information to
any person;
(b) “price-sensitive information” means any information which
relates, directly or indirectly, to a company and which if published is
likely to materially affect the price of securities of the company.
(2) If any person contravenes the provisions of this section, he
shall be punishable with imprisonment for a term which may extend to five years
or with fine which shall not be less than five lakh rupees but which may extend
213
to twenty-five crore rupees or three times the amount of profits made out of
insider trading, whichever is higher, or with both.
CHAPTER XIII
APPOINTMENT AND REMUNERATION OF MANAGERIAL PERSONNEL
196.
Appointment of managing director, whole-time director or
manager.—(1) No company shall appoint or employ at the same time a
managing director and a manager.
(2) No company shall appoint or re-appoint any person as its managing
director, whole-time director or manager for a term exceeding, five years at a time:
Provided that no re-appointment shall be made earlier than one year
before the expiry of his term.
(3) No company shall appoint or continue the employment of any
person as managing director, whole-time director or manager who—
(a)is below the age of twenty-one years or has attained the age of
seventy years:
Provided that appointment of a person who has attained the age of
seventy years may be made by passing a special resolution in which
case the explanatory statement annexed to the notice for such motion
shall indicate the justification for appointing such person;
(b) is an undischarged insolvent or has at any time been adjudged
as an insolvent;
(c) has at any time suspended payment to his creditors or makes, or
has at any time made, a composition with them; or
(d)has at any time been convicted by a court of an offence and
sentenced for a period of more than six months.
(4) Subject to the provisions of section 197 and Schedule V, a managing
director, whole-time director or manager shall be appointed and the terms and
conditions of such appointment and remuneration payable be approved by the
Board of Directors at a meeting which shall be subject to approval by a
resolution at the next general meeting of the company and by the Central
Government in case such appointment is at variance to the conditions specified
in that Schedule:
Provided that a notice convening Board or general meeting for
considering such appointment shall include the terms and conditions of such
appointment, remuneration payable and such other matters including interest, of
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a director or directors in such appointments, if any:
Provided further that a return in the prescribed form shall be filed within
sixty days of such appointment with the Registrar.
(5) Subject to the provisions of this Act, where an appointment of a
managing director, whole-time director or manager is not approved by the
company at a general meeting, any act done by him before such approval shall
not be deemed to be invalid.
197.
Overall maximum managerial remuneration and managerial
remuneration in case of absence or inadequacy of profits.—(1)The total
managerial remuneration payable by a public company, to its directors, including
managing director and whole-time director, and its manager in respect of any
financial year shall not exceed eleven per cent. of the net profits of that
company for that financial year computed in the manner laid down in section
198 except that the remuneration of the directors shall not be deducted from the
gross profits:
Provided that the company in general meeting may, with the
approval of the Central Government, authorise the payment of remuneration
exceeding eleven per cent. of the net profits of the company, subject to the
provisions of Schedule V:
Provided further that, except with the approval of the company in
general meeting,—
(i) the remuneration payable to anyone managing director; or whole-
time director or manager shall not exceed five per cent. of the net
profits of the company and if there is more than one such director
remuneration shall not exceed ten per cent. of the net profits to all
such directors and manager taken together;
(ii) the remuneration payable to directors who are neither managing
directors nor whole-time directors shall not exceed,—
(A) one per cent. of the net profits of the company, if there is a
managing or whole-time director or manager;
(B) three per cent. of the net profits in any other case.
(2)
The percentages aforesaid shall be exclusive of any fees payable to
directors under sub-section (5).
(3)
Notwithstanding anything contained in sub-sections (1) and (2), but
subject to the provisions of Schedule V, if, in any financial year, a company
has no profits or its profits are inadequate, the company shall not pay to
215
its directors, including any managing or whole-time director or manager, by
way of remuneration any sum exclusive of any fees payable to directors
under sub-section (5) hereunder except in accordance with the provisions of
Schedule V and if it is not able to comply with such provisions, with the
previous approval of the Central Government.
(4)
The remuneration payable to the directors of a company, including
any managing or whole-time director or manager, shall be determined, in
accordance with and subject to the provisions of this section, either by the
articles of the company, or by a resolution or, if the articles so require, by a
special resolution, passed by the company in general meeting and the
remuneration payable to a director determined aforesaid shall be inclusive of
the remuneration payable to him for the services rendered by him in any
other capacity:
Provided that any remuneration for services rendered by any such
director in other capacity shall not be so included if—
(a)the services rendered are of a professional nature; and
(b) in the opinion of the Nomination and Remuneration Committee, if
the company is covered under sub-section (1) of section 178, or the
Board of Directors in other cases, the director possesses the requisite
qualification for the practice of the profession.
(5) A director may receive remuneration by way of fee for attending
meetings of the Board or Committee thereof or for any other purpose
whatsoever as may be decided by the Board:
Provided that the amount of such fees shall not exceed the amount
as may be prescribed:
Provided further that different fees for different classes of
companies and fees in respect of independent director may be such as may
be prescribed.
(6) A director or manager may be paid remuneration either by way of a
monthly payment or at a specified percentage of the net profits of the
company or partly by one way and partly by the other.
(7) Notwithstanding anything contained in any other provision of this
Act but subject to the provisions of this section, an independent director
216
shall not be entitled to any stock option and may receive remuneration by
way of fees provided under sub-section (5), reimbursement of expenses for
participation in the Board and other meetings and profit related commission
as may be approved by the members.
(8) The net profits for the purposes of this section shall be computed
in the manner referred to in section 198.
(9) If any director draws or receives, directly or indirectly, by way of
remuneration any such sums in excess of the limit prescribed by this
section or without the prior sanction of the Central Government, where it is
required, he shall refund such sums to the company and until such sum is
refunded, hold it in trust for the company.
(10) The company shall not waive the recovery of any sum refundable
to it under sub-section (9) unless permitted by the Central Government.
(11) In cases where Schedule V is applicable on grounds of no profits or
inadequate profits, any provision relating to the remuneration of any director
which purports to increase or has the effect of increasing the amount thereof,
whether the provision be contained in the company’s memorandum or articles, or
in an agreement entered into by it, or in any resolution passed by the company
in general meeting or its Board, shall not have any effect unless such increase is
in accordance with the conditions specified in that Schedule and if such
conditions are not being complied, the approval of the Central Government had
been obtained.
(12) Every listed company shall disclose in the Board’s report, the ratio
of the remuneration of each director to the median employee’s remuneration and
such other details as may be prescribed.
(13) Where any insurance is taken by a company on behalf of its
managing director, whole-time director, manager, Chief Executive Officer, Chief
Financial Officer or Company Secretary for indemnifying any of them against any
liability in respect of any negligence, default, misfeasance, breach of duty or
breach of trust for which they may be guilty in relation to the company, the
premium paid on such insurance shall not be treated as part of the remuneration
payable to any such personnel:
Provided that if such person is proved to be guilty, the premium
paid on such insurance shall be treated as part of the remuneration.
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(14) Subject to the provisions of this section, any director who is in
receipt of any commission from the company and who is a managing or whole-
time director of the company shall not be disqualified from receiving any
remuneration or commission from any holding company or subsidiary company
of such company subject to its disclosure by the company in the Board’s report.
(15) If any person contravenes the provisions of this section, he shall
be punishable with fine which shall not be less than one lakh rupees but which
may extend to five lakh rupees.
198. Calculation of profits.—(1) In computing the net profits of a
company in any financial year for the purpose of section 197,—
(a)credit shall be given for the sums specified in sub-section (2),
and credit shall not be given for those specified in sub-section (3); and
(b) the sums specified in sub-section (4) shall be deducted, and
those specified in sub-section (5) shall not be deducted.
(2) In making the computation aforesaid, credit shall be given for the
bounties and subsidies received from any Government, or any public
authority constituted or authorised in this behalf, by any Government,
unless and except in so far as the Central Government otherwise directs.
(3) In making the computation aforesaid, credit shall not be given for
the following sums, namely:—
(a)
profits, by way of premium on shares or debentures of the
company, which are issued or sold by the company;
(b)
profits on sales by the company of forfeited shares;
(c)
profits of a capital nature including profits from the sale of
the undertaking or any of the undertakings of the company or of
any part thereof;
(d)
profits from the sale of any immovable property or fixed
assets of a capital nature comprised in the undertaking or any of the
undertakings of the company, unless the business of the company
consists, whether wholly or partly, of buying and selling any such
property or assets:
Provided that where the amount for which any fixed asset is sold
exceeds the written-down value thereof, credit shall be given for so
much of the excess as is not higher than the difference between the
original cost of that fixed asset and its written-down value;
(e) any change in carrying amount of an asset or of a liability
recognised in equity reserves including surplus in profit and loss
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account on measurement of the asset or the liability at fair value.
(4) In making the computation aforesaid, the following sums shall
be deducted, namely:—
(a)
all the usual working charges;
(b)
directors’ remuneration;
(c)
bonus or commission paid or payable to any member of
the company’s staff, or to any engineer, technician or person
employed or engaged by the company, whether on a whole-time or
on a part-time basis;
(d)
any tax notified by the Central Government as being in the
nature of a tax on excess or abnormal profits;
(e)
any tax on business profits imposed for special reasons or
in special circumstances and notified by the Central Government in
this behalf;
(f)
interest on debentures issued by the company;
(g)
interest on mortgages executed by the company and on
loans and advances secured by a charge on its fixed or floating
assets;
(h)
interest on unsecured loans and advances;
(i)
expenses on repairs, whether to immovable or to movable
property, provided the repairs are not of a capital nature;
(j)
outgoings inclusive of contributions made under section
181;
(k)
depreciation to the extent specified in section 123;
(l)
the excess of expenditure over income, which had arisen in
computing the net profits in accordance with this section in any year
which begins at or after the commencement of this Act, in so far as
such excess has not been deducted in any subsequent year
preceding the year in respect of which the net profits have to be
ascertained;
(m) any compensation or damages to be paid in virtue of any
legal liability including a liability arising from a breach of contract;
(n) any sum paid by way of insurance against the risk of
meeting any liability such as is referred to in clause (m);
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(o) debts considered bad and written off or adjusted during the
year of account.
(5) In making the computation aforesaid, the following sums shall not
be deducted, namely:—
(a)
income-tax and super-tax payable by the company under the
Income-tax Act, 1961 (43 of 1961) or any other tax on the income of
the company not falling under clauses (d) and (e) of sub-section
(4);
(b)
any compensation, damages or payments made voluntarily,
that is to say, otherwise than in virtue of a liability such as is
referred to in clause (m) of sub-section (4);
(c)
loss of a capital nature including loss on sale of the
undertaking or any of the undertakings of the company or of any
part thereof not including any excess of the written-down value of
any asset which is sold, discarded, demolished or destroyed over its
sale proceeds or its scrap value;
(d)
any change in carrying amount of an asset or of a liability
recognised in equity reserves including surplus in profit and loss
account on measurement of the asset or the liability at fair value.
199.
Recovery of remuneration in certain cases.—
Without prejudice
to any liability incurred under the provisions of this Act or any other law for
the time being in force, where a company is required to re-state its financial
statements due to fraud or non-compliance with any requirement under this Act
and the rules made thereunder, the company shall recover from any past or
present managing director or whole-time director or manager or Chief Executive
Officer (by whatever name called) who, during the period for which the financial
statements are required to be re-stated, received the remuneration (including
stock option) in excess of what would have been payable to him as per
restatement of financial statements.
200.
Central Government of company to fix limit with regard to
remuneration.—Notwithstanding anything contained in this Chapter, the Central
Government or a company may, while according its approval under section 196,
to any appointment or to any remuneration under section 197 in respect of cases
where the company has inadequate or no profits, fix the remuneration within the
limits specified in this Act, at such amount or percentage of profits of the
220
company, as it may deem fit and while fixing the remuneration, the Central
Government or the company shall have regard to—
(a)the financial position of the company;
(b)the remuneration or commission drawn by the individual
concerned in any other capacity;
(c) the remuneration or commission drawn by him from any other
company;
(d)professional qualifications and experience of the individual
concerned;
(e) such other matters as may be prescribed.
201.
Forms of and procedure in relation to, certain applications.—(1)
Every application made to the Central Government under this Chapter shall be in
such form as may be prescribed.
(2) (a)Before any application is made by a company to the Central
Government under any of the sections aforesaid, there shall be issued
by or on behalf of the company a general notice to the members
thereof, indicating the nature of the application proposed to be made.
(b)Such notice shall be published at least once in a newspaper in
the principal language of the district in which the registered office of
the company is situate and circulating in that district, and at least
once in English in an English newspaper circulating in that district.
(c) The copies of the notices, together with a certificate by the
company as to the due publication thereof, shall be attached to the
application.
202.
Compensation for loss of office of managing or whole-time director
or manager.—(1) A company may make payment to a managing or whole-time
director or manager, but not to any other director, by way of compensation for
loss of office, or as consideration for retirement from office or in connection with
such loss or retirement.
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(2) No payment shall be made under sub-section (1) in the following
cases, namely:—
(a)where the director resigns from his office as a result of the
reconstruction of the company, or of its amalgamation with any other
body corporate or bodies corporate, and is appointed as the managing
or whole-time director, manager or other officer of the reconstructed
company or of the body corporate resulting from the amalgamation;
(b) where the director resigns from his office otherwise than on the
reconstruction of the company or its amalgamation as aforesaid;
(c) where the office of the director is vacated under sub-section (1)
of section 167;
(d)where the company is being wound up, whether by an order of
the Tribunal or voluntarily, provided the winding up was due to the
negligence or default of the director;
(e) where the director has been guilty of fraud or breach of trust in
relation to, or of gross negligence in or gross mismanagement of, the
conduct of the affairs of the company or any subsidiary company or
holding company thereof; and
(f) where the director has instigated, or has taken part directly or
indirectly in bringing about, the termination of his office.
(3)
Any payment made to a managing or whole-time director or manager
in pursuance of sub-section (1) shall not exceed the remuneration which he
would have earned if he had been in office for the remainder of his term or
for three years, whichever is shorter, calculated on the basis of the
average remuneration actually earned by him during a period of three years
immediately preceding the date on which he ceased to hold office, or where
he held the office for a lesser period than three years, during such period:
Provided that no such payment shall be made to the director in the
event of the commencement of the winding up of the company, whether
before or at any time within twelve months after, the date on which he
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ceased to hold office, if the assets of the company on the winding up,
after deducting the expenses thereof, are not sufficient to repay to the
shareholders the share capital, including the premiums, if any, contributed
by them.
(4)
Nothing in this section shall be deemed to prohibit the payment to
a managing or whole-time director, or manager, of any remuneration for
services rendered by him to the company in any other capacity.
203.
Appointment of key managerial personnel.— (1) Every company
belonging to such class or classes of companies as may be prescribed shall
have the following whole-time key managerial personnel,—
(i) managing director, or Chief Executive Officer or manager and in
their absence, a whole-time director;
(ii) company secretary; and
(iii) Chief Financial Officer:
Provided that an individual shall not be appointed or reappointed as
the chairperson of the company, in pursuance of the articles of the
company, as well as the managing director or Chief Executive Officer of the
company at the same time after the date of commencement of this Act
unless,—
(a) the articles of such a company provide otherwise; or
(b) the company does not carry multiple businesses:
Provided further that nothing contained in the first proviso shall apply
to such class of companies engaged in multiple businesses and which has
appointed one or more Chief Executive Officers for each such business as
may be notified by the Central Government.
(2) Every whole-time key managerial personnel of a company shall
be appointed by means of a resolution of the Board containing the terms
and conditions of the appointment including the remuneration.
(3) A whole-time key managerial personnel shall not hold office in
more than one company except in its subsidiary company at the same time:
223
Provided that nothing contained in this sub-section shall disentitle a key
managerial personnel from being a director of any company with the
permission of the Board:
Provided further that whole-time key managerial personnel holding office
in more than one company at the same time on the date of commencement
of this Act, shall, within a period of six months from such commencement,
choose one company, in which he wishes to continue to hold the office of
key managerial personnel:
Provided also that a company may appoint or employ a person as its
managing director, if he is the managing director or manager of one, and of
not more than one, other company and such appointment or employment is
made or approved by a resolution passed at a meeting of the Board with
the consent of all the directors present at the meeting and of which
meeting, and of the resolution to be moved thereat, specific notice has
been given to all the directors then in India.
(4) If the office of any whole-time key managerial personnel is
vacated, the resulting vacancy shall be filled-up by the Board at a meeting
of the Board within a period of six months from the date of such vacancy.
(5) If a company contravenes the provisions of this section, the
company shall be punishable with fine which shall not be less than one
lakh rupees but which may extend to five lakh rupees and every director
and key managerial personnel of the company who is in default shall be
punishable with fine which may extend to fifty thousand rupees and where
the contravention is a continuing one, with a further fine which may extend
to one thousand rupees for every day after the first during which the
contravention continues.
204.
Secretarial audit for bigger companies.—(1) Every listed company
and a company belonging to other class of companies as may be prescribed
shall annex with its Board’s report made in terms of sub-section (3) of section
134, a secretarial audit report, given by a company secretary in practice, in such
form as may be prescribed.
(2) It shall be the duty of the company to give all assistance and
facilities to the company secretary in practice, for auditing the secretarial
and related records of the company.
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(3) The Board of Directors, in their report made in terms of sub-
section (3) of section 134, shal1 explain in full any qualification or
observation or other remarks made by the company secretary in practice in
his report under sub-section (1).
(4) If a company or any officer of the company or the company
secretary in practice, contravenes the provisions of this section, the
company, every officer of the company or the company secretary in
practice, who is in default, shall be punishable with fine which shall not be
less than one lakh rupees but which may extend to five lakh rupees.
205.
Functions of company secretary.—(1) The functions of the
company secretary shall include,—
(a) to report to the Board about compliance with the provisions of
this Act, the rules made thereunder and other laws applicable to the
company;
(b) to ensure that the company complies with the applicable
secretarial standards;
(c) to discharge such other duties as may be prescribed.
Explanation.—For the purpose of this section, the expression
“secretarial standards” means secretarial standards issued by the Institute
of Company Secretaries of India constituted under section 3 of the
Company Secretaries Act, 1980 (56 of 1980) and approved by the Central
Government.
(2) The provisions contained in section 204 and section 205 shall
not affect the duties and functions of the Board of Directors, Chairperson
of the company, Managing Director or whole-time director under this Act,
or any other law for the time being in force.
CHAPTER XIV
INSPECTION, INQUIRY AND INVESTIGATION
206.
Power to call for information inspect books and conduct
inquiries.—(1) Where on a scrutiny of any document filed by a company or on
any information received by him, the Registrar is of the opinion that any further
225
information or explanation or any further documents relating to the company is
necessary, he may by a written notice require the company—
(a) to furnish in writing such information or explanation; or
(b) to produce such documents,
within such reasonable time, as may be specified in the notice.
(2)
On the receipt of a notice under sub-section (1), it shall be the duty
of the company and of its officers concerned to furnish such information or
explanation to the best of their knowledge and power and to produce the
documents to the Registrar within the time specified or extended by the
Registrar:
Provided that where such information or explanation relates to any
past period, the officers who had been in the employment of the company
for such period, if so called upon by the Registrar through a notice served
on them in writing, shall also furnish such information or explanation to the
best of their knowledge.
(3) If no information or explanation is furnished to the Registrar within
the time specified under sub-section (1) or if the Registrar on an
examination of the documents furnished is of the opinion that the
information or explanation furnished is inadequate or if the Registrar is
satisfied on a scrutiny of the documents furnished that an unsatisfactory
state of affairs exists in the company and does not disclose a full and fair
statement of the information required, he may, by another written notice,
call on the company to produce for his inspection such further books of
account, books, papers and explanations as he may require at such place
and at such time as he may specify in the notice:
Provided that before any notice is served under this sub-section, the
Registrar shall record his reasons in writing for issuing such notice.
(4) If the Registrar is satisfied on the basis of information available
with or furnished to him or on a representation made to him by any person
that the business of a company is being carried on for a fraudulent or
226
unlawful purpose or not in compliance with the provisions of this Act or if
the grievances of investors are not being addressed, the Registrar may,
after informing the company of the allegations made against it by a written
order, call on the company to furnish in writing any information or
explanation on matters specified in the order within such time as he may
specify therein and carry out such inquiry as he deems fit after providing
the company a reasonable opportunity of being heard:
Provided that the Central Government may, if it is satisfied that the
circumstances so warrant, direct the Registrar or an inspector appointed by
it for the purpose to carry out the inquiry under this sub-section:
Provided further that where business of a company has been or is
being carried on for a fraudulent or unlawful purpose, every officer of the,
company who is in default shall be punishable for fraud in the manner as
provided in section 447.
(5) Without prejudice to the foregoing provisions of this section, the
Central Government may, if it is satisfied that the circumstances so warrant,
direct inspection of books and papers of a company by an inspector
appointed by it for the purpose.
(6) The Central Government may, having regard to the circumstances by
general or special order, authorise any statutory authority to carry out the
inspection of books of account of a company or class of companies.
(7) If a company fails to furnish any information or explanation or
produce any document required under this section, the company and every
officer of the company, who is in default shall be punishable with a fine
which may extend to one lakh rupees and in the case of a continuing
failure, with an additional fine which may extend to five hundred rupees for
every day after the first during which the failure continues.
207.
Conduct of inspection and inquiry.—(1) Where a Registrar or
inspector calls for the books of account and other books and papers under
section 206, it shall be the duty of every director, officer or other employee of
the company to produce all such documents to the Registrar or inspector and
furnish him with such statements, information or explanations in such form as
227
the Registrar or inspector may require and shall render all assistance to the
Registrar or inspector in connection with such inspection.
(2) The Registrar or inspector, making an inspection or inquiry under
section 206 may, during the course of such inspection or inquiry, as the case
may be,—
(a) make or cause to be made copies of books of account and
other books and papers; or
(b) place or cause to be placed any marks of identification in such
books in token of the inspection having been made.
(3) Notwithstanding anything contained in any other law for the time
being in force or in any contract to the contrary, the Registrar or inspector
making an inspection or inquiry shall have all the powers as are vested in a civil
court under the Code of Civil Procedure, 1908, (5 of 1908), while trying a suit
in respect of the following matters, namely:—
(a) the discovery and production of books of account and other
documents, at such place and time as may be specified by such
Registrar or inspector making the inspection or inquiry;
(b) summoning and enforcing the attendance of persons and
examining them on oath; and
(c) inspection of any books, registers and other documents of
the company at any place.
(4) (i) If any director or officer of the company disobeys the direction
issued by the Registrar or the inspector under this section, the director or the
officer shall be punishable with imprisonment which may extend to one year and
with fine which shall not be less than twenty-five thousand rupees but which
may extend to one lakh rupees.
(ii) If a director or an officer of the company has been convicted of an
offence under this section, the director or the officer shall, on and from the date
on which he is so convicted, be deemed to have vacated his office as such and
228
(b) seize such books and papers as he considers necessary after
allowing the company to take copies of, or extracts from, such books
or papers at its cost.
(2) The Registrar or inspector shall return the books and papers
seized under sub-section (1), as soon as may be, and in any case not later than
one hundred and eightieth day after such seizure, to the company from whose
custody or power such books or papers were seized:
Provided that the books and papers may be called for by the Registrar
or inspector for a further period of one hundred and eighty days by an order in
writing if they are needed again:
Provided further that the Registrar or inspector may, before returning
such books and papers as aforesaid, take copies of, or extracts from them or
place identification marks on them or any part thereof or deal with the same in
such other manner as he considers necessary.
(3) The provisions of the Code of Criminal Procedure, 1973
(2 of 1974) relating to searches or seizures shall apply, mutatis mutandis to
every search and seizure made under this section.
210.
Investigation into affairs of company.—(1) Where the Central
Government is of the opinion, that it is necessary to investigate into the affairs
of a company,—
(a) on the receipt of a report of the Registrar or inspector under
section 208;
(b) on intimation of a special resolution passed by a company that
the affairs of the company ought to be investigated; or
(c) in public interest,
it may order an investigation into the affairs of the company.
(2) Where an order is passed by a court or the Tribunal in any
proceedings before it that the affairs of a company ought to be investigated, the
Central Government shall order an investigation into the affairs of that
company.
229
(3) For the purposes of this section, the Central Government may
appoint one or more persons as inspectors to investigate into the affairs of the
company and to report thereon in such manner as the Central Government
may direct.
211.
Establishment of Serious Fraud Investigation Office.—(1) The
Central Government shall, by notification, establish an office to be called the
Serious Fraud Investigation Office to investigate frauds relating to a company:
Provided that until the Serious Fraud Investigation Office is established
under sub-section (1), the Serious Fraud Investigation Office set-up by the
Central Government in terms of the Government of India Resolution
No. 45011/16/2003-Adm-I, dated the 2nd July, 2003 shall be deemed to be the
Serious Fraud Investigation Office for the purpose of this section.
(2) The Serious Fraud Investigation Office shall be headed by a
Director and consist of such number of experts from the following fields to be
appointed by the Central Government from amongst persons of ability, integrity
and experience in,—
(i)
banking;
(ii)
corporate affairs;
(iii)
taxation;
(iv)
forensic audit;
(v)
capital market;
(vi)
information technology;
(vii)
law; or
(viii) such other fields as may be prescribed.
(3) The Central Government shall, by notification, appoint a Director
in the Serious Fraud Investigation Office, who shall be an officer not below the
rank of a Joint Secretary to the Government of India having knowledge and
experience in dealing with matters relating to corporate affairs.
(4) The Central Government may appoint such experts and other
officers and employees in the Serious Fraud Investigation Office as it
considers necessary for the efficient discharge of its functions under this Act.
230
(5)
The terms and conditions of service of Director, experts, and other
officers and employees of the Serious Fraud Investigation Office shall be such as
may be prescribed.
212.
Investigation into affairs of Company by serious Fraud Investigation
Office.—(1) Without prejudice to the provisions of section 210, where the
Central Government is of the opinion, that it is necessary to investigate into the
affairs of a company by the Serious Fraud Investigation Office—
(a) on receipt of a report of the Registrar or inspector under
section 208;
(b) on intimation of a special resolution passed by a company
that its affairs are required to be investigated;
(c) in the public interest; or
(d) on request from any Department of the Central Government
or a State Government,
the Central Government may, by order, assign the investigation into the affairs
of the said company to the Serious Fraud Investigation Office and its Director,
may designate such number of inspectors, as he may consider necessary for the
purpose of such investigation.
(2) Where any case has been assigned by the Central Government to
the Serious Fraud Investigation Office for investigation under this Act, no other
investigating agency of Central Government or any State Government shall
proceed with investigation in such case in respect of any offence under this Act
and in case any such investigation has already been Initiated, it shall not be
proceeded further with and the concerned agency shall transfer the relevant
documents and records in respect of such offences under this Act to Serious
Fraud Investigation Office.
(3) Where the investigation into the affairs of a company has been
assigned by the Central Government to Serious Fraud Investigation Office, it
shall conduct the investigation in the manner and follow the procedure provided
in this Chapter; and submit its report to the Central Government within such
period as may be specified in the order.
(4) The Director, Serious Fraud Investigation Office shall cause the
231
affairs of the company to be investigated by an Investigating Officer who shall
have the power of the inspector under section 217.
(5) The company and its officers and employees, who are or have
been in employment of the company shall be responsible to provide all
information, explanation, documents and assistance to the Investigating Officer
as he may require for conduct of the investigation.
(6) Notwithstanding anything contained in the Code of Criminal
Procedure, 1973 (2 of 1974), the offences covered under sub-sections (5) and
(6) of section 7, section 34, section 36, sub-section (1) of section 38,
sub-section (5) of section 46, sub-section (7) of section 56, sub-section (10)
of section 66, sub-section (5) of section 140, sub-section (4) of section 206,
section 213, section 229, sub-section (1) of section 251, sub-section (3) of
section 339 and section 448 which attract the punishment for fraud provided in
section 447 of this Act shall be cognizable and no person accused of any
offence under those sections shall be released on bail or on his own bond
unless—
(i)
the Public Prosecutor has been given an opportunity to oppose
the application for such release; and
(ii) where the Public Prosecutor opposes the application, the
court is satisfied that there are reasonable grounds for believing that
he is not guilty of such offence and that he is not likely to commit
any offence while on bail:
Provided that a person, who, is under the age of sixteen years or is a
woman or is sick or infirm, may be released on bail, if the Special Court so
directs:
Provided further that the Special Court shall not take cognizance of
any offence referred to this sub-section except upon a complaint in writing
made by—
(i)
the Director, Serious Fraud Investigation Office; or
(ii) any officer of the Central Government authorised, by a
general or special order in writing in this behalf by that Government.
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(7) The limitation on granting of bail specified in sub-section (6) is in
addition to the limitations under the Code of Criminal Procedure, 1973
(2 of 1974) or any other law for the time being in force on granting of bail.
(8) If the Director, Additional Director or Assistant Director of Serious
Fraud Investigation Office authorised in this behalf by the Central Government
by general or special order, has on the basis of material in his possession
reason to believe (The reason for such belief to be recorded in writing) that any
person has been guilty of any offence punishable under sections referred to in
sub-section (6), he may arrest such person and shall, as soon as may be, inform
him of the grounds for such arrest.
(9) The Director, Additional Director or Assistant Director of Serious
Fraud Investigation Office shall, immediately after arrest of such person under
sub-section (8), forward a copy of the order, along with the material in his
possession, referred to in that sub-section, to the Serious Fraud Investigation
Office in a sealed envelope, in such manner as may be prescribed and the
Serious Fraud Investigation Office shall keep such order and material for such
period as may be prescribed.
(10) Every person arrested under sub-section (8) shall within twenty-
four hours, be taken to a Judical Magistrate or a Metropolitan Magistrate, as
the case may be, having jurisdiction :
Provided that the period of twenty-four hours shall exclude the time
necessary for the journey from the place of arrest to the Magistrate’s Court.
(11) The Central Government if so directs, the Serious Fraud
Investigation Office shall submit an interim report to the Central Government.
(12) On completion of the investigation, the Serious Fraud Investigation
Office shall submit the investigation report to the Central Government.
(13) Notwithstanding anything contained in this Act or in any other law
for the time being in force, a copy of the investigation report may be obtained
233
by any person concerned by making an application in this regard to the court.
(14) On receipt of the investigation report, the Central Government may,
after examination of the report (And after taking such legal advice, as it may
think fit), direct the Serious Fraud Investigation Office to initiate prosecution
against the company and its officers or employees, who are or have been in
employment of the company or any other person directly or indirectly
connected with the affairs of the company.
(15) Notwithstanding anything contained in this Act or in any other law
for the time being in force, the investigation report filed with the Special Court
for framing of charges shall be deemed to be a report filed by a police officer
under Section 173 of the Code of Criminal Procedure, 1973 (2 of 1974).
(16) Notwithstanding anything contained in this Act, any investigation or
other action taken or initiated by Serious Fraud Investigation Office under the
provisions of the Companies Act, 1956 (1 of 1956) shall continue to be
proceeded with under that Act as if this Act had not been passed.
(17) (a) In case Serious Fraud Investigation Office has been investigating
any offence under this Act, any other investigating agency, State Government,
Police authority, Income-tax authorities having any information or documents in
respect of such offence shall provide all such information or documents
available with it to the Serious Fraud Investigation Office ;
(b)
The Serious Fraud Investigation Office shall share any
information or documents available with it, with any investigating agency, State
Government, Police authority or Income-tax authorities, which may be relevant
or useful for such Investigating agency, State Government, Police authority or
Income-tax authorities in respect of any offence or matter being investigated or
examined by it under any other law.
213.
Investigation into company’s affairs in other cases.—The Tribunal
may,—
(a) on an application made by—
(i) not less than one hundred members or members holding
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not less than one-tenth of the total voting power, in the case of a
company having a share capital ; or
(ii) not less than one-fifth of the persons on the
company’s register of members, in the case of a company having
no share capital,
and supported by such evidence as may be necessary for the purpose of
showing that the applicants have good reasons for seeking an order for
conducting an investigation into the affairs of the company; or
(b) on an application made to it by any other person or otherwise,
if it is satisfied that there are circumstances suggesting that—
(i)
the business of the company is being conducted with
intent to defraud its creditors, members or any other person or
otherwise for a fraudulent or unlawful purpose, or in a manner
oppressive to any of its members or that the company was formed
for any fraudulent or unlawful purpose ;
(ii) persons concerned in the formation of the company or
the management of its affairs have in connection therewith been
guilty of fraud, misfeasance or other misconduct towards the
company or towards any of its members ; or
(iii) the members of the company have not been given all the
information with respect to its affairs which they might
reasonably expect, including information relating to the calculation
of the commission payable to a managing or other director, or the
manager, of the company,
order, after giving a reasonable opportunity of being heard to the parties
concerned, that the affairs of the company ought to be investigated by an
inspector or inspectors appointed by the Central Government and where such an
order is passed, the Central Government shall appoint one or more competent
persons as inspectors to investigate into the affairs of the company in respect
of such matters and to report thereupon to it in such manner as the Central
Government may direct :
Provided that if after investigation it is proved that—
(i)
the business of the company is being conducted with
intent to defraud its creditors, members or any other persons or
235
otherwise for a fraudulent or unlawful purpose, or that the company
was formed for any fraudulent or unlawful purpose ; or
(ii) any person concerned in the formation of the company or the
management of its affairs have in connection therewith been guilty of
fraud,
then, every officer of the company who is in default and the person or persons
concerned in the formation of the company or the management of its affairs
shall be punishable for fraud in the manner as provided in
section 447.
214.
Security for payment of costs and expenses of investigation.—Where
an investigation is ordered by the Central Government in pursuance of clause
(b) of sub-section (1) of section 210, or in pursuance of an order made by the
Tribunal under Section 213, the Central Government may before appointing an
inspector under sub-section (3) of Section 210 or Clause (b) of Section 213,
require the applicant to give such security not exceeding twenty-five thousand
rupees as may be prescribed, as it may think fit, for payment of the costs and
expenses of the investigation and such security shall be refunded to the
applicant if the investigation results in prosecution.
215.
Firm, body corporate or association not to be appointed as
inspector.—No firm, body corporate or other association shall be appointed as
an inspector.
216.
Investigation of ownership of company.—(1) Where it appears to the
Central Government that there is a reason so to do, it may appoint or more
inspectors to investigate and report on matters relating to the company, and its
membership for the purpose of determining the true persons—
(a) who are or have been financially interested in the success or
failure, whether real or apparent, of the company ; or
(b) who are or have been able to control or to materially influence
the policy of the company.
(2) Without prejudice to its powers under sub-section (1), the Central
Government shall appoint one or more inspectors under that sub-section, if the
Tribunal, in the course of any proceeding before it, directs by an order that the
236
affairs of the company ought to be investigated as regards the membership of
the company and other matters relating to the company, for the purposes
specified in sub-section (1).
(3) While appointing an inspector under sub-section (1), the Central
Government may define the scope of the investigation, whether as respects the
matters or the period to which it is to extend or otherwise, and in particular,
may limit the investigation to matters connected with particular shares or
debentures.
(4) Subject to the terms of appointment of an inspector, his powers
shall extend to the investigation of any circumstances suggesting the existence
of any arrangement or understanding which, though not legally binding, is or was
observed or is likely to be observed in practice and which is relevant for the
purposes of his investigation.
217.
Procedure, powers, etc. of inspectors.—(1) It shall be the duty of all
officers and other employees and agents including the former officers, employees
and agents of a company which is under investigation in accordance with the
provisions contained in this Chapter, and where the affairs of any other body
corporate or a person are investigated under section 219, of all officers and other
employees and agents including former officers, employees and agents of such
body corporate or a person—
(a) to preserve and to produce to an inspector or any person
authorised by him in this behalf all books and papers of, or relating to,
the Company or, as the case may be, relating to the other body
corporate or the person, which are in their custody or power; and
(b) otherwise to give to the inspector all assistance in connection
with the investigation which they are reasonably able to give.
(2) The inspector may require any body corporate, other than a body
corporate referred to in sub-section (1), to furnish such information to, or
produce such books and papers before him or any person authorised by him in
this behalf as he may consider necessary, if the furnishing of such information or
the production of such books and papers is relevant or necessary for the
purposes of his investigation.
(3) The inspector shall not keep in his custody any books and papers
produced under sub-section (1) or sub-section (2) for more than one hundred
and eighty days and return the same to the company, body corporate, firm or
237
individual by whom or on whose behalf the books and papers were produced:
Provided that the books and papers may be called for by the inspector
if they are needed again for a further period of one hundred and eighty
days by an order in writing.
(4) An inspector may examine on oath—
(a) any of the persons referred to in sub-section (1); and
(b) with the prior approval of the Central Government, any
other person,
in relation to the affairs of the company, or other body corporate or
person, as the case may be, and for that purpose may require any of
those persons to appear before him personally:
Provided that in case of an investigation under section 212, the
prior approval of Director, Serious Fraud Investigation Office shall be
sufficient under clause (b).
(5) Notwithstanding anything contained in any other law for the
time being in force or in any contract to the contrary, the inspector,
being an officer of the Central Government, making an investigation
under this Chapter shall have all the powers as are vested in a civil
court under the Code of Civil Procedure, 1908 (5 of 1908), while
trying a suit in respect of the following matters, namely:—
(a)
the discovery and production of books of account and
other documents, at such place and time as may be specified by
such person;
(b)
summoning and enforcing the attendance of persons and
examining them on oath; and
(c)
inspection of any books, registers and other documents
of the company at any place.
(6) (i) If any director or officer of the company disobeys the
direction issued by the Registrar or the inspector under this section,
the director or the officer shall be punishable with imprisonment
which may extend to one year and with fine which shall not be less
than twenty-five thousand rupees but which may extend to one lakh
rupees.
238
(ii) If a director or an officer of the company has been convicted
of an offence under this section, the director or the officer 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 from holding an office in any company.
(7) The notes of any examination under sub-section (4) shall be
taken down in writing and shall be read over to, or by, and signed by,
the person examined, and may thereafter be used in evidence against him.
(8) If any person fails without reasonable cause or refuses—
(a)
to produce to an inspector or any person authorised by
him in this behalf any book or paper which is his duty under
sub-section (1) or sub-section (2) to produce;
(b)
to furnish any information which is his duty under
sub-section (2) to furnish;
(c)
to appear before the inspector personally when required
to do so under sub-section (4) or to answer any question which is
put to him by the inspector in pursuance of that sub-section; or
(d)
to sign the notes of any examination referred to in
sub-section (7),
he shall be punishable with imprisonment for a term which may
extend to six months and with fine which shall not be less than twenty-
five thousand rupees but which may extend to one lakh rupees, and
also with a further fine which may extend to two thousand rupees for
every day after the first during which the failure or refusal continues.
(9) The officers of the Central Govemment, State Government,
police or statutory authority shall provide assistance to the inspector
for the purpose of inspection, inquiry or investigation, which the
inspector may, with the prior approval of the Central Government,
require.
(10)
The Central Government may enter into an agreement with
the Government of a foreign State for reciprocal arrangements to
assist in any inspection, inquiry or investigation under this Act or
239
under the corresponding law in force in that State and may, by
notification, render the application of this Chapter in relation to a
foreign State with which reciprocal arrangements have been made
subject to such modifications, exceptions, conditions and
qualifications as may be deemed expedient for implementing the
agreement with that State.
(11)
Notwithstanding anything contained in this Act or in the
Code of Criminal Procedure, 1973 (2 of 1974) if, in the course of an
investigation into the affairs of the company, an application is made to
the competent court in India by the inspector stating that evidence is,
or may be, available in a country or place outside India, such court
may issue a letter of request to a court or an authority in such
country or place, competent to deal with such request, to examine
orally, or otherwise, any person, supposed to be acquainted with the
facts and circumstances of the case, to record his statement made in
the course of such examination and also to require such person or any
other person to produce any document or thing, which may be in his
possession pertaining to the case, and to forward all the evidence so
taken or collected or the authenticated copies thereof or the things so
collected to the court in India which had issued such letter of request:
Provided that the letter of request shall be transmitted in such
manner as the Central Government may specify in this behalf:
Provided further that every statement recorded or document or
thing received under this sub-section shall be deemed to be the
evidence collected during the course of investigation.
(12)
Upon receipt of a letter of request from a court or an
authority in a country or place outside India, competent to issue such
letter in that country or place for the examination of any person or
production of any document or thing in relation to affairs of a
company under investigation in that country or place, the Central
Government may, if it thinks fit, forward such letter of request to the
court concerned, which shall thereupon summon the person before it
and record his statement or cause any document or thing to be
produced, or send the letter to any inspector for investigation, who
shall thereupon investigate into the affairs of company in the same
manner as the affairs of a company are investigated under this Act and
the inspector shall submit the report to such court within thirty days
or such extended time as the court may allow for further action:
240
Provided that the evidence taken or collected under this sub-
section or authenticated copies thereof or the things so collected
shall be forwarded by the court, to the Central Government for
transmission, in such manner as the Central Government may deem fit,
to the court or the authority in country or place outside India which
had issued the letter of request.
218.
Protection of employees during investigation.—Notwithstanding
anything contained in any other law for the time being in force, if—
(a) during the course of any investigation of the affairs and other
matters of or relating to a company, other body corporate or person
under section 210, section 212, section 213 or section 219 or of the
membership and other matters of or relating to a company, or the
ownership of shares in or debentures of a company or body
corporate, or the affairs and other matters of or relating to a company,
other body corporate or person, under section 216; or
(b) during the pendency of any proceeding against any person
concerned in the conduct and management of the affairs of a company
under Chapter XVI,
such company, other body corporate or person proposes—
(i)
to discharge of suspend any employee; or
(ii) to punish him, whether by dismissal, removal, reduction
in rank or otherwise;
or
(iii) to change the terms of employment to his disadvantage,
the company, other body corporate or person, as the case may be,
shall obtain approval of the Tribunal of the action proposed against the
employee and if the Tribunal has any objection to the action proposed,
it shall send by post notice thereof in writing to the company, other
body corporate or person concerned.
(2) If the company, other body corporate or person concerned
does not receive within thirty days of making of application under sub-
section (1), the approval of the Tribunal, then and only then, the
company, other body corporate or person concerned may proceed to
take against the employee, the action proposed.
241
(3) If the company, other body corporate or person concerned is
dissatisfied with the objection raised by the Tribunal, it may, within a
period of thirty days of the receipt of the notice of the objection,
prefer an appeal to the Appellate Tribunal in such manner and on
payment of such fees as may be prescribed.
(4) The decision of the Appellate Tribunal on such appeal shall
be final and binding on the Tribunal and on the company, other body
corporate or person concerned.
(5) For the removal of doubts, it is hereby declared that the
provisions of this section shall have effect without prejudice to the
provisions of any other law for the time being in force.
219.
Power of inspector to conduct investigation into affairs of related
companies, etc.—If an inspector appointed under section 210 or section 212 or
section 213 to investigate into the affairs of a company considers it necessary
for the purposes of the investigation, to investigate also the affairs of—
(a)
any other body corporate which is, or has at any relevant
time been the company’s subsidiary company or holding company,
or a subsidiary company of its holding company;
(b)
any other body corporate which is, or has at any relevant
time been managed by any person as managing director or as
manager, who is, or was, at the relevant time, the managing
director or the manager of the company;
(c)
any other body corporate whose Board of Directors
comprises nominees of the company or is accustomed to act in
accordance with the directions or instructions of the company or
any of its directors; or
(d)
any person who is or has at any relevant time been the
company’s managing director or manager or employee,
he shall, subject to the prior approval of the Central Government, investigate
into and report on the affairs of the other body corporate or of the managing
director or manager, in so far as he considers that the results of his
investigation are relevant to the investigation of the affairs of the company for
which he is appointed.
242
220.
Seizure of documents by inspector.—(1) Where in the course of an
investigation under this Chapter, the inspector has reasonable grounds to believe
that the books and papers of, or relating to, any company or other body
corporate or managing director or manager of such company are likely to be
destroyed, mutilated, altered, falsified or secreted, the inspector may—
(a) enter, with such assistance as may be required, the place
or places where such books and papers are kept in such manner as
may be required; and
(b) seize books and papers as he considers necessary after
allowing the company to take copies of, or extracts from, such
books and papers at its cost for the purposes of his investigation.
(2) The inspector shall keep in his custody the books and papers
seized under this section for such a period not later than the conclusion of the
investigation as he considers necessary and thereafter shall return the same to
the company or the other body corporate, or, as the case may be, to the
managing director or the manager or any other person from whose custody or
power they were seized :
Provided that the inspector may, before returning such books and
papers as aforesaid, take copies of, or extracts from them or place
identification marks on them or any part thereof or deal with the same in such
manner as he considers necessary.
(3) The provisions of the Code of Criminal Procedure, 1973
(2 of 1974), relating to searches or seizures shall apply mutatis mutandis to
every search or seizure made under this section.
221.
Freezing of assets of company on inquiry and investigation.—
(1) Where it appears to the Tribunal, on a reference made to it by the Central
Government or in connection with any inquiry or investigation into the affairs
of a company under this Chapter or on any complaint made by such number of
members as specified under sub-section (1) of section 244 or a creditor having
one lakh amount outstanding against the company or any other person having a
reasonable ground to believe that the removal, transfer or disposal of funds,
assets, properties of the company is likely to take place in a manner that is
243
prejudicial to the interests of the company or its shareholders or creditors or in
public interest, it may by order direct that such transfer, removal or disposal
shall not take place during such period not exceeding three years as may be
specified in the order or may take place subject to such conditions and
restrictions as the Tribunal may deem fit.
(2) In case of any removal, transfer or disposal of funds, assets,
or properties of the company in contravention of the order of the
Tribunal under sub-section (1), the company shall be punishable with
fine which shall not be less than one lakh rupees but which may extend
to twenty-five lakh rupees and every officer of the company who is in
default shall be punishable with imprisonment for a term which may
extend to three years or with fine which shall not be less than fifty
thousand rupees but which may extend to five lakh rupees,
or with both.
222.
Imposition of restrictions upon securities.—(1) Where it appears to
the Tribunal, in connection with any investigation under section 216 or on a
complaint made by any person in this behalf, that there is good reason to find
out the relevant facts about any securities issued or to be issued by a company
and the Tribunal is of the opinion that such facts cannot be found out unless
certain restrictions, as it may deem fit, are imposed, the Tribunal may, by order,
direct that the securities shall be subject to such restrictions as it may deem fit
for such period not exceeding three years as may be specified in the order.
(2) Where securities in any company are issued or transferred or
acted upon in contravention of an order of the Tribunal under sub-section (1),
the company shall be punishable with fine which shall not be less than one lakh
rupees but which may extend to twenty-five lakh rupees and every officer of
the company who is in default shall be punishable with imprisonment for a term
which may extend to six months or with fine which shall not be less than
twenty-five thousand rupees but which may extend to five lakh rupees,
or with both.
223.
Inspector’s report.—(1) An inspector appointed under this Chapter
may, and if so directed by the Central Government shall, submit interim reports
to that Government, and on the conclusion of the investigation, shall submit a
final report to the Central Govemment.
244
(2) Every report made under sub-section (I) shall be in writing or
printed as the Central Government may direct.
(3) A copy of the report made under sub-section (1) may be obtained
by making an application in this regard to the Central Government.
(4) The report of any inspector appointed under this Chapter shall be
authenticated either—
(a) by the seal of the company whose affairs have been
investigated; or
(b) by a certificate of a public officer having the custody of the
report, as provided under section 76 of the Indian Evidence Act, 1872
(1 of 1872),
and such report shall be admissible in any legal proceeding as evidence in
relation to any matter contained in the report.
(5) Nothing in this section shall apply to the report referred to in
section 212.
224.
Actions to be taken in pursuance of inspector’s report.—(1) If, from
an inspector’s report, made under section 223, it appears to the Central
Government that any person has, in relation to the company or in relation to any
other body corporate or other person whose affairs have been investigated
under this Chapter been guilty of any offence for which he is criminally liable,
the Central Government may prosecute such person for the offence and it shall
be the duty of all officers and other employees of the company or body
corporate to give the Central Government the necessary assistance in connection
with the prosecution.
(2) If any company or other body corporate is liable to be wound up
under this Act and it appears to the Central Government from any such report
made under section 223 that it is expedient so to do by reason of any such
circumstances as are referred to in section 213, the Central Government may,
unless the company or body corporate is already being wound up by the
Tribunal, cause to be presented to the Tribunal by any person authorised by the
Central Government in this behalf—
(a)
a petition for the winding up of the company or body
corporate on the ground that it is just and equitable that it should
be wound up;
245
(b) an application under section 241; or
(c) both.
(3) If from any such report as aforesaid, it appears to the Central
Government that proceedings ought, in the public interest, to be brought by the
company or any body corporate whose affairs have been investigated under this
Chapter—
(a) for the recovery of damages in respect of any fraud,
misfeasance or other misconduct in connection with the promotion or
formation, or the management of the affairs, of such company or body
corporate; or
(b) for the recovery of any property of such company or body
corporate which has been misapplied or wrongfully retained,
the Central Government may itself bring proceedings for winding up in the name
of such company or body corporate.
(4) The Central Government, shall be indemnified by such company or
body corporate against any costs or expenses incurred by it in, or in connection
with, any proceedings brought by virtue of sub-section (3).
(5) Where the report made by an inspector states that fraud has taken
place in a company and due to such fraud any director, key managerial
personnel, other officer of the company or any other person or entity, has
taken undue advantage or benefit, whether in the form of any asset, property or
cash or in any other manner, the Central Government may file an application
before the Tribunal for appropriate orders with regard to disgorgement of such
asset, property, or cash, as the case may be, and also for holding such director,
key managerial personnel, officer or other person liable personally without any
limitation of liability.
225.
Expenses of investigation.—(1) The expenses of, and incidental to,
an investigation by an inspector appointed by the Central Government under
this Chapter other than expenses of inspection under section 214 shall be
defrayed .in the first instance by the Central Government, but shall be
reimbursed by the following persons to the extent mentioned below, namely:—
(a)
any person who is convicted on a prosecution instituted,
or who is ordered to pay damages or restore any property in
proceedings brought, under section 224, to the extent that he may
in the same proceedings be ordered to pay the said expenses as
246
may be specified by the court convicting such person, or ordering
him to pay such damages or restore such property, as the case
may be;
(b)
any company or body corporate in whose name
proceedings are brought as aforesaid, to the extent of the amount
or value of any sums or property recovered by it as a result of
such proceedings;
(c) unless, as a result of the investigation, a prosecution is
instituted under section 224,—
(i)
any company, body corporate, managing director or
manager dealt with by the report of the inspector; and
(ii)
the applicants for the investigation, where the
inspector was appointed under section 213,
to such extent as the Central Government may direct.
(2) Any amount for which a company or body corporate is liable
under clause (b) of sub-section (1) shall be a first charge on the sums
or property mentioned in that clause.
226.
Voluntary winding up of company, etc., not to stop investigation
proceedings.—An investigation under this Chapter may be initiated
notwithstanding, and no such investigation shall be stopped or suspended by
reason only of, the fact that—
(a) an application has been made under section 241;
(b) the company has passed a special resolution for voluntary
winding up;
or
(c) any other proceeding for the winding up of the company is
pending before the Tribunal:
Provided that where a winding up order is passed by the Tribunal in a
proceeding referred to in clause (c), the inspector shall inform the Tribunal
about the pendency of the investigation proceedings before him and the Tribunal
shall pass such order as it may deem fit:
Provided further that nothing in the winding up order shall absolve any
director or other employee of the company from participating in the proceedings
247
before the inspector or any liability as a result of the finding by the inspector.
227.
Legal advisers and bankers not to disclose certain information.—
Nothing in this Chapter shall require the disclosure to the Tribunal or to the
Central Government or to the Registrar or to an inspector appointed by the
Central Govemment—
(a) by a legal adviser, of any privileged communication made to
him in that capacity, except as respects the name and address of his
client; or
(b) by the bankers of any company, body corporate, or other
person, of any information as to the affairs of any of their customers,
other than such company, body corporate, or person.
228.
Investigation etc., of foreign companies.—The provisions of this
Chapter shall apply mutatis mutandis to inspection, inquiry or investigation in
relation to foreign companies.
229.
Penalty for furnishing false statement, mutilation. destruction of
documents.—Where a person who is required to provide an explanation or
make a statement during the course of inspection, inquiry or investigation, or an
officer or other employee of a company or other body corporate which is also
under investigation,—
(a) destroys, mutilates or falsifies, or conceals or tampers or
unauthorisedly removes, or is a party to the destruction, mutilation or
falsification or concealment or tampering or unauthorised removal of,
documents relating to the property, assets or affairs of the company or
the body corporate;
(b) makes, or is a party to the making of, a false entry in any
document concerning the company or body corporate; or
(c) provides an explanation which is false or which he knows to
be false,
he shall be punishable for fraud in the manner as provided in section 447.
CHAPTER XV
COMPROMISES, ARRANGEMENTS AND AMALGAMATIONS
230.
Power to compromise or make arrangements with creditors and
members.—(1) Where a compromise or arrangement is proposed—
(a) between a company and its creditors or any class of them; or
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(b) between a company and its members or any class of them,
the Tribunal may, on the application of the company or of any creditor or
member of the company, or in the case of a company which is being wound up,
of the liquidator, order a meeting of the creditors or class of creditors, or of
the members or class of members, as the case may be, to be called, held and
conducted in such manner as the Tribunal directs.
Explanation.—For the purposes of this sub-section, arrangement
includes a reorganisation of the company’s share capital by the
consolidation of shares of different classes or by the division of
shares into shares of different classes, or by both of those methods.
(2) The company or any other person, by whom an application is
made under sub-section (1), shall disclose to the Tribunal by
affidavit—
(a)
all material facts relating to the company, such as the
latest financial position of the company, the latest auditor’s report
on the accounts of the company and the pendency of any
investigation or proceedings against the company;
(b)
reduction of share capital of the company, if any,
included in the compromise or arrangement;
(c)
any scheme of corporate debt restructuring consented to
by not less than seventy-five per cent. of the secured creditors in
value, including—
(i)
a creditor’s responsibility statement in the
prescribed form;
(ii)
safeguards for the protection of other secured and
unsecured creditors;
(iii)
report by the auditor that the fund requirements of
the company after the corporate debt restructuring as approved
shall conform to the liquidity test based upon the estimates
provided to them by the Board;
(iv)
where the company proposes to adopt the
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corporate debt restructuring guidelines specified by the
Reserve Bank of India, a statement to that effect; and
(v)
a valuation report in respect of the shares and the
property and all assets, tangible and intangible, movable and
immovable, of the company by a registered valuer.
(3) Where a meeting is proposed to be called in pursuance of an
order of the Tribunal under sub-section (1), a notice of such meeting
shall be sent to all the creditors or class of creditors and to all the
members or class of members and the debenture-holders of the
company, individually at the address registered with the company
which shall be accompanied by a statement disclosing the details of
the compromise or arrangement, a copy of the valuation report, if any,
and explaining their effect on creditors, key managerial personnel,
promoters and non-promoter members, and the debenture-holders and
the effect of the compromise or arrangement on any material interests
of the directors of the company or the debenture trustees, and such
other matters as may be prescribed:
Provided that such notice and other documents shall also be placed
on the website of the company, if any, and in case of a listed
company, these documents shall be sent to the Securities and Exchange
Board and stock exchange where the securities of the companies are
listed, for placing on their website and shall also be published in
newspapers in such manner as may be prescribed:
Provided further that where the notice for the meeting is also
issued by way of an advertisement, it shall indicate the time within
which copies of the compromise or arrangement shall be made
available to the concerned persons free of charge from the registered
office of the company.
(4) A notice under sub-section (3) shall provide that the persons
to whom the notice is sent may vote in the meeting either themselves
or through proxies or by postal ballot to the adoption of the
compromise or arrangement within one month from the date of receipt
of such notice:
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Provided that any objection to the compromise or arrangement shall
be made only by persons holding not less than ten per cent. of the
shareholding or having outstanding debt amounting to not less than
five per cent. of the total outstanding debt as per the latest audited
financial statement.
(5) A notice under sub-section (3) along with all the documents in
such form as may be prescribed shall also be sent to the Central
Government, the income-tax authorities, the Reserve Bank of India, the
Securities and Exchange Board, the Registrar, the respective stock
exchanges, the Official Liquidator, the Competition Commission of
India established under sub-section (1), of section 7 of the
Competition Act, 2002 (12 of 2003), if necessary, and such other
sectoral regulators or authorities which are likely to be affected by
the compromise or arrangement and shall require that 35
representations, if any, to be made by them shall be made within a
period of thirty days from the date of receipt of such notice, failing
which, it shall be presumed that they have no representations to make
on the proposals.
(6) Where, at a meeting held in pursuance of sub-section (1),
majority of persons representing three-fourths in value of the
creditors, or class of creditors or members or class of members, as
the case may be, voting in person or by proxy or by postal ballot,
agree to any compromise or arrangement and if such compromise or
arrangement is sanctioned by the Tribunal by an order, the same shall
be binding on the company, all the creditors, or class of creditors or
members or class of members, as the case may be, or, in case of a
company being wound up, on the liquidator and the contributories of
the company.
(7) An order made by the Tribunal under sub-section (6) shall
provide for all or any of the following matters, namely:—
(a)
where the compromise or arrangement provides for
conversion of preference shares into equity shares, such
preference shareholders shall be given an option to either obtain
arrears of dividend in cash or accept equity shares equal to the
value of the dividend payable;
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(b) the protection of any class of creditors;
(c) if the compromise or arrangement results in the variation
of the shareholders’ rights, it shall be given effect to under the
provisions of section 48;
(d) if the compromise or arrangement is agreed to by the
creditors under sub-section (6), any proceedings pending before
the Board for Industrial and Financial Reconstruction established
under section 4 of the Sick Industrial Companies (Special
Provisions) Act, I985 (1 of 1986) shall abate;
(e)
such other matters including exit offer to dissenting
shareholders, if any, as are in the opinion of the Tribunal necessary
to effectively implement the terms of the compromise or
arrangement:
Provided that no compromise or arrangement shall be sanctioned
by the Tribunal unless a certificate by the company’s auditor has been
filed with the Tribunal to the effect that the accounting treatment, if
any, proposed in the scheme of compromise or arrangement is in
conformity with the accounting standards prescribed under
section 133.
(8)
The order of the Tribunal shall be filed with the Registrar by
the company within a period of thirty days of the receipt of the order.
(9)
The Tribunal may dispense with calling of a meeting of
creditor or class of creditors where such creditors or class of
creditors, having at least ninety per cent. value, agree and confirm, by
way of affidavit, to the scheme of compromise or arrangement.
(10) No compromise or arrangement in respect of any buy-back
of securities under this section shall be sanctioned by the Tribunal
unless such buy-back is in accordance with the provisions of
section 68.
(11) Any compromise or arrangement may include takeover offer
made in such manner as may be prescribed:
Provided that in case of listed companies, takeover offer shall be
as per the regulations framed by the Securities and Exchange Board.
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(12) An aggrieved party may make an application to the Tribunal
in the event of any grievances with respect to the takeover offer of
companies other than listed companies in such manner as may be
prescribed and the Tribunal may, on application, pass such order as it
may deem fit.
Explanation.—For the removal of doubts, it is hereby declared that the
provisions of section 66 shall not apply to the reduction of share capital effected
in pursuance of the order of the Tribunal under this section.
231.
Power of tribunal to enforce compromise or arrangement.—
(1) Where the Tribunal makes an order under section 230 sanctioning a
compromise or an arrangement in respect of a company, it—
(a) shall have power to supervise the implementation of the
compromise or arrangement; and
(b)
may, at the time of making such order or at any time
thereafter, give such directions in regard to any matter or make such
modifications in the compromise or arrangement as it may consider
necessary for the proper implementation of the compromise or
arrangement.
(2) If the Tribunal is satisfied that the compromise or arrangement
sanctioned under section 230 cannot be implemented satisfactorily with or
without modifications, and the company is unable to pay its debts as per the
scheme, it may make an order for winding up the company and such an order
shall be deemed to be an order made under section 273.
(3) The provisions of this section shall, so far as may be, also apply
to a company in respect of which an order has been made before the
commencement of this Act sanctioning a compromise or an arrangement.
232.
Merger and amalgamation of companies.—(1) Where an
application is made to the Tribunal under section 230 for the sanctioning of a
compromise or an arrangement proposed between a company and any such
persons as are mentioned in that section, and it is shown to the Tribunal—
(a)
that the compromise or arrangement has been proposed
for the purposes of, or in connection with, a scheme for the
reconstruction of the company or companies involving merger or the
amalgamation of any two or more companies; and
(b) that under the scheme, the whole or any part of the
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undertaking, property or liabilities of any company (hereinafter
referred to as the transferor company) is required to be transferred to
another company (hereinafter referred to as the transferee company),
or is proposed to be divided among and transferred to two or more
companies,
the Tribunal may on such application, order a meeting of the creditors
or class of creditors or the members or class of members, as the case
may be, to be called, held and conducted in such manner as the Tribunal
may direct and the provisions of sub-sections (3) to (6) of section 230
shall apply mutatis mutandis.
(2) Where an order has been made by the Tribunal under sub-
section (1), merging companies or the companies in respect of which a
division is proposed, shall also be required to circulate the following for
the meeting so ordered by the Tribunal, namely:—
(a)
the draft of the proposed terms of the scheme drawn up
and adopted by the directors of the merging company;
(b)
confirmation that a copy of the draft scheme has been
filed with the Registrar;
(c)
a report adopted by the directors of the merging
companies explaining effect of compromise on each class of
shareholders, key managerial personnel, promotors and non-
promoter shareholders laying out in particular the share exchange
ratio, specifying any special valuation difficulties;
(d) the report of the expert with regard to valuation, if any;
(e)
a supplementary accounting statement if the last annual
accounts of any of the merging company relate to a financial year
ending more than six months before the first meeting of the
company summoned for the purposes of approving the scheme.
(3) The Tribunal, after satisfying itself that the procedure
specified in sub-sections (1) and (2) has been complied with, may, by
order, sanction the compromise or arrangement or by a subsequent order,
make provision for the following matters, namely:—
(a)
the transfer to the transferee company of the whole or
any part of the undertaking, property or liabilities of the transferor
company from a date to be determined by the parties unless the
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Tribunal, for reasons to be recorded by it in writing, decides
otherwise;
(b)
the allotment or appropriation by the transferee company
of any shares, debentures, policies or other like instruments in the
company which, under the compromise or arrangement, are to be
allotted or appropriated by that company to or for any person:
Provided that a transferee company shall not, as a result of the
compromise or arrangement, hold any shares in its own name or in the
name of any trust whether on its behalf or on behalf of any of its
subsidiary or associate companies and any such shares shall be
cancelled or extinguished;
(c) the continuation by or against the transferee company of
any legal proceedings pending by or against any transferor
company on the date of transfer;
(d)
dissolution, without winding-up, of any transferor
company;
(e)
the provision to be made for any persons who, within
such time and in such manner as the Tribunal directs, dissent from
the compromise or arrangement;
(f)
where share capital is held by any non-resident
shareholder under the foreign direct investment norms or
guidelines specified by the Central Government or in accordance
with any law for the time being in force, the allotment of shares
of the transferee company to such shareholder shall be in the
manner specified in the order;
(g)
the transfer of the employees of the transferor company
to the transferee company;
(h)
where the transferor company is a listed company and the
transferee company is an unlisted company,—
(A) the transferee company shall remain an unlisted
company until it becomes a listed company;
(B) if shareholders of the transferor company decide to
opt out of the transferee company, provision shall be made for
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payment of the value of shares held by them and other
benefits in accordance with a pre-determined price formula or
after a valuation is made, and the arrangements under this
provision may be made by the Tribunal:
Provided that the amount of payment or valuation under this clause
for any share shall not be less than what has been specified by the
Securities and Exchange Board under any regulations framed by it;
(i)
where the transferor company is dissolved, the fee, if any,
paid by the transferor company on its authorised capital shall be
set-off against any fees payable by the transferee company on its
authorised capital subsequent to the amalgamation; and
(j) such incidental, consequential and supplemental matters as
are deemed necessary to secure that the merger or amalgamation
is fully and effectively carried out:
Provided that no compromise or arrangement shall be sanctioned
by the Tribunal unless a certificate by the company’s auditor has been
filed with the Tribunal to the effect that the accounting treatment, if
any, proposed in the scheme of compromise or arrangement is in
conformity with the accounting standards prescribed under
section 133.
(4) Where an order under this section provides for the transfer of
any property or liabilities, then, by virtue of the order, that property
shall be transferred to the transferee company and the liabilities shall
be transferred to and become the liabilities of the transferee company
and any property may, if the order so directs, be freed from any
charge which shall by virtue of the compromise or arrangement, cease
to have effect.
(5) Every company in relation to which the order is made shall
cause a certified copy of the order to be filed with the Registrar for
registration within thirty days of the receipt of certified copy of the
order.
(6) The scheme under this section shall clearly indicate an
appointed date from which it shall be effective and the scheme shall
be deemed to be effective from such date and not at a date subsequent
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to the appointed date.
(7) Every company in relation to which the order is made shall,
until the completion of the scheme, file a statement in such form and
within such time as may be prescribed with the Registrar every year
duly certified by a chartered accountant or a cost accountant or a
company secretary in practice indicating whether the scheme is being
complied with in accordance with the orders of the Tribunal or not.
(8) If a transferor company or a transferee company contravenes the
provisions of this section, the transferor company or the transferee company, as
the case may be, shall be punishable with fine which shall not be less than one
lakh rupees but which may extend to twenty-five lakh rupees and every officer
of such transferor or transferee company who is in default, shall be punishable
with imprisonment for a term which may extend to one year or with fine which
shall not be less than one lakh rupees but which may extend to three lakh
rupees, or with both.
Explanation.—For the purposes of this section,—
(i) in a scheme involving a merger, where under the scheme the
undertaking, property and liabilities of one or more companies, including the
company in respect of which the compromise or arrangement is proposed,
are to be transferred to another existing company, it is a merger by
absorption, or where the undertaking, property and liabilities of two or more
companies, including the company in respect of which the compromise or
arrangement is proposed, are to be transferred to a new company, whether
or not a public company, it is a merger by formation of a new company;
(ii) references to merging companies are in relation to a merger by
absorption, to the transferor and transferee companies, and, in relation to a
merger by formation of a new company, to the transferor companies;
(iii) a scheme involves a division, where under the scheme the
undertaking, property and liabilities of the company in respect of which the
compromise or arrangement is proposed are to be divided among and
transferred to two or more companies each of which is either an existing
company or a new company; and
(iv) property includes assets, rights and interests of every
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description and liabilities include debts and obligations of every description.
233.
Merger
or
amalgamation
of
certain
companies.—
(1) Notwithstanding the provisions of section 230 and section 232, a scheme of
merger or amalgamation may be entered into between two or more small
companies or between a holding company and its wholly-owned subsidiary
company or such other class or classes of companies as may be prescribed,
subject to the following, namely:—
(a) a notice of the proposed scheme inviting objections or
suggestions, if any, from the Registrar and Official Liquidators
where registered office of the respective companies are situated or
persons affected by the scheme within thirty days is issued by the
transferor company or companies and the transferee company;
(b) the objections and suggestions received are considered
by the companies in their respective general meetings and the
scheme is approved by the respective members or class of
members at a general meeting holding at least ninety per cent. of
the total number of shares;
(c) each of the companies involved in the merger files a
declaration of solvency, in the prescribed form, with the Registrar
of the place where the registered office of the company is
situated; and
(d) the scheme is approved by majority representing nine-
tenths in value of the creditors or class of creditors of respective
companies indicated in a meeting convened by the company by
giving a notice of twenty-one days along with the scheme to its
creditors for the purpose or otherwise approved in writing.
(2) The transferee company shall file a copy of the scheme
so approved in the manner as may be prescribed, with the Central
Government, Registrar and the Official Liquidator where the registered
office of the company is situated.
(3) On the receipt of the scheme, if the Registrar or the Official
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Liquidator has no objections or suggestions to the scheme, the Central
Government shall register the same and issue a confirmation thereof to
the companies.
(4) If the Registrar or Official Liquidator has any objections or
suggestions, he may communicate the same in writing to the Central
Government within a period of thirty days:
Provided that if no such communication is made, it shall be
presumed that he has no objection to the scheme.
(5) If the Central Government after receiving the objections or
suggestions or for any reason is of the opinion that such a scheme is
not in public-interest or in the interest of the creditors, it may file an
application before the Tribunal within a period of sixty days of the
receipt of the scheme under sub-section (2) stating its objections
and requesting that the Tribunal may consider the scheme
under section 232.
(6) On receipt of an application from the Central Government or
from any person, if the Tribunal, for reasons to be recorded in writing,
is of the opinion that the scheme should be considered as per the
procedure laid down in section 232, the Tribunal may direct
accordingly or it may confirm the scheme by passing such order
as it deems fit:
Provided that if the Central Government does not have any
objection to the scheme or it does not file any application under this
section before the Tribunal, it shall be deemed that it has no objection
to the scheme.
(7) A copy of the order under sub-section (6) confirming the
scheme shall be communicated to the Registrar having jurisdiction over
the transferee company and the persons concerned and the Registrar
shall register the scheme and issue a confirmation thereof to the
companies and such confirmation shall be communicated to the
Registrars where transferor company or companies were situated.
(8) The registration of the scheme under sub-section (3) or sub-
section (7) shall be deemed to have the effect of dissolution of the
transferor company without process of winding-up.
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(9) The registration of the scheme shall have the following
effects, namely:—
(a) transfer of property or liabilities of the transferor company
to the transferee company so that the property becomes the
property of the transferee company and the liabilities become the
liabilities of the transferee company;
(b) the charges, if any, on the property of the transferor
company shall be applicable and enforceable as if the charges
were on the property of the transferee company;
(c) legal proceedings by or against the transferor company
pending before any court of law shall be continued by or against
the transferee company; and
(d) where the scheme provides for purchase of shares held
by the dissenting shareholders or settlement of debt due to
dissenting creditors, such amount, to the extent it is unpaid, shall
become the liability of the transferee company.
(10)
A transferee company shall not on merger or amalgamation,
hold any shares in its own name or in the name of any trust either on its behalf
or on behalf of any of its subsidiary or associate company and all such shares
shall be cancelled or extinguished on the merger or amalgamation.
(11)
The transferee company shall file an application with the
Registrar along with the scheme registered, indicating the revised authorised
capital and pay the prescribed fees due on revised capital:
Provided that the fee, if any, paid by the transferor company on its
authorised capital prior to its merger or amalgamation with the transferee
company shall be set-of against the fees payable by the transferee company on
its authorised capital enhanced by the merger or amalgamation.
(12)
The provisions of this section shall mutatis mutandis apply to a
company or companies specified in sub-section (1) in respect of a scheme of
compromise or arrangement referred to in section 230 or division or transfer of a
company referred to clause (b) of sub-section (1) of section 232.
(13)
The Central Government may provide for the merger or
amalgamation of companies in such manner as may be prescribed.
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(14)
A company covered under this section may use the provisions
of section 232 for the approval of any scheme for merger or amalgamation.
234.
Merger or amalgamation of company with foreign company.—
(1) The provisions of this Chapter unless otherwise provided under any other
law for the time being in force, shall apply mutatis mutandis to schemes of
mergers and amalgamations between companies registered under this Act and
companies incorporated in the jurisdictions of such countries as may be notified
from time to time by the Central Government:
Provided that the Central Government may make rules, in consultation
with the Reserve Bank of India, in connection with mergers and amalgamations
provided under this section.
(2) Subject to the provisions of any other law for the time being in
force, a foreign company, may with the prior approval of the Reserve Bank of
India, merge into a company registered under this Act or vice versa and the
terms and conditions of the scheme of merger may provide, among other things,
for the payment of consideration to the shareholders of the merging company in
cash, or in Depository Receipts, or partly in cash and partly in Depository
Receipts, as the case may be, as per the scheme to be drawn up for the
purpose.
Explanation.—For the purposes of sub-section (2), the expression
“foreign company” means any company or body corporate incorporated outside
India whether having a place of business in India or not.
235.
Power to acquire shares of shareholders dissenting from scheme or
contract approved by majority.—(1) Where a scheme or contract involving the
transfer of shares or any class of shares in a company (the transferor company)
to another company (the transferee company) has, within four months after
making of an offer in that behalf by the transferee company, been approved by
the holders of not less than nine-tenths in value of the shares whose transfer
is involved, other than shares already held at the date of the offer by, or by a
nominee of the transferee company or its subsidiary companies, the transferee
company may, at any time within two months after the expiry of the said four
months, give notice in the prescribed manner to any dissenting shareholder that
it desires to acquire his shares.
(2) Where a notice under sub-section (1) is given, the transferee
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company shall, unless on an application made by the dissenting shareholder to
the Tribunal, within one month from the date on which the notice was given and
the Tribunal thinks fit to order otherwise, be entitled to and bound to acquire
those shares on the terms on which under the scheme or contract, the shares of
the approving shareholders are to be transferred to the transferee company.
(3) Where a notice has been given by the transferee company under
sub-section (1) and the Tribunal has not on an application made by the
dissenting shareholder, made an order to the contrary, the transferee company
shall, on the expiry of one month from the date on which the notice has been
given, or, if an application to the Tribunal by the dissenting shareholder is then
pending, after that application has been disposed of, send a copy of the notice
to the transferor company together with an instrument of transfer, to be executed
on behalf of the shareholder by any person appointed by the transferor
company and on its own behalf by the transferee company, and pay or transfer
to the transferor company the amount or other consideration representing the
price payable by the transferee company for the shares which, by virtue of this
section, that company is entitled to acquire, and the transferor company shall-
(a) thereupon register the transferee company as the holder of
those shares; and
(b) within one month of the date of such registration, inform the
dissenting shareholders of the fact of such registration and of the
receipt of the amount or other consideration representing the price
payable to them by the transferee company.
(4) Any sum received by the transferor company under this section
shall be paid into a separate bank account, and any such sum and any other
consideration so received shall be held by that company in trust for the several
persons entitled to the shares in respect of which the said sum or other
consideration were respectively received and shall be disbursed to the entitled
shareholders within sixty days.
(5) In relation to an offer made by a transferee company to
shareholders of a transferor company before the commencement of this Act, this
section shall have effect with the following modifications, namely:—
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(a) in sub-section (1), for the words “the shares whose transfer is
involved other than shares already held at the date of the offer by, or
by a nominee of, the transferee company or its subsidiaries,”, the
words “the shares affected” shall be substituted; and
(b) in sub-section (3), the words “together with an instrument of
transfer, to be executed on behalf of the shareholder by any person
appointed by the transferee company and on its own behalf by the
transferor company” shall be omitted.
Explanation.—For the purposes of this section, “dissenting
shareholder” includes a shareholder who has not assented to the scheme or
contract and any shareholder who has failed or refused to transfer his shares to
the transferee company in accordance with the scheme or contract.
236.
Purchase of minority shareholding.—(1) In the event of an acquirer,
or a person acting in concert with such acquirer, becoming registered holder of
ninety per cent. or more of the issued equity share capital of a company, or in
the event of any person or group of persons becoming ninety per cent.
majority or holding ninety per cent. of the issued equity share capital of a
company, by virtue of an amalgamation, share exchange, conversion of securities
or for any other reason, such acquirer, person or group of persons, as the case
may be, shall notify the company of their intention to buy the remaining equity
shares.
(2) The acquirer, person or group of persons under sub-section (I)
shall offer to the minority shareholders of the company for buying the equity
shares held by such shareholders at a price determined on the basis of valuation
by a registered valuer in accordance with such rules as may be prescribed.
(3) Without prejudice to the provisions of sub-sections (I) and (2), the
minority shareholders of the company may offer to the majority shareholders to
purchase the minority equity shareholding of the company at the price
determined in accordance with such rules as may be prescribed under sub-
section (2).
(4) The majority shareholders shall deposit an amount equal to the
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value of shares to be acquired by them under sub-section (2) or sub-section (3),
as the case may be, in a separate bank account to be operated by the transferor
company for at least one year for payment to the minority shareholders and such
amount shall be disbursed to the entitled shareholders within sixty days:
Provided that such disbursement shall continue to be made to the
entitled shareholders for a period of one year, who for any reason had not been
made disbursement within the said period of sixty days or if the disbursement
have been made within the aforesaid period of sixty days, fail to receive or claim
payment arising out of such disbursement.
(5) In the event of a purchase under this section, the transferor
company shall act as a transfer agent for receiving and paying the price to the
minority shareholders and for taking delivery of the shares and delivering such
shares to the majority, as the case may be.
(6) In the absence of a physical delivery of shares by the shareholders
within the time specified by the company, the share certificates shall be deemed
to be cancelled, and the transferor company shall be authorised to issue shares
in lieu of the cancelled shares and complete the transfer in accordance with law
and make payment of the price out of deposit made under sub-section (4) by
the majority in advance to the minority by despatch of such payment.
(7) In the event of a majority shareholder or shareholders requiring a
full purchase and making payment of price by deposit with the company for any
shareholder or shareholders who have died or ceased to exist, or whose heirs,
successors, administrators or assignees have not been brought on record by
transmission, the right of such shareholders to make an offer for sale of minority
equity shareholding shall continue and be available for a period of three years
from the date of majority acquisition or majority shareholding.
(8) Where the shares of minority shareholders have been acquired in
pursuance of this section and as on or prior to the date of transfer following
such acquisition, the shareholders holding seventy-five per cent. or more
minority equity shareholding negotiate or reach an understanding on a higher
264
price for any transfer, proposed or agreed upon, of the shares held by them
without disclosing the fact or likelihood of transfer taking place on the basis of
such negotiation, understanding or agreement, the majority shareholders shall
share the additional compensation so received by them with such minority
shareholders on a pro rata basis.
Explanation.—For the purposes of this section, the expressions
“acquirer” and “person acting in concert” shall have the meanings respectively
assigned to them in clause (b) and clause (e) of sub-regulation (1) of
regulation 2 of the Securities and Exchange Board of India (Substantial
Acquisition of Shares and Takeovers) Regulations, 1997.
(9) When a shareholder or the majority equity shareholder fails to
acquire full purchase of the shares of the minority equity shareholders, then, the
provisions of this section shall continue to apply to the residual minority equity
shareholders, even though,—
(a)
the shares of the company of the residual minority equity
shareholder had been delisted; and
(b) the period of one year or the period specified in the
regulations made by the Securities and Exchange Board under the
Securities and Exchange Board of India Act, 1992 (15 of 1992) had
elapsed.
237.
Power of Central Government to provide for amalgamation of
companies in public interest.—(1) Where the Central Government is satisfied
that it is essential in the public interest that to or more companies should
amalgamate, the Central Government may, by order notified in the Official
Gazette, provide for the amalgamation of those companies into a single
company with such constitution, with such property, powers, rights, interests,
authorities and privileges, and with such liabilities, duties and obligations, as
may be specified in the order.
(2) The order under sub-section (1) may also provide for the
continuation by or against the transferee company of any legal proceedings
pending by or against any transferor company and such consequential,
265
incidental and supplemental provisions as may, in the opinion of the Central
Government, be necessary to give effect to the amalgamation.
(3) Every member or creditor, including a debenture holder, of each of
the transferor companies before the amalgamation shall have, as nearly as may
be, the same interest in or rights against the transferee company as he had in
the company of which he was originally a member or creditor, and in case the
interest or rights of such member or creditor in or against the transferee
company are less than his interest in or rights against the original company, he
shall be entitled to compensation to that extent, which shall be assessed by such
authority as may be prescribed and every such assessment shall be published in
the Official Gazette, and the compensation so assessed shall be paid to the
member or creditor concerned by the transferee company.
(4) Any person aggrieved by any assessment of compensation made
by the prescribed authority under sub-section (3) may, within a period of thirty
days from the date of publication of such assessment in the Official Gazette,
prefer an appeal to the Tribunal and thereupon the assessment of the
compensation shall be made by the Tribunal.
(5) No order shall be made under this section unless—
(a) a copy of the proposed order has been sent in draft to each
of the companies concerned;
(b) the time for preferring an appeal under sub-section (4) has
expired, or where any such appeal has been preferred, the appeal has
been finally disposed off; and
(c) the Central Government has considered, and made such
modifications, if any, in the draft order as it may deem fit in the light
of suggestions and objections which may be received by it from any
such company within such period as the Central Government may fix
in that behalf, not being less than two months from the date on which
the copy aforesaid is received by that company, or from any class of
shareholders therein, or from any creditors or any class of creditors
thereof.
(6) The copies of every order made under this section shall, as soon
as may be after it has been made, be laid before each House of Parliament.
238.
Registration of offer of schemes involving transfer of shares.—
(1) In relation to every offer of a scheme or contract involving the transfer of
266
shares or any class of shares in the transferor company to the transferee
company under section 235,—
(a) every circular containing such offer and recommendation to
the members of the transferor company by its directors to accept such
offer shall be accompanied by such information and in such manner as
may be prescribed;
(b) every such offer shall contain a statement by or on behalf of
the transferee company, disclosing the steps it has taken to ensure that
necessary cash will be available; and
(c) every such circular shall be presented to the Registrar for
registration and no such circular shall be issued until it is so
registered:
Provided that the Registrar may refuse, for reasons to be recorded in
writing, to register any such circular which does not contain the information
required to be given under clause (a) or which sets out such information in a
manner likely to give a false impression, and communicate such refusal to the
parties within thirty days of the application.
(2) An appeal shall lie to the Tribunal against an order of the
Registrar refusing to register any circular under sub-section (1).
(3) The director who issues a circular which has not been presented
for registration and registered under clause (c) of sub-section (1), shall be
punishable with fine which shall not be less than twenty-five thousand rupees
but which may extend to five lakh rupees.
239.
Preservation of books and papers of amalgamated companies.—The
books and papers of a company which has been amalgamated with, or whose
shares have been acquired by, another company under this Chapter shall not be
disposed of without the prior permission of the Central Government and before
granting such permission, that Government may appoint a person to examine the
books and papers or any of them for the purpose of ascertaining whether they
contain any evidence of the commission of an offence in connection with the
promotion or formation, or the management of the affairs, of the transferor
company or its amalgamation or the acquisition of its shares.
240.
Liability of officers in respect of offences committed prior to
merger, amalgamation, etc.—Notwithstanding anything in any other law for the
time being in force, the liability in respect of offences committed under this Act
267
by the officers in default, of the transferor company prior to its merger,
amalgamation or acquisition shall continue after such merger, amalgamation or
acquisition.
CHAPTER XVI
PREVENTION OF OPPRESSION AND MISMANAGEMENT
241.
Application to Tribunal for relief in cases of oppression, etc.—
(1) Any member of a company who complains that—
(a) the affairs of the company have been or are being conducted
in a manner prejudicial to public interest or in a manner prejudicial or
oppressive to him or any other member or members or in a manner
prejudicial to the interests of the company; or
(b) the material change, not being a change brought about by, or
in the interests of, any creditors, including debenture holders or any
class of shareholders of the company, has taken place in the
management or control of the company, whether by an alteration in the
Board of Directors, or manager, or in the ownership of the company’s
shares, or if it has no share capital, in its membership, or in any other
manner whatsoever, and that by reason of such change, it is likely that
the affairs of the company will be conducted in a manner prejudicial
to its interests or its members or any class of members,
may apply to the Tribunal, provided such member has a right to apply under
section 244, for an order under this Chapter.
(2) The Central Government, if it is of the opinion that the affairs of
the company are being conducted in a manner prejudicial to public interest, it
may itself apply to the Tribunal for an order under this Chapter.
242.
Power of Tribunal.—(1) If, on any application made under section
241, the Tribunal is of the opinion—
(a) that the company’s affairs have been or are being conducted in a
manner prejudicial or oppressive to any member or members or
prejudicial to public interest or in a manner prejudicial to the interests of
the company; and
268
(b) that to wind up the company would unfairly prejudice such member
or members, but that otherwise the facts would justify the making of a
winding-up order on the ground that it was just and equitable that the
company should be wound up,
the Tribunal may, with a view to bringing to an end the matters complained of,
make such order as it thinks fit.
(2) Without prejudice to the generality of the powers under sub-
section (1), an order under that sub-section may provide for—
(a) the regulation of conduct of affairs of the company in future;
(b) the purchase of shares or interests of any members of the
company by other members thereof or by the company;
(c) in the case of a purchase of its shares by the company
as aforesaid, the consequent reduction of its share capital;
(d)
restrictions on the transfer or allotment of the shares of
the company;
(e)
the termination, setting aside or modification, of any
agreement, howsoever arrived at, between the company and the
managing director, any other director or manager, upon such terms
and conditions as may, in the opinion of the Tribunal, be just and
equitable in the circumstances of the case;
(f)
the termination, setting aside or modification of any
agreement between the company and any person other than those
referred to in clause (e):
Provided that no such agreement shall be terminated, set aside
or modified except after due notice and after obtaining the
consent of the party concerned;
(g)
the setting aside of any transfer, delivery of goods,
payment, execution or other act relating to property made or done
by or against the company within three months before the date of
the application under this section, which would, if made or done
by or against an individual, be deemed in his insolvency to be a
fraudulent preference;
269
(h) removal of the managing director, manager or any of the
directors of the company;
(i)
recovery of undue gains made by any managing director,
manager or director during the period of his appointment as such
and the manner of utilisation of the recovery including transfer to
Investor Education and Protection Fund or repayment to
identifiable victims;
(j)
the manner in which the managing director or manager of
the company may be appointed subsequent to an order removing
the existing managing director or manager of the company made
under clause (h);
(k)
appointment of such number of persons as directors, who
may be required by the Tribunal to report to the Tribunal on such
matters as the Tribunal may direct;
(l)
imposition of costs as may be deemed fit by the Tribunal;
(m) any other matter for which, in the opinion of the
Tribunal, it is just and equitable that provision should be made.
(3) A certified copy of the order of the Tribunal under sub-
section (1) shall be filed by the company with the Registrar within
thirty days of the order of the Tribunal.
(4) The Tribunal may, on the application of any party to the
proceeding, make any interim order which it thinks fit for regulating
the conduct of the company’s affairs upon such terms and conditions
as appear to it to be just and equitable.
(5) Where an order of the Tribunal under sub-section (1) makes
any alteration in the memorandum or articles of a company, then,
notwithstanding any other provision of this Act, the company shall not
have power, except to the extent, if any, permitted in the order, to
make, without the leave of the Tribunal, any alteration whatsoever
which is inconsistent with the order, either in the memorandum or in
the articles.
(6) Subject to the provisions of sub-section (1), the alterations
made by the order in the memorandum or articles of a company shall,
in all respects, have the same effect as if they had been duly made by
270
the company in accordance with the provisions of this Act and the
said provisions shall apply accordingly to the memorandum or articles
so altered.
(7) A certified copy of every order altering, or giving leave to
alter, a company’s memorandum or articles, shall within thirty days
after the making thereof, be filed by the company with the Registrar
who shall register the same.
(8) If a company contravenes the provisions of sub-section (5),
the company shall be punishable with fine which shall not be less than
one lakh rupees but which may extend to twenty-five lakh rupees and
every officer of the company who is in default shall be punishable
with imprisonment for a term which may extend to six months or with
fine which shall not be less than twenty-five thousand rupees but which
may extend to one lakh rupees, or with both.
243.
Consequence of termination or modification of certain
agreements.—(1) Where an order made under section 242 terminates, sets
aside or modifies an agreement such as is referred to in sub-section (2) of that
section,—
(a) such order shall not give rise to any cIaims whatever against
the company by any person for damages or for compensation for loss of
office or in any other respect either in pursuance of the agreement or
otherwise;
(b) no managing director or other director or manager whose
agreement is so terminated or set aside shall, for a period of five years
from the date of the order terminating or setting aside the agreement,
without the leave of the Tribunal, be appointed, or act, as the managing
director or other director or manager of the company:
Provided that the Tribunal shall not grant leave under this clause unless
notice of the intention to apply for leave has been served on the
Central Government and that Government has been given a reasonable
opportunity of being heard in the matter.
(2)
Any person who knowingly acts as a managing director or other
director or manager of a company in contravention of clause (b) of sub-section
271
(1), and every other director of the company who is knowingly a party to such
contravention, shall be punishable with imprisonment for a term which may
extend to six months or with fine which may extend to five lakh rupees, or with
both.
244.
Right to apply under section 241.—(1) The following members of a
company shall have the right to apply under section 241, namely:—
(a) in the case of a company having a share capital, not less than
one hundred members of the company or not less than
one-tenth of the total number of its members, whichever is less, or any
member or members holding not less than one-tenth of the issued share
capital of the company, subject to the condition that the applicant or
applicants has or have paid all calls and other sums due on his or their
shares;
(b) in the case of a company not having a share capital, not less
than one-fifth of the total number of its members:
Provided.that the Tribunal may, on an application made to it in this
behalf, waive all or any of the requirements specified in clause (a) or clause (b)
so as to enable the members to apply under section 241.
Explanation.—For the purposes of this sub-section, where any share
or shares are held by two or more persons jointly, they shall be counted only as
one member.
(2) Where any members of a company are entitled to make an
application under sub-section (1), anyone or more of them having obtained the
consent in writing of the rest, may make the application on behalf and for the
benefit of all of them.
245.
Class action.—(1) Such number of member or members, depositor or
depositors or any class of them, as’the case may be, as are indicated in sub-
section (2) may, if they are of the opinion that the management or conduct of
the affairs of the company are being conducted in a manner prejudicial to the
interests of the company or its members or depositors, file an application before
the Tribunal on behalf of the members or depositors for seeking all or any of
the following orders, namely:—
(a) to restrain the company from committing an act which is ultra
272
vires the articles or memorandum of the company;
(b) to restrain the company from committing breach of any
provision of the company’s memorandum or articles;
(c) to declare a resolution altering the memorandum or articles of
the company as void if the resolution was passed by suppression of
material facts or obtained by mis-statement to the members or
depositors;
(d) to restrain the company and its directors from acting on such
resolution;
(e) to restrain the company from doing an act which is contrary to
the provisions of this Act or any other law for the time being in force;
(f)
to restrain the company from taking action contrary to any
resolution passed by the members ;
(g) to claim damages or compensation or demand any other
suitable action from or against—
(i)
the company or its directors for any fraudulent, unlawful
or wrongful act or omission or conduct or any likely act or omission or
conduct on its or their part;
(ii) the auditor including audit firm of the company for any
improper or misleading statement of particulars made in his audit report
or for any fraudulent, unlawful or wrongful act or conduct; or
(iii) any expert or advisor or consultant or any other person
for any incorrect or misleading statement made to the company or for
any fraudulent, unlawful or wrongful act or conduct or any likely act or
conduct on his part;
(h) to seek any other remedy as the Tribunal may deem fit.
(2) Where the members or depositors seek any damages or
compensation or demand any other suitable action from or against an audit firm,
the liability shall be of the firm as well as of each partner who was involved in
making any improper or misleading statement of particulars in the audit report or
who acted in a fraudulent, unlawful or wrongful manner.
(3) (i) The requisite number of members provided in sub-section (1)
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shall be as under:—
(a) in the case of a company having a share capital, not less
than one hundred members of the company or not less than such
percentage of the total number of its members as may be
prescribed, whichever is less, or any member or members holding
not less than such percentage of the issued share capital of the
company as may be prescribed, subject to the condition that the
applicant or applicants has or have paid all calls and other sums
due on his or their shares;
(b) in the case of a company not having a share capital, not
less than one-fifth of the total number of its members.
(ii) The requisite number of depositors provided in sub-section
(1) shall not be less than one hundred depositors or not less than such
percentage of the total number of depositors as may be prescribed, whichever is
less, or any depositor or depositors to whom the company owes such
percentage of total deposits of the company as may be prescribed.
(4) In considering an application under sub-section (1), the
Tribunal shall take into account, in particular—
(a) whether the member or depositor is acting in good faith
in making the application for seeking an order;
(b)
any evidence before it as to the involvement of any
person other than directors or officers of the company on any of
the matters provided in clauses (a) to (f) of sub-section (1);
(c) whether the cause of action is one which the member or
depositor could pursue in his own right rather than through an
order under this section;
(d)
any evidence before it as to the views of the members or
depositors of the company who have no personal interest, direct
or indirect, in the matter being proceeded under this section;
(e)
where the cause of action is an act or omission that is
yet to occur, whether the act or omission could be, and in the
circumstances would be likely to be—
274
(i) authorised by the company before it occurs; or
(ii)ratified by the company after it occurs;
(f)
where the cause of action is an act or omission that has
already occurred, whether the act or omission could be, and in the
circumstances would be likely to be, ratified by the company.
(5) If an application filed under sub-section (1) is admitted, then
the Tribunal shall have regard to the following, namely:—
(a) public notice shall be served on admission of the
application to all the members or depositors of the class in such
manner as may be prescribed;
(b) all similar applications prevalent in any jurisdiction should
be consolidated into a single application and the class members or
depositors should be allowed to choose the lead applicant and in
the event the members or depositors of the class are unable to
come to a consensus, the Tribunal shall have the power to appoint
a lead applicant, who shall be in charge of the proceedings from
the applicant’s side;
(c) two class action applications for the same cause of
action shall not be allowed;
(d) the cost or expenses connected with the application for
class action shall be defrayed by the company or any other
person responsible for any oppressive act.
(6) Any order passed by the Tribunal shall be binding on the
company and all its members, depositors and auditor including audit firm or
expert or consultant or advisor or any other person associated with the
company.
(7) Any company which fails to comply with an order passed by the
Tribunal under this section shall be punishable with fine which shall not be less
than five lakh rupees but which may extend to twenty-five lakh rupees and
every officer of the company who is in default shall be punishable with
imprisonment for a term which may extend to three years and with fine which
275
shall not be less than twenty-five thousand rupees but which may extend to one
lakh rupees.
(8) Where any application filed before the Tribunal is found to be
frivolous or vexatious, it shall, for reasons to be recorded in writing, reject the
application and make an order that the applicant shall pay to the opposite party
such cost, not exceeding one lakh rupees, as may be specified in the order.
(9) Nothing contained in this section shall apply to a banking
company.
(10)
Subject to the compliance of this section, an application may
be filed or any other action may be taken under this section by any person,
group of persons or any association of persons representing the persons
affected by any act or omission, specified in sub-section (1).
246.
Application of certain provisions to proceedings under section 241
or section 245.—The provisions of sections 337 to 341 (both inclusive) shall
apply mutatis mutandis, in relation to an application made to the Tribunal under
section 241 or section 245.
CHAPTER XVII
REGISTERED VALUERS
247.
Valuation by registered valuers.—(1) Where a valuation is required
to be made in respect of any property, stocks, shares, debentures, securities or
goodwill or any other assets (herein referred to as the assets) or net worth of a
company or its liabilities under the provision of this Act, it shall be valued by a
person having such qualifications and experience and registered as a valuer in
such manner, on such terms and conditions as may be prescribed and appointed
by the audit committee or in its absence by the Board of Directors of that
company.
(2)
The valuer appointed under sub-section (1) shall,—
(a) make an impartial, true and fair valuation of any assets which
may be required to be valued;
(b) exercise due diligence while performing the functions as
valuer;
276
(c) make the valuation in accordance with such rules as may be
prescribed; and
(d) not undertake valuation of any assets in which he has a direct
or indirect interest or becomes so interested at any time during or after
the valuation of assets.
(3) If a valuer contravenes the provisions of this section or the rules
made thereunder, the valuer shall be punishable with fine which shall not be less
than twenty-five thousand rupees but which may extend to one lakh rupees:
Provided that if the valuer has contravened such provisions with the
intention to defraud the company or its members, he shall be punishable with
imprisonment for a term which may extend to one year and with fine which
shall not be less than one lakh rupees but which may extend to five lakh
rupees.
(4) Where a valuer has been convicted under sub-section (3), he shall
be liable to—
(i) refund the remuneration received by him to the company; and
(ii) pay for damages to the company or to any other person for
loss arising out of incorrect or misleading statements of particulars
made in his report.
CHAPTER XVIII
REMOVAL OF NAMES OF COMPANIES FROM THE
REGISTER OF COMPANIES
248.
Power of Registrar to remove name of company from register of
companies.—(1) Where the Registrar has reasonable cause to believe that—
(a) a company has failed to commence its business within
one year of its incorporation;
(b) the subscribers to the memorandum have not paid the
subscription which they had undertaken to pay within a period of
one hundred and eighty days from the date of incorporation of a
company and a declaration under sub-section (1) of Section 11 to
this effect has not been filed within one hundred and eighty days
of its incorporation; or
277
(c) a company is not carrying on any business or
operation for a period of two immediately preceding financial
years and has not made any application within such period for
obtaining the status of a dormant company under Section 455,
he shall send a notice to the company and all the directors of the
company, of his intention to remove the name of the company from the register
of companies and requesting them to send their representations along with
copies of the relevant documents, if any, within a period of thirty days from the
date of the notice.
(2) Without prejudice to the provisions of sub-section (1), a company
may, after extinguishing all its liabilities, by a special resolution or consent of
seventy-five per cent. members in terms of paid-up share capital, file an
application in the prescribed manner to the Registrar for removing the name of
the company from the register of companies on all or any of the grounds
specified in sub-section (1) and the Registrar shall, on receipt of such
application, cause a public notice to be issued in the prescribed manner :
Provided that in the case of a company regulated under a special
Act, approval of the regulatory body constituted or established under that Act
shall also be obtained and enclosed with the application.
(3) Nothing in sub-section (2) shall apply to a company registered
under Section 8.
(4) A notice issued under sub-section (1) or sub-section (2) shall be
published in the prescribed manner and also in the Official Gazette for the
information of the general public.
(5) At the expiry of the time mentioned in the notice, the Registrar
may, unless cause to the contrary is shown by the company, strike off its name
from the register of companies, and shall publish notice thereof in the Official
Gazette, and on the publication in the Official Gazette of this notice, the
company shall stand dissolved.
(6) The Registrar, before passing an order under sub-section (5), shall
satisfy himself that sufficient provision has been made for the realisation of all
amount due to the company and for the payment or discharge of its liabilities
and obligations by the company within a reasonable time and, if necessary,
278
obtain necessary undertakings from the managing director, director or other
persons in charge of the management of the company :
Provided that notwithstanding the undertakings referred to in this sub-
section, the assets of the company shall be made available for the payment or
discharge of all its liabilities and obligations even after the date of the order
removing the name of the company from the register of companies.
(7) The liability, if any, of every director, manager or other officer who
was exercising any power of management, and of every member of the company
dissolved under sub-section (5), shall continue and may be enforced as if the
company had not been dissolved.
(8) Nothing in this section shall affect the power of the Tribunal to
wind up a company the name of which has been struck off from the register of
companies.
249.
Restrictions on making application under section 248 in certain
situations.—(1) An application under sub-section (2) of section 248 ‘on behalf
of a company shall not be made if, at any time in the previous three months,
the company—
(a) has changed its name or shifted its registered office from one
State to another;
(b) has made a disposal for value of property or rights held by it,
immediately before cesser of trade or otherwise carrying on of
business, for the purpose of disposal for gain in the normal course of
trading or otherwise carrying on of business;
(c) has engaged in any other activity except the one which is
necessary or expedient for the purpose of making an application under
that section, or deciding whether to do so or concluding the affairs of
the company, or complying with any statutory requirement;
(d) has made an application to the Tribunal for the sanctioning of
a compromise or arrangement and the matter has not been finally
concluded; or
(e) is being wound up under Chapter XX, whether voluntarily or
279
by the Tribunal.
(2) If a company files an application under sub-section (2) of section
248 in violation of sub-section (1), it shall be punishable with fine which may
extend to one lakh rupees.
(3) An application filed under sub-section (2) of section 248 shall be
withdrawn by the company or rejected by the Registrar as soon as conditions
under sub-section (1) are brought to his notice.
250.
Effect of company notified as dissolved.—Where a company stands
dissolved under section 248, it shall on and from the date mentioned in the
notice under sub-section (5) of that section cease to operate as a company and
the Certificate of Incorporation issued to it shall be deemed to have been
cancelled from such date except for the purpose of realising the amount due to
the company and for the payment or discharge of the liabilities or obligations of
the company.
251.
Fraudulent application for removal of name.—(1) Where it is found
that an application by a company under sub-section (2) of section 248 has been
made with the object of evading the liabilities of the company or with the
intention to deceive the creditors or to defraud any other persons, the persons
in charge of the management of the company shall, notwithstanding that the
company has been notified as dissolved—
(a) be jointly and severally liable to any person or persons who
had incurred loss or damage as a result of the company being notified
as dissolved; and
(b) be punishable for fraud in the manner as provided in
section 447.
(2) Without prejudice to the provisions contained in sub-section (1),
the Registrar may also recommend prosecution of the persons responsible for
the filing of an application under sub-section (2) of section 248.
252.
Appeal to Tribunal.—(1) Any person aggrieved by an order of the
Registrar, notifying a company as dissolved under section 248, may file an
appeal to the Tribunal within a period of three years from the date of the order
of the Registrar and if the Tribunal is of the opinion that the removal of the
name of the company from the register of companies is not justified in view of
280
the absence of any of the grounds on which the order was passed by the
Registrar, it may order restoration of the name of the company in the register
of companies:
Provided that before passing any order under this section, the Tribunal
shall give a reasonable opportunity of making representations and of being heard
to the Registrar, the company and all the persons concerned :
Provided further that if the Registrar is satisfied, that the name of the
company has been struck off from the register of companies either
inadvertently or on the basis of incorrect information furnished by the company
or its directors, which requires restoration in the register of companies, he
may within a period of three years from the date of passing of the order
dissolving the company under section 248, file an application before the
Tribunal seeking restoration of name of such company.
(2) A copy of the order passed by the Tribunal shall be filed by the
company with the Registrar within thirty days from the date of the order and on
receipt of the order, the Registrar shall cause the name of the company to be
restored in the register of companies and shall issue a fresh certificate of
incorporation.
(3) If a company, or any member or creditor or workman thereof feels
aggrieved by the company having its name struck off from the register of
companies, the Tribunal on an application made by the company, member,
creditor or workman before the expiry of twenty years from the publication in the
Official Gazette of the notice under sub-section (5) of section 248 may, if
satisfied that the company was, at the time of its name being struck off, carrying
on business or in operation or otherwise it is just that the name of the company
be restored to the register of companies, order the name of the company to be
restored to the register of companies, and the Tribunal may, by the order, give
such other directions and make such provisions as deemed just for placing the
company and all other persons in the same position as nearly as may be as if
the name of the company had not been struck off from the register of
companies.
CHAPTER XIX
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REVIVAL AND REHABILITATION OF SICK COMPANIES
253.
Determination of sickness.—(1) Where on a demand by the secured
creditors of a company representing fifty per cent. or more of its outstanding
amount of debt, the company has failed to pay the debt within a period of thirty
days of the service of the notice of demand or to secure or compound it to the
reasonable satisfaction of the creditors, any secured creditor may file an
application to the Tribunal in the prescribed manner along with the relevant
evidence for such default, non-repayment or failure to offer security or
compound it, for a determination that the company be declared as a sick
company.
(2) The applicant under sub-section (1) may, along with an application
under that sub-section or at any stage of the proceedings thereafter, make an
application for the stay of any proceeding for the winding up of the company or
for execution, distress or the like against any property and assets of the
company or for the appointment of a receiver in respect thereof and that no
suit for the recovery of any money or for the enforcement of any security against
the company shall lie or be proceeded with.
(3) The Tribunal may pass an order in respect of an application under
sub-section (2) which shall be operative for a period of one hundred and twenty
days.
(4) The company referred to in sub-section (1) may also file an
application to the Tribunal on one or more of the grounds specified in sub-
sections (1) and (2) above.
(5) Without prejudice to the provisions of sub-sections (1) to (4), the
Central Government or the Reserve Bank of India or a State Government or a
public financial institution or a State level institution or a scheduled bank may, if
it has sufficient reasons to believe that any company has become, for the
purposes of this Act, a sick company, make a reference in respect of such
company to the Tribunal for determination of the measures which may be
adopted with respect to such company:
Provided that a reference shall not be made under this sub-section in
respect of any company by—
(a) the Government of any State unless all or any of the
282
undertakings belonging to such company are situated in such
State;
(b) a public financial institution or a State level institution or
a scheduled bank unless it has, by reason of any financial
assistance or obligation rendered by it, or undertaken by it, with
respect to such company, an interest in such company.
(6) Where an application under sub-section (1) or sub-section (4) has
been filed,—
(a) the company shall not dispose of or otherwise enter into any
obligation with regard to, its properties or assets except as required in the normal
course of business;
(b) the Board of Directors shall not take any steps likely to
prejudice the interests of the creditors.
(7) The Tribunal shall, within a period of sixty days of the receipt of
an application under sub-section (1) or sub-section (4), determine whether the
company is a sick company or not:
Provided that no such determination shall be made in respect of an
application under sub-section (1) unless the company has been given notice of
the application and a reasonable opportunity to reply to the notice within thirty
days of the receipt thereof.
(8) If the Tribunal is satisfied that a company has become a sick
company, the Tribunal shall, after considering all the relevant facts and
circumstances of the case, decide, as soon as may be, by an order in writing,
whether it is practicable for the company to make the repayment of its debts
referred to in sub-section (1) within a reasonable time.
(9) If the Tribunal deems fit under sub-section (8) that it is practicable
for a sick company to pay its debts referred to in that sub-section within a
reasonable time, the Tribunal shall, by order in writing and subject to such
restrictions or conditions as may be specified in the order, give such time to the
company as it may deem fit to make repayment of the debt.
254.
Application for revival and rehabilitation.—(1) On the determination
of a company as a sick company by the Tribunal under section 253, any secured
283
creditor of that company or the company may make an application to the
Tribunal for the determination of the measures that may be adopted with respect
to the revival and rehabilitation of such company:
Provided that in case any reference had been made before the Tribunal
and a scheme for revival and rehabilitation submitted, such reference shall abate
if the secured creditors representing three-fourths in value of the amount
outstanding against financial assistance disbursed to the borrower have taken
measures to recover their secured debt under sub-section (4) of section 13 of
the Securitisation and Reconstruction of Financial Assets and Enforcement of
Security Interest Act, 2002 (54 of 2002):
Provided further that no reference shall be made under this section if the
secured creditors representing three-fourths in value of the amount outstanding
against financial assistance disbursed to the borrower have taken measures to
recover their secured debt under sub-section (4) of section 13 of the
Securitisation and Reconstruction of Financial Assets and Enforcement of
Security Interest Act, 2002 (54 of 2002):
Provided also that where the financial assets of the sick company had
been acquired by any securitisation company or reconstruction company under
sub-section (1) of section 5 of the Securitisation and Reconstruction of
Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002),
no such application shall be made without the consent of securitisation
company or reconstruction company which has acquired such assets.
(2) An application under sub-section (1) shall be accompanied
by—
(a) audited financial statements of the company relating to
the immediately preceding financial year;
(b) such particulars and documents, duly authenticated in
such manner, along with such fees as may be prescribed; and
(c) a draft scheme of revival and rehabilitation of the
company in such manner as may be prescribed:
Provided that where the sick company has no draft scheme of revival
and rehabilitation to offer, it shall file a declaration to that effect along with the
application.
284
sick company and such other matters, which the interim administrator
may consider necessary for the purpose and to submit his report to
the Tribunal within sixty days from the date of the order:
Provided that where no draft scheme is filed by the company and
a declaration has been made to that effect by the Board of Directors,
the Tribunal may direct the interim administrator to take over the
management of the company; and
(c) issue such other directions to the interim administrator as the
Tribunal may consider necessary to protect and preserve the assets of
the sick company and for its proper management.
(2) Where an interim administrator has been directed to take over the
management of the company, the directors and the management of the company
shall extend all possible assistance and cooperation to the interim administrator
to manage the affairs of the company.
257. Committee of creditors.—(1) The interim administrator shall appoint a
committee of creditors with such number of members as he may determine, but
not exceeding seven, and as far as possible a representative each of every class
of creditors should be represented in that committee.
(2)
The holding of the meeting of the committee of creditors and the
procedure to be followed at such meetings, including the appointment of its
chairperson, shall be decided by the interim administrator.
(3)
The interim administrator may direct any promoter, director or any key
managerial personnel to attend any meeting of the committee of creditors and to
furnish such information as may be considered necessary by the interim
administrator.
258. Order of Tribunal.—On the date of hearing fixed by the Tribunal and
on consideration of the report of the interim administrator filed under
sub-section (1) of section 256, if the Tribunal is satisfied that the creditors
representing three-fourths in value of the amount outstanding against the sick
company present and voting have resolved that—
(a) it is not possible to revive and rehabilitate such company, the
Tribunal shall record such opinion and order that the proceedings for
the winding up of the company be initiated; or
285
(b) by adopting certain measures the sick company may be
revived and rehabilitated, the Tribunal shall appoint a company
administrator for the company and cause such administrator to prepare
a scheme of revival and rehabilitation of the sick company:
Provided that the Tribunal may, if it thinks fit, appoint an interim
administrator as the company administrator.
259. Appointment of administrator.—(1) The interim administrator or the
company administrator, as the case may be, shall be appointed by the Tribunal
from a data bank maintained by the Central Government or any institute or
agency authorised by the Central Government in a manner as may be prescribed
consisting of the names of company secretaries, chartered accountants, cost
accountants and such other professionals as may, by notification, be specified
by the Central Government.
(2)
The terms and conditions of the appointment of interim and company
administrators shall be such as may be ordered by the Tribunal.
(3)
The Tribunal may direct the company administrator to take over the
assets or management of the company and for the purpose of assisting him in
the management of the company, the company administrator may, with the
approval of the Tribunal, engage the services of suitable expert or experts.
260. Powers and duties of company administrator.—(1) The company
administrator shall perform such functions as the Tribunal may direct.
(2)
Without prejudice to the provisions of sub-scction (1), the company
administrator may cause to be prepared with respect to the company—
(a) a complete inventory of—
(i) all assets and liabilities of whatever nature;
(ii) all books of account, registers, maps, plans, records,
documents of title and all other documents of whatever nature;
(b) a list of shareholders and a list of creditors showing
separately in the list of creditors, the secured creditors and unsecured
creditors;
(c) a valuation report in respect of the shares and assets in
order to arrive at the reserve price for the sale of any industrial
undertaking of the company or for the fixation of the lease rent or
share exchange ratio;
286
(d) an estimate of the reserve price, lease rent or share exchange
ratio;
(e) proforma accounts of the company, where no up-to-date
audited accounts are available; and
(f) a list of workmen of the company and their dues referred to in sub-
section (3) of section 325.
261. Scheme of revival and rehabilitation.—(1) The company administrator
shall prepare or cause to be prepared a scheme of revival and rehabilitation of
the sick company after considering the draft scheme filed along with the
application under section 254.
(2)
A scheme prepared in relation to any sick company under sub-section
(1) may provide for anyone or more of the following measures, namely:—
(a) the financial reconstruction of the sick company;
(b) the proper management of the sick company by any change in,
or by taking over, the management of such company;
(c) the amalgamation of—
(i)
the sick company with any other company; or
(ii) any other company with the sick company;
(d) takeover of the sick company by a solvent company;
(e) the sale or lease of a part or whole of any asset or business
of the sick company;
(f)
the rationalisation of managerial personnel, supervisory
staff and workmen in accordance with law;
(g) such other preventive, ameliorative and remedial measures as
may be appropriate;
(h) repayment or rescheduling or restructuring of the debts or
obligations of the sick company to any of its creditors or class of
creditors;
(i)
such incidental, consequential or supplemental measures as
may be necessary or expedient in connection with or for the purposes
of the measures specified in clauses (a) to (h).
287
262. Sanction of scheme.—(1) The scheme prepared by the company
administrator under section 261 shall be placed before the creditors of the sick
company in a meeting convened for their approval by the company administrator
within the period of sixty days from his appointment, which may be extended by
the Tribunal up to a period not exceeding one hundred twenty days.
(2)
The company administrator shall convene separate meetings of secured
and unsecured creditors of the sick company and if the scheme is approved by
the unsecured creditors representing one-fourth in value of the amount owed by
the company to such creditors and the secured creditors, representing three-
fourths in value of the amount outstanding against financial assistance disbursed
by such creditors to the sick company, the company administrator shall submit
the scheme before the Tribunal for sanctioning the scheme:
Provided that where the scheme relates to amalgamation of the sick
company with any other company, such scheme shall, in addition to the
approval of the creditors of the sick company under this sub-section, be laid
before the general meeting of both the companies for approval by their
respective shareholders and no such scheme shall be proceeded with unless it
has been approved, with or without modification, by a special resolution passed
by the shareholders of that company.
(3)
(i) The scheme prepared by the company administrator shall be
examined by the Tribunal and a copy of the scheme with modification, if any,
made by the Tribunal shall be sent, in draft, to the sick company and the
company administrator and in the case of amalgamation, also to any other
company concerned, and the Tribunal may publish or cause to be published the
draft scheme in brief in such daily newspapers as the Tribunal may consider
necessary, for suggestions and objections, if any, within such period as the
Tribunal may specify.
(ii) The complete draft scheme shall be kept at the place where
registered office of the company is situated or at such .places as mentioned in
the advertisement.
(iii) The Tribunal may make such modifications, if any, in the draft
scheme as it may consider necessary in the light of the suggestions and
objections received from the sick company and the company administrator and
also from the transferee company and any other company concerned in the
amalgamation and from any shareholder or any creditors or employees of such
companies.
288
(4)
On the receipt of the scheme under sub-section (3), the Tribunal shall
within sixty days therefrom, after satisfying that the scheme had been validly
approved in accordance with this section, pass an order sanctioning such
scheme.
(5)
Where a sanctioned scheme provides for the transfer of any property
or liability of the sick company to any other company or person or where such
scheme provides for the transfer of any property or liability of any other
company or person in favour of the sick company, then, by virtue of, and to the
extent provided in, the scheme, on and from the date of coming into operation
of the sanctioned scheme or any provision thereof, the property shall be
transferred to, and vest in, and the liability shall become the liability of, such
other company or person or, as the case may be, the sick company.
(6)
The Tribunal may review any sanctioned scheme and make such
modifications, as it may deem fit, or may by order in writing direct company
administrator, to prepare a fresh scheme providing for such measures as the
company administrator may consider necessary.
(7)
The sanction accorded by the Tribunal under sub-section (4) shall be
conclusive evidence that all the requirements of the scheme relating to the
reconstruction or amalgamation or any other measure specified therein have been
complied with and a copy of the sanctioned scheme certified in writing by an
officer of the Tribunal to be a true copy thereof shall in all legal proceedings be
admitted as evidence.
(8)
A copy of the sanctioned scheme referred to in sub-section (4) shall
be filed with the Registrar by the sick company within a period of thirty days
from the date of receipt of a copy thereof.
263. Scheme to be binding.—On and from the date of the coming into
operation of the sanctioned scheme or any provision thereof, the scheme or
such provision shall be binding on the sick company and the transferee
company or, as the case may be, the other company and also on the employees,
shareholders, creditors and guarantors of the said companies.
264. Implementation of scheme.—(1) The Tribunal shall, for the purpose of
effective implementation of the scheme, have power to enforce, modify or
terminate any contract or agreement or any obligation pursuant to such
agreement or contract entered into by the company with any other person.
289
(2) The Tribunal may, if it deems necessary or expedient so to do, by
order in writing, authorise the company administrator appointed under section
259 to implement a sanctioned scheme till its successful implementation on such
terms and conditions as may be specified in the order and may for that purpose
require him to file periodic reports on the implementation of the sanctioned
scheme.
(3) Where the whole or substantial assets of the undertaking of the
sick company are sold under a sanctioned scheme, the sale proceeds shall be
applied towards implementation of the scheme in such manner as the Tribunal
may direct:
Provided that debtors and creditors shall have the power to scrutinise
and make an appeal for review of the value before final order of fixing va1ue.
(4) Where it is difficult to implement the scheme for any reason or the
scheme fails due to non-implementation of obligations under the scheme by the
parties concerned, the company administrator authorised to implement the scheme
and where there is no such administrator, the company, the secured creditors, or
the transferee company in a case of amalgamation, may make an application
before the Tribunal for modification of the scheme or to declare the scheme as
failed and that the company may be wound up.
(5) The Tribunal shall, within thirty days of presentation of an
application under sub-section (4), pass an order for modification of the scheme
or, as the case may be, declaring the scheme as failed and pass an order for the
winding up of the company if three-fourths in value of the secured creditors
consent to the modification of the scheme or winding up of the company.
(6) Where an application under sub-section (4) has been made before
the Tribunal and such application is pending before it, such application shall
abate, if the secured creditors representing not less than three-fourths in value
of the amount outstanding against financial assistance disbursed to the sick
company have taken any measures to recover their secured debt under
sub-section (4) of section 13 of the Securitisation and Reconstruction of
Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002).
265. Winding up of company on report of company administrator.—(1) If
the scheme is not approved by the creditors in the manner specified in
sub-section (2) of section 262, the company administrator shall submit a report
to the Tribunal within fifteen days and the Tribunal shall order for the winding
up of the sick company.
290
(2) On the passing of an order under sub-section (1), the Tribunal
shall conduct the proceedings for winding up of the sick company in accordance
with the provisions of Chapter XX.
266. Power of Tribunal to assess damages against delinquent directors
etc.—(1) If, in the course of the scrutiny or implementation of any scheme or
proposal including the draft scheme or proposal, it appears to the Tribunal that
any person who has taken part in the promotion, formation or management of
the sick company or its undertaking, including any director, manager, officer or
employee of the sick company who are or have been in employment of such
company,—
(a) has misapplied or retained, or become liable or accountable for,
any money or property of the sick company; or
(b) has been guilty of any misfeasance, malfeasance, non-feasance
or breach of trust in relation to the sick company,
it may, by order, direct him to repay or restore the money or property,
with or without interest, as it thinks just, or to contribute such sum to the assets
of the sick company or the other person, entitled thereto by way of
compensation in respect of the misapplication, retainer, misfeasance, malfeasance,
non-feasance or breach of trust as the Tribunal thinks just and proper:
Provided that such direction by the Tribunal shall be without
prejudice to any other legal action that may be taken against the
person including any punishment for fraud in the manner as provided
in section 447.
(2)
If the Tribunal is satisfied on the basis of the information and evidence
in its possession with respect to any person who is or was a director or an
officer or other employee of the sick company, that such person by himself or
along with others had diverted the funds or other property of such company for
any purpose other than the purposes of the company or had managed the affairs
of the company in a manner highly detrimental to the interests of the company,
the Tribunal shall, by order, direct the public financial institutions, scheduled
banks and State level institutions not to provide, for a maximum period of ten
years from the date of the order, any financial assistance to such person or any
firm of which such person is a partner or any company or other body corporate
of which such person is a director, by whatever name called, or to disqualify the
said director, promoter, manager from being appointed as a director in any
company registered under this Act for a maximum period of six years.
291
(3) No order shall be made by the Tribunal under this section against
any person unless such person has been given a reasonable opportunity of
being heard.
267. Punishment for certain offences.—Whoever violates the provisions of
this Chapter or any scheme, or any order, of the Tribunal or the Appellate
Tribunal or makes a false statement or gives false evidence before the Tribunal or
the Appellate Tribunal or attempts to tamper with the records of reference or
appeal filed under this Act, he shall be punishable with imprisonment for a term
which may extend to seven years and with fine which may extend to ten lakh
rupees.
268. Bar of jurisdiction.—No appeal shall lie in any court or other authority
and no civil court shall have any jurisdiction in respect of any matter in respect
of which the Tribunal or the Appellate Tribunal is empowered by or under this
Chapter and no injunction shall be granted by any court or other authority in
respect of any action taken or proposed to be taken in pursuance of any power
conferred by or under this Chapter.
269. Rehabilitation and Insolvency Fund.—(1) There shall be formed a
Fund to be called the Rehabilitation and Insolvency Fund for the purposes of
rehabilitation, revival and liquidation of the sick companies.
(2) There shall be credited to the Fund—
(a) the grants made by the Central Government for the purposes
of the Fund;
(b) the amount deposited by the companies as contribution to the
Fund;
(c) the amount given to the Fund from any other source; and
(d) the income from investment of the amount in the Fund.
(3) A company which has contributed any amount to the Fund shall,
in the event of proceedings initiated in respect of such company under this
Chapter or Chapter XX, may make an application to the Tribunal for withdrawal
of funds not exceeding the amount contributed by it, for making payments to
workmen, protecting the assets of the company or meeting the incidental costs
during proceedings.
(4) The Fund shall be managed by an administrator to be appointed
by the Central Government in such manner as may be prescribed.
292
CHAPTER XX
WINDING UP
270. Modes of winding up.—(1) The winding up of a company may be
either—
(a) by the Tribunal; or
(b) voluntary.
(2) Notwithstanding anything contained in any other Act, the
provisions of this Act with respect to winding up shall apply to the winding up
of a company in any of the modes specified under sub-section (1).
PART I.—Winding up by the Tribunal
271. Circumstances in which company may be wound up by Tribunal.—
(1) A company may, on a petition under section 272, be wound up by the
Tribunal,—
(a) if the company is unable to pay its debts;
(b) if the company has, by special resolution, resolved that the
company be wound up by the Tribunal;
(c) if the company has acted against the interests of the
sovereignty and integrity of India, the security of the State, friendly
relations with foreign States, public order, decency or morality;
(d) if the Tribunal has ordered the winding up of the company
under Chapter XIX;
(e) if on an application made by the Registrar or any other person
authorised by the Central Government by notification under this Act,
the Tribunal is of the opinion that the affairs of the company have
been conducted in a fraudulent manner or the company was formed for
fraudulent and unlawful purpose or the persons concerned in the
formation or management of its affairs have been guilty of fraud,
misfeasance or misconduct in connection therewith and that it is
proper that the company be wound up;
( f ) if the company has made a default in filing with the Registrar
its financial statements or annual returns for immediately preceding five
consecutive financial years; or
(g) if the Tribunal is of the opinion that it is just and equitable that
the company should be wound up.
293
(2)
A company shall be deemed to be unable to pay its debts,—
(a) if a creditor, by assignment or otherwise, to whom the
company is indebted for an amount exceeding one lakh rupees then
due, has served on the company, by causing it to be delivered at its
registered office, by registered post or otherwise, a demand requiring
the company to pay the amount so due and the company has failed
to pay the sum within twenty-one days after the receipt of such
demand or to provide adequate security or re-structure or compound
the debt to the reasonable satisfaction of the creditor;
(b) if any execution or other process issued on a decree or order
of any court or tribunal in favour of a creditor of the company is
returned unsatisfied in whole or in part; or
(c) if it is proved to the satisfaction of the Tribunal that the
company is unable to pay its debts, and, in determining whether a
company is unable to pay its debts, the Tribunal shall take into
account the contingent and prospective liabilities of the company.
272. Petition for winding up.—(1) Subject to the provisions of this
section, a petition to the Tribunal for the winding up of a company shal1 be
presented by—
(a) the company;
(b) any creditor or creditors, including any contingent or
prospective creditor or creditors;
(c) any contributory or contributories;
(d) all or any of the persons specified in clauses (a), (b) and (c)
together;
(e) the Registrar;
(f) any person authorised by the Central Government in that
behalf; or
(g) in a case falling under clause (c) of sub-section (1) of section
271, by the Central Government or a State Government.
(2)
A secured creditor, the holder of any debentures, whether or not any
trustee or trustees have been appointed in respect of such and other like
debentures, and the trustee for the holders of debentures shall be deemed to be
294
creditors within the meaning of clause (b) of sub-section (1).
(3)
A contributory shall be entitled to present a petition for the winding
up of a company, notwithstanding that he may be the holder of fully paid-up
shares, or that the company may have no assets at all or may have no surplus
assets left for distribution among the shareholders after the satisfaction of its
liabilities, and shares in respect of which he is a contributory or some of them
were either originally allotted to him or have been held by him, and registered in
his name, for at least six months during the eighteen months immediately before
the commencement of the winding up or have devolved on him through the
death of a former holder.
(4)
The Registrar shall be entitled to present a petition for winding up
under sub-section (1) on any of the grounds specified in sub-section (1) of
section 271, except on the grounds specified in clause (b), clause (d) or clause
(g) of that sub-section:
Provided that the Registrar shall not present a petition on the ground that
the company is unable to pay its debts unless it appears to him either from the
financial condition of the company as disclosed in its balance sheet or from the
report of an inspector appointed under section 210 that the company is unable
to pay its debts:
Provided further that the Registrar shall obtain the previous sanction of the
Central Government to the presentation of a petition:
Provided also that the Central Government shall not accord its sanction
unless the company has been given a reasonable opportunity of
making representations.
(5)
A petition presented by the company for winding up before the
Tribunal shall be admitted only if accompanied by a statement of affairs in such
form and in such manner as may be prescribed.
(6) Before a petition for winding up of a company presented by a
contingent or prospective creditor is admitted, the leave of the Tribunal shall be
obtained for the admission of the petition and such leave shall not be granted,
unless in the opinion of the Tribunal there is a prima facie case for the winding
up of the company and until such security for costs has been given as the
Tribunal thinks reasonable.
(7)
A copy of the petition made under this section shall also be filed with
the Registrar and the Registrar shall, without prejudice to any other provisions,
submit his views to the Tribunal within sixty days of receipt of
295
such petition.
273. Powers of Tribunal.—(1) The Tribunal may, on receipt of a petition
for winding up under section 272 pass any of the following orders, namely:—
(a) dismiss it, with or without costs;
(b) make any interim order as it thinks fit;
(c) appoint a provisional liquidator of the company till the making
of a winding up order;
(d) make an order for the winding up of the company with or without
costs; or
(e) any other order as it thinks fit:
Provided that an order under this sub-section shall be made within
ninety days from the date of presentation of the petition:
Provided further that before appointing a provisional liquidator
under clause (c), the Tribunal shall give notice to the company and afford a
reasonable opportunity to it to make its representations, if any,
unless
for
special reasons to be recorded in writing, the Tribunal thinks fit to dispense with
such notice:
Provided also that the Tribunal shall not refuse to make a winding up order
on the ground only that the assets of the company have been mortgaged for an
amount equal to or in excess of those assets, or that the company has no
assets.
(2)
Where a petition is presented on the ground that it is just and
equitable that the company should be wound up, the Tribunal may refuse to
make an order of winding up, if it is of the opinion that some other remedy is
available to the petitioners and that they are acting unreasonably in seeking to
have the company wound up instead of pursuing the other remedy.
274. Directions for filing statement of affairs.—(1) Where a petition for
winding up is filed before the Tribunal by any person other than the company,
the Tribunal shall, if satisfied that a prima facie case for winding up of the
company is made out, by an order direct the company to file its objections
along with a statement of its affairs within thirty days of the order in such form
and in such manner as may be prescribed:
296
Provided that the Tribunal may allow a further period of thirty days in a
situation of contingency or special circumstances:
Provided further that the Tribunal may direct the petitioner to deposit such
security for costs as it may consider reasonable as a precondition to issue
directions to the company.
(2)
A company, which fails to file the statement of affairs as referred to in
sub-section (1), shall forfeit the right to oppose the petition and such directors
and officers of the company as found responsible for such
non-compliance, shall be liable for punishment under sub-section (4).
(3)
The directors and other officers of the company, in respect of which
an order for winding up is passed by the Tribunal under clause (d) of sub-
section (1) of section 273, shall, within a period of thirty days of such order,
submit, at the cost of the company, the books of account of the company
completed and audited up to the date of the order, to such liquidator and in the
manner specified by the Tribunal.
(4)
If any director or officer of the company contravenes the provisions of
this section, the director or the officer of the company who is in default shall be
punishable with imprisonment for a term which may extend to six months or with
fine which shall not be less than twenty-five thousand rupees but which may
extend to five lakh rupees, or with both.
(5)
The complaint may be filed in this behalf before the Special Court by
Registrar, provisional liquidator, Company Liquidator or any person authorised
by the Tribunal.
275. Company Liquidators and their appointments.—(1) For the purposes
of winding up of a company by the Tribunal, the Tribunal at the time of the
passing of the order of winding up, shall appoint an Official Liquidator or a
liquidator from the panel maintained under sub-section (2) as the Company
Liquidator.
(2)
The provisional liquidator or the Company Liquidator, as the case may
be, shall be appointed from a panel maintained by the Central Government
consisting of the names of chartered accountants, advocates, company
secretaries, cost accountants or firms or bodies corporate having such chartered
accountants, advocates, company secretaries, cost accountants and such other
297
professionals as may be notified by the Central Government or from a firm or a
body corporate of persons having a combination of such professionals as may
be prescribed and having at least ten years experience in company matters.
(3)
Where a provisional liquidator is appointed by the Tribunal, the
Tribunal may limit and restrict his powers by the order appointing him or it or
by a subsequent order, but otherwise he shall have the same powers as a
liquidator.
(4)
The Central Government may remove the name of any person or firm
or body corporate from the panel maintained under sub-section (2) on the
grounds of misconduct, fraud, misfeasance, breach of duties or professional
incompetence:
Provided that the Central Government before removing him or it from the
panel shall give him or it a reasonable opportunity of being heard.
(5) The terms and conditions of appointment of a provisional liquidator or
Company Liquidator and the fee payable to him or it shall be specified by the
Tribunal on the basis of task required to be performed, experience, qualification
of such liquidator and size of the company.
(6)
On appointment as provisional liquidator or Company Liquidator, as
the case may be, such liquidator shall file a declaration within seven days from
the date of appointment in the prescribed form disclosing conflict of interest or
lack of independence in respect of his appointment, if any, with the Tribunal and
such obligation shall continue throughout the term of his appointment.
(7)
While passing a winding up order, the Tribunal may appoint a
provisional liquidator, if any, appointed under clause (c) of sub-section (1) of
section 273, as the Company Liquidator for the conduct of the proceedings for
the winding up of the company.
276. Removal and replacement of liquidator.—(1) The Tribunal may, on a
reasonable cause being shown and for reasons to be recorded in writing, remove
the provisional liquidator or the Company Liquidator, as the case may be, as
liquidator of the company on any of the following grounds, namely:—
(a) misconduct;
(b) fraud or misfeasance;
(c) professional incompetence or failure to exercise due care and
diligence in performance of the powers and functions;
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(d) inability to act as provisional liquidator or as the case may be,
Company Liquidator;
(e) conflict of interest or lack of independence during the term of
his appointment that would justify removal.
(2)
In the event of death, resignation or removal of the provisional
liquidator or as the case may be, Company Liquidator, the Tribunal may transfer
the work assigned to him or it to another Company Liquidator for reasons to be
recorded in writing.
(3)
Where the Tribunal is of the opinion that any liquidator is responsible
for causing any loss or damage to the company due to fraud or misfeasance or
failure to exercise due care and diligence in the performance of his or its powers
and functions, the Tribunal may recover or cause to be recovered such loss or
damage from the liquidator and pass such other orders as it may think fit.
(4)
The Tribunal shall, before passing any order under this section,
provide a reasonable opportunity of being heard to the provisional liquidator or,
as the case may be, Company Liquidator.
277. Intimation to Company Liquidator, provisional liquidator and
Registrar.—(1) Where the Tribunal makes an order for appointment of
provisional liquidator or for the winding up of a company, it shall, within a
period not exceeding seven days from the date of passing of the order, cause
intimation thereof to be sent to the Company Liquidator or provisional liquidator,
as the case may be, and the Registrar.
(2) On receipt of the copy of order of appointment of provisional liquidator
or winding up order, the Registrar shall make an endorsement to that effect in
his records relating to the company and notify in the Official Gazette that such
an order has been made and in the case of a listed company, the Registrar shall
intimate about such appointment or order, as the case may be, to the stock
exchange or exchanges where the securities of the company are listed.
(3)
The winding up order shall be deemed to be a notice of discharge to
the officers, employees and workmen of the company, except when the businass
of the company is continued.
(4)
Within three weeks from the date of passing of winding up order, the
299
Company Liquidator shall make an application to the Tribunal for constitution of
a winding up committee to assist and monitor the progress of liquidation
proceedings by the Company Liquidator in carrying out the function as provided
in sub-section (5) and such winding up committee shall comprise of the
following persons, namely:—
(i)
Official Liquidator attached to the Tribunal;
(ii) nominee of secured creditors; and
(iii) a professional nominated by the Tribunal.
(5)
The Company Liquidator shall be the convener of the meetings of the
winding up committee which shall assist and monitor the liquidation proceedings
in following areas of liquidation functions, namely:—
(i)
taking over assets;
(ii) examination of the statement of affairs;
(iii) recovery of property, cash or any other assets of the
company including benefits derived therefrom;
(iv) review of audit reports and accounts of the company;
(v) sale of assets;
(vi) finalisation of list of creditors and contributories;
(vii) compromise, abandonment and settlement of claims;
(viii) payment of dividends, if any; and
(ix) any other function, as the Tribunal may direct from
time to time.
(6)
The Company Liquidator shall place before the Tribunal a report along
with minutes of the meetings of the committee on monthly basis duly signed by
the members present in the meeting for consideration till the final report for
dissolution of the company is submitted before the Tribunal.
(7)
The Company Liquidator shall prepare the draft final report for
consideration and approval of the winding up committee.
(8)
The final report so approved by the winding up committee shall be
300
submitted by the Company Liquidator before the Tribunal for passing of a
dissolution order in respect of the company.
278. Effect of winding up order.—The order for the winding up of a
company shall operate in favour of all the creditors and all contributories of the
company as if it had been made out on the joint petition of creditors and
contributories.
279. Stay of suits etc. on winding up order.—(1) When a winding up
order has been passed or a provisional liquidator has been appointed, no suit or
other legal proceeding shall be commenced, or if pending at the date of the
winding up order, shall be proceeded with, by or against the company, except
with the leave of the Tribunal and subject to such terms as the Tribunal may
impose:
Provided that any application to the Tribunal seeking leave under this
section shall be disposed of by the Tribunal within sixty days.
(2) Nothing in sub-section (1) shall apply to any proceeding pending
in appeal before the Supreme Court or a High Court.
280. Jurisdiction of Tribunal.—The Tribunal shall, notwithstanding
anything contained in any other law for the time being in force, have jurisdiction
to entertain, or dispose of,—
(a) any suit or proceeding by or against the company;
(b) any claim made by or against the company, including claims by
or against any of its branches in India;
(c) any application made under section 233;
(d) any scheme submitted under section 262;
(e) any question of priorities or any other question whatsoever,
whether of law or facts, including those relating to assets, business,
actions, rights, entitlements, privileges, benefits, duties, responsibilities,
obligations or in any matter arising out of, or in relation to winding up
of the company,
whether such suit or proceeding has been instituted, or is instituted, or such
claim or question has arisen or arises or such application has been made or is
made or such scheme has been submitted, or is submitted, before or after the
order for the winding up of the company is made.
281. Submission of report by Company Liquidator.—(1) Where the
301
Tribunal has made a winding up order or appointed a Company Liquidator, such
liquidator shall, within sixty days from the order, submit to the Tribunal, a report
containing the following particulars, namely:—
(a) the nature and details of the assets of the company including
their location and value, stating separately the cash balance in hand
and in the bank, if any, and the negotiable securities, if any, held by
the company:
Provided that the valuation of the assets shall be obtained from
registered valuers for this purpose;
(b) amount of capital issued, subscribed and paid-up;
(c) the existing and contingent liabilities of the company including
names, addresses and occupations of its creditors, stating separately
the amount of secured and unsecured debts, and in the case of
secured debts, particulars of the securities given, whether by the
company or an officer thereof, their value and the dates on which they
were given;
(d) the debts due to the company and the names, addresses and
occupations of the persons from whom they are due and the amount
likely to be realised an account thereof ;
(e) guarantees, if any, extended by the company;
( f ) list of contributories and dues, if any, payable by them and
details of any unpaid call;
(g) details of trade marks and intellectual properties, if any, owned
by the company;
(h) details of subsisting contracts, joint ventures and
collaborations, if any;
(i)
details of holding and subsidiary companies, if any;
(j)
details of legal cases filed by or against the company; and
(k) any other information which the Tribunal may direct or the
Company Liquidator may consider necessary to include.
(2) The Company Liquidator shall include in his report the manner in
which the company was promoted or formed and whether in his opinion any
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fraud has been committed by any person in its promotion or formation or by
any officer of the company in relation to the company since the formation
thereof and any other matters which, in his opinion, it is desirable to bring to
the notice of the Tribunal.
(3) The Company Liquidator shall also make a report on the viability
of the business of the company or the steps which, in his opinion, are necessary
for maximising the value of the assets of the company.
(4) The Company Liquidator may also, if he thinks fit, make any
further report or reports.
(5) Any person describing himself in writing to be a creditor or a
contributory of the company shall be entitled by himself or by his agent at all
reasonable times to inspect the report submitted in accordance with this section
and take copies thereof or extracts therefrom on payment of the prescribed fees.
282. Directions of Tribunal on report of Company Liquidator.—(1) The
Tribunal shall, on consideration of the report of the Company Liquidator, fix a
time limit within which the entire proceedings shall be completed and the
company be dissolved:
Provided that the Tribunal may, if it is of the opinion, at any stage of the
proceedings, or on examination of the reports submitted to it by the Company
Liquidator and after hearing the Company Liquidator, creditors or contributories
or any other interested person, that it will not be advantageous or economical to
continue the proceedings, revise the time limit within which the entire
proceedings shall be completed and the company be dissolved.
(2)
The Tribunal may, on examination of the reports submitted to it by the
Company Liquidator and after hearing the Company Liquidator, creditors or
contributories or any other interested person, order sale of the company as a
going concern or its assets or part thereof:
Provided that the Tribunal may, where it considers fit, appoint a sale
committee comprising such creditors, promoters and officers of the company as
the Tribunal may decide to assist the Company Liquidator in sale under this
sub-section.
(3)
Where a report is received from the Company Liquidator or the Central
Government or any person that a fraud has been committed in respect of the
company, the Tribunal shall, without prejudice to the process of winding up,
order for investigation under section 210, and on consideration of the report of
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such investigation it may pass order and give directions under sections 339 to
342 or direct the Company Liquidator to file a criminal complaint against persons
who were involved in the commission of fraud.
(4)
The Tribunal may order for taking such steps and measures, as
may be necessary, to protect, preserve or enhance the value of the assets of the
company.
(5)
The Tribunal may pass such other order or give such other directions
as it considers fit.
283. Custody of company’s properties.—(1) Where a winding up order
has been made or where a provisional liquidator has been appointed, the
Company Liquidator or the provisional liquidator, as the case may be, shall, on
the order of the Tribunal, forth with take into his or its custody or control all
the property, effects and actionable claims to which the company is or appears
to be entitled to and take such steps and measures, as may be necessary, to
protect and preserve the properties of the company.
(2)
Notwithstanding anything contained in sub-section (1), all the property
and effects of the company shall be deemed to be in the custody of the
Tribunal from the date of the order for the winding up of the company.
(3)
On an application by the Company Liquidator or otherwise, the
Tribunal may, at any time after the making of a winding up order, require any
contributory for the time being on the list of contributories, and any trustee,
receiver, banker, agent, officer or other employee of the company, to pay, deliver,
surrender or transfer forthwith, or within such time as the Tribunal directs, to the
Company Liquidator, any money, property or books and papers in his custody or
under his control to which the company is or appears to be entitled.
284. Promoters, directors, etc. to co-operate with Company Liquidator.—
(1) The promoters, directors, officers and employees, who are or have been in
employment of the company or acting or associated with the company shall
extend full co-operation to the Company Liquidator in discharge of his functions
and duties.
(2)
Where any person, without reasonable cause, fails to discharge his
obligations under sub-section (1), he shall be punishable with imprisonment
which may extend to six months or with fine which may extend to fifty
thousand rupees, or with both.
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285. Settlement of list of contributories and application of assets.—(1)
As soon as may be after the passing of a winding up order by the Tribunal, the
Tribunal shall settle a list of contributories, cause rectification of register of
members in all cases where rectification is required in pursuance of this Act and
shall cause the assets of the company to be applied for the discharge of its
liability:
Provided that where it appears to the Tribunal that it would not be
necessary to make calls on or adjust the rights of contributories, the Tribunal
may dispense with the settlement of a list of contributories.
(2)
In settling the list of contributories, the Tribunal shall distinguish
between those who are contributories in their own right and those who are
contributories as being representatives of, or liable for the debts of, others.
(3)
While settling the list of contributories, the Tribunal shall include
every person, who is or has been a member, who shall be liable to contribute to
the assets of the company an amount sufficient for payment of the debts and
liabilities and the costs, charges and expenses of winding up, and for the
adjustment of the rights of the contributories among themselves, subject to the
following conditions, namely:—
(a) a person who has been a member shall not be liable to
contribute if he has ceased to be a member for the preceding one year
or more before the commencement of the winding up;
(b) a person who has been a member shall not be liable to
contribute in respect of any debt or liability of the company contracted
after he ceased to be a member;
(c) no person who has been a member shall be liable to contribute
unless it appears to the Tribunal that the present members are unable
to satisfy the contributions required to be made by them in pursuance
of this Act;
(d) in the case of a company limited by shares, no contribution
shall be required from any person, who is or has been a member
exceeding the amount, if any, unpaid on the shares in respect of which
he is liable as such member;
(e) in the case of a company limited by guarantee, no
contribution shall be required from any person, who is or has been a
member exceeding the amount undertaken to be contributed by him to
305
the assets of the company in the event of its being wound up but if
the company has a share capital, such member shall be liable to
contribute to the extent of any sum unpaid on any shares held by him
as if the company were a company limited by shares.
286. Obligations of directors and managers.—In the case of a limited
company, any person who is or has been a director or manager, whose liability
is unlimited under the provisions of this Act, shall, in addition to his liability, if
any, to contribute as an ordinary member, be liable to make a further contribution
as if he were at the commencement of winding up, a member of an unlimited
company:
Provided that—
(a) a person who has been a director or manager shall not be
liable to make such further contribution, if he has ceased to hold office
for a year or upwards before the commencement of the winding up;
(b) a person who has been a director or manager shall not be
liable to make such further contribution in respect of any debt or
liability of the company contracted after he ceased to hold office;
(c) subject to the articles of the company, a director or manager
shall not be liable to make such further contribution unless the
Tribunal deems it necessary to require the contribution in order to
satisfy the debts and liabilities of the company, and the costs, charges
and expenses of the winding up.
287. Advisory committee.—(1) The Tribunal may, while passing an order of
winding up of a company, direct that there shall be, an advisory committee to
advise the Company Liquidator and to report to the Tribunal on such matters as
the Tribunal may direct.
(2)
The advisory committee appointed by the Tribunal shall consist of not
more than twelve members, being creditors and contributories of the company or
such other persons in such proportion as the Tribunal may, keeping in view the
circumstances of the company under liquidation, direct.
(3)
The Company Liquidator shall convene a meeting of creditors and
contributories, as ascertained from the books and documents, of the company
within thirty days from the date of order of winding up for enabling the Tribunal
306
to determine the persons who may be members of the advisory committee.
(4)
The advisory committee shall have the right to inspect the books of
account and other documents, assets and properties of the company under
liquidation at a reasonable time.
(5)
The provisions relating to the convening of the meetings the
procedure to be followed thereat and other matters relating to conduct of
business by the advisory committee shall be such as may be prescribed.
(6)
The meeting of advisory committee shall be chaired by the Company
Liquidator.
288. Submission of periodical reports to Tribunal.—(1) The Company
Liquidator shall make periodical reports to the Tribunal and in any case make a
report at the end of each quarter with respect to the progress of the winding up
of the company in such form and manner as may be prescribed.
(2)
The Tribunal may, on an application by the Company Liquidator,.review
the
orders
made
by
it
and
make
such
modifications
as
it
thinks fit.
289. Power of Tribunal on application for stay of winding up.—(1) The
Tribunal may, at any time after making a winding up order, on an application of
promoter, shareholders or creditors or any other interested person, if satisfied,
make an order that it is just and fair that an opportunity to revive and
rehabilitate the company be provided staying the proceedings for such time but
not exceeding one hundred and eighty days and on such terms and conditions
as it thinks fit:
Provided that an order under this sub-section shall be made by the
Tribunal only when the application is accompanied with a scheme for
rehabilitation.
(2)
The Tribunal may, while passing the order under sub-section (1),
require the applicant to furnish such security as to costs as it considers fit.
(3)
Where an order under sub-section (1) is passed by the Tribunal, the
provisions of Chapter XIX shall be followed in respect of the consideration and
sanction of the scheme of revival of the company.
(4)
Without prejudice to the provisions of sub-section (1), the Tribunal
may at any time after making a winding up order, on an application of the
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Company Liquidator, make an order staying the winding up proceedings or any
part thereof, for such time and on such terms and conditions as it thinks fit.
(5)
The Tribunal may, before making an order, under this section, require
the Company Liquidator to furnish to it a report with respect to any facts or
matters which are in his opinion relevant to the application.
(6)
A copy of every order made under this section shall forthwith be
forwarded by the Company Liquidator to the Registrar who shall make an
endorsement of the order in his books and records relating to the company.
290. Powers and duties of Company Liquidator.—(1) Subject to directions
by the Tribunal, if any, in this regard, the Company Liquidator, in a winding up
of a company by the Tribunal, shall have the power—
(a) to carry on the business of the company so far as may be
necessary for the beneficial winding up of the company;
(b) to do all acts and to execute, in the name and on behalf of
the company, all deeds, receipts and other documents, and for that
purpose, to use, when necessary, the company’s seal;
(c) to sell the immovable and movable property and actionable
claims of the company by public auction or private contract, with
power to transfer such property to any person or body corporate, or
to sell the same in parcels;
(d) to sell the whole of the undertaking of the company as a
going concern;
(e) to raise any money required on the security of the assets of
the company;
(f)
to institute or defend any suit, prosecution or other legal
proceeding, civil or criminal, in the name and on behalf of the
company;
(g) to invite and settle claim of creditors, employees or any other
claimant and distribute sale proceeds in accordance with priorities
established under this Act;
(h) to inspect the records and returns of the company on the files
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of the Registrar or any other authority;
(i)
to prove rank and claim in the insolvency of any contributory
for any balance against his estate, and to receive dividends in the
insolvency, in respect of that balance, as a separate debt due from the
insolvent, and rateably with the other separate creditors;
(j)
to draw, accept, make and endorse any negotiable instruments
including cheque, bill of exchange, hundi or promissory note in the
name and on behalf of the company, with the same effect with respect
to the liability of the company as if such instruments had been drawn,
accepted, made or endorsed by or on behalf of the company in the
course of its business;
(k) to take out, in his official name, letters of administration to
any deceased contributory, and to do in his official name any other act
necessary for obtaining payment of any money due from a
contributory or his estate which cannot be conveniently done in the
name of the company, and in all such cases, the money due shall, for
the purpose of enabling the Company Liquidator to take out the letters
of administration or recover the money, be deemed to be due to the
Company Liquidator himself;
(l)
to obtain any professional assistance from any person or
appoint any professional, in discharge of his duties, obligations and
responsibilities and for protection of the assets of the company,
appoint an agent to do any business which the Company Liquidator is
unable to do himself;
(m) to take all such actions, steps, or to sign, execute and verify
any paper, deed, document, application, petition, affidavit, bond or
instrument as may be necessary,—
(i)
for winding up of the company;
(ii) for distribution of assets;
(iii) in discharge of his duties and obligations and functions as
Company Liquidator; and
(n) to apply to the Tribunal for such orders or directions as may
be necessary for the winding up of the company.
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(2)
The exercise of powers by the Company Liquidator under sub
section (1) shall be subject to the overall control of the Tribunal.
(3)
Notwithstanding the provisions of sub-section (1), the Company
Liquidator shall perform such other duties as the Tribunal may specify in this
behalf.
291. Provision for professional assistance to Company Liquidator.—(1)
The Company Liquidator may, with the sanction of the Tribunal, appoint one or
more chartered accountants or company secretaries or cost accountants or legal
practitioners or such other professionals on such terms and conditions, as may
be necessary, to assist him in the performance of his duties and functions under
this Act.
(2)
Any person appointed under this section shall disclose forthwith to
the Tribunal in the prescribed form any conflict of interest or lack of
independence in respect of his appointment.
292. Exercise and control of Company Liquidator’s powers.—(1) Subject
to the provisions of this Act, the Company Liquidator shall, in the administration
of the assets of the company and the distribution thereof among its creditors,
have regard to any directions which may be given by the resolution of the
creditors or contributories at any general meeting or by the advisory committee.
(2)
Any directions given by the creditors or contributories at any general
meeting shall, in case of conflict, be deemed to override any directions given by
the advisory committee.
(3)
The Company Liquidator—
(a) may summon meetings of the creditors or contributories,
whenever he thinks fit, for the purpose of ascertaining their wishes;
and
(b) shall summon such meetings at such times, as the crediiors or
contributories, as the case may be, may, by resolution, direct, or
whenever requested in writing to do so by not less than one-tenth in
value of the creditors or contributories, as the case may be.
(4)
Any person aggrieved by any act or decision of the Company
Liquidator may apply to the Tribunal, and the Tribunal may confirm, reverse or
modify the act or decision complained of and make such further order as it
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thinks just and proper in the circumstances.
293. Books to be kept by Company Liquidator.—(1) The Company
Liquidator shall keep proper books in such manner, as may be prescribed, in
which he shall cause entries or minutes to be made of proceedings at meetings
and of such other matters as may be prescribed.
(2)
Any creditor or contributory may, subject to the control of the
Tribunal, inspect any such books, personally or through his agent.
294. Audit of Company Liquidator’s accounts.—(1) The Company
Liquidator shall maintain proper and regular books of account including accounts
of receipts and payments made by him in such form and manner as may be
prescribed.
(2)
The Company Liquidator shall, at such times as may be prescribed but
not less than twice in each year during his tenure of office, present to the
Tribunal an account of the receipts and payments as such liquidator in the
prescribed form in duplicate, which shall be verified by a declaration in such
form and manner as may be prescribed.
(3)
The Tribunal shall cause the accounts to be audited in such manner as
it thinks fit, and for the purpose of the audit, the Company Liquidator shall
furnish to the Tribunal with such vouchers and information as the Tribunal may
require, and the Tribunal may, at any time, require the production of, and inspect,
any books of account kept by the Company Liquidator.
(4)
When the accounts of the company have been audited, one copy
thereof shall be filed by the Company Liquidator with the Tribunal, and the
other copy shall be delivered to the Registrar which shall be open to inspection
by any creditor, contributory or person interested.
(5) Where an account referred to in sub-section (4) relates to a
Government company, the Company Liquidator shall forward a copy thereof—
(a) to the Central Government, if that Government is a
member of the Government company; or
(b) to any State Government, if that Government is a member
of the Government company; or
(c) to the Central Government and any State Government, if both
the Governments are members of the Government company.
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(6)
The Company Liquidator shall cause the accounts when audited,
or a summary thereof, to be printed, and shall send a printed copy of the
accounts or summary thereof by post to every creditor and every contributory:
Provided that the Tribunal may dispense with the compliance of the
provisions of this sub-section in any case it deems fit.
295. Payment of debits by contributory and extent of set-off.—(1) The
Tribunal may, at any time after passing of a winding up order, pass an order
requiring any contributory for the time being on the list of contributories to pay,
in the manner directed by the order, any money due to the company, from him
or from the estate of the person whom he represents, exclusive of any money
payable by him or the estate by virtue of any call in pursuance of this Act.
(2)
The Tribunal, in making an order, under sub-section (1), may,—
(a) in the case of an unlimited company, allow to the contributory,
by way of set-off, any money due to him or to the estate which he
represents, from the company, on any independent dealing or contract
with the company, but not any money due to him as a member of the
company in respect of any dividend or profit; and
(b) in the case of a limited company, allow to any director or
manager whose liability is unlimited, or to his estate, such set-off.
(3) In the case of any company, whether limited or unlimited, when all the
creditors have been paid in full, any money due on any account whatever to a
contributory from the company may be allowed to him by way of set-off against
any subsequent call.
296. Power of Tribunal to make calls.—The Tribunal may, at any time
after the passing of a winding up order, and either before or after it has
ascertained the sufficiency of the assets of the company,—
(a) make calls on all or any of the contributories for the time being
on the list of the contributories, to the extent of their liability, for
payment of any money which the Tribunal considers necessary to
satisfy the debts and liabilities of the company, and the costs, charges
and expenses of winding up, and for the adjustment of the rights of
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the contributories among themselves; and
(b) make an order for payment of any calls so made.
297. Adjustment of rights of contributories.—The Tribunal shall adjust the
rights of the contributories among themselves and distribute any surplus among
the persons entitled thereto.
298. Power to order costs.—The Tribunal may, in the event of the assets
of a company being insufficient to satisfy its liabilities, make an order for the
payment out of the assets, of the costs, charges and expenses incurred in the
winding up, in such order of priority inter se as the Tribunal thinks just
and proper.
299. Power to summon persons suspected of having property of company
etc.—(1) The Tribunal may, at any time after the appointment of a provisional
liquidator or the passing of a winding up order, summon before it any officer of
the company or person known or suspected to have in his possession any
property or books or papers, of the company, or known or suspected to be
indebted to the company, or any person whom the Tribunal thinks to be
capable of giving information concerning the promotion, formation, trade,
dealings, property, books or papers, or affairs of the company.
(2)
The Tribunal may examine any officer or person so summoned on oath
concerning the matters aforesaid, either by word of mouth or on written
interrogatories or on affidavit and may, in the first case, reduce his answers to
writing and require him to sign them.
(3)
The Tribunal may require any officer or person so summoned to
produce any books and papers relating to the company in his custody or power,
but, where he claims any lien on books or papers produced by him, the
production shall be without prejudice to such lien, and the Tribunal shall have
power to determine all questions relating to that lien.
(4)
The Tribunal may direct the liquidator to file before it a report in
respect of debt or property of the company in possession of other persons.
(5)
If the Tribunal finds that—
(a) a person is indebted to the company, the Tribunal may order
him to pay to the provisional liquidator or, as the case may be, the
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liquidator at such time and in such manner as the Tribunal may
consider just, the amount in which he is indebted, or any part thereof,
either in full discharge of the whole amount or not as the Tribunal
thinks fit, with or without costs of the examination;
(b) a person is in possession of any property belonging to the
company, the Tribunal may order him to deliver to the provisional
liquidator or, as the case may be, the liquidator, that property or any
part thereof, at such time, in such manner and on such terms as the
Tribunal may consider just.
(6)
If any officer or person so summoned fails to appear before the
Tribunal at the time appointed without a reasonable cause, the Tribunal may
impose an appropriate cost.
(7)
Every order made under sub-section (5) shall be executed in the same
manner as decrees for the payment of money or for the delivery of property
under the Code of Civil Procedure, 1908 (5 of 1908).
(8)
Any person making any payment or delivery in pursuance of an order
made under sub-section (5) shall by such payment or delivery be, unless
otherwise directed by such order, discharged from all liability whatsoever in
respect of such debt or property.
300. Power to order examination of promoters, directors, etc.— (1) Where
an order has been made for the winding up of a company by the Tribunal, and
the Company Liquidator has made a report to the Tribunal under this Act,
stating that in his opinion a fraud has been committed by any person in the
promotion, formation, business or conduct of affairs of the company since its
formation, the Tribunal may, after considering the report, direct that such person
or officer shall attend before the Tribunal on a day appointed by it for that
purpose, and be examined as to the promotion or formation or the conduct of the
business of the company or as to his conduct and dealings as an officer
thereof.
(2)
The Company Liquidator shall take part in the examination, and for
that purpose he or it may, if specially authorised by the Tribunal in that behalf,
employ such legal assistance as may be sanctioned by the Tribunal.
(3)
The person shall be examined on oath and shall answer all such
questions as the Tribunal may put, or allow to be put, to him.
(4)
A person ordered to be examined under this section—
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(a) shall, before his examination, be furnished at his own cost with
a copy of the report of the Company Liquidator; and
(b) may at his own cost employ chartered accountants or
company secretaries or cost accountants or legal practitioners entitled
to appear before the Tribunal under section 432, who shall be at
liberty to put to him such questions as the Tribunal may consider just
for the purpose of enabling him to explain or qualify any answers
given by him.
(5)
If any such person applies to the Tribunal to be exculpated from any
charges made or suggested against him, it shall be the duty of the Company
Liquidator to appear on the hearing of such application and call the attention of
the Tribunal to any matters which appear to the Company Liquidator to be
relevant.
(6)
If the Tribunal, after considering any evidence given or hearing
witnesses called by the Company Liquidator, allows the application made under
sub-section (5), the Tribunal may order payment to the applicant of such costs
as it may think fit.
(7)
Notes of the examination shall be taken down in writing, and shall be
read over to or by, and signed by, the person examined, a copy be supplied to
him and may thereafter be used in evidence against him, and shall be open to
inspection by any creditor or contributory at all reasonable times.
(8)
The Tribunal may, if it thinks fit, adjourn the examination from time to
time.
(9)
An examination under this section may, if the Tribunal so directs, be
held before any person or authority authorised by the Tribunal.
(10) The powers of the Tribunal under this section as to the conduct of the
examination, but not as to costs, may be exercised by the person or authority
before whom the examination is held in pursuance of sub-section (9).
301. Arrest of person trying to leave India or abscond.—At any time either
before or after passing a winding up order, if the Tribunal is satisfied that a
contributory or a person having property, accounts or papers of the company in
his possession is about to leave India or otherwise to abscond, or is about to
remove or conceal any of his property, for the purpose of evading payment of
calls or of avoiding examination respecting the affairs of the company, the
Tribunal may cause—
(a) the contributory to be detained until such time as the Tribunal
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may order; and
(b) his books and papers and movable property to be seized and
safely kept until such time as the Tribunal may order.
302. Dissolution of company by Tribunal.—(1) When the affairs of a
company have been completely wound up, the Company Liquidator shall make an
application to the Tribunal for dissolution of such company.
(2)
The Tribunal shall on an application filed by the Company Liquidator
under sub-section (l) or when the Tribunal is of the opinion that it is just and
reasonable in the circumstances of the case that an order for the dissolution of
the company should be made, make an order that the company be dissolved
from the date of the order, and the company shall be dissolved accordingly.
(3)
A copy of the order shall, within thirty days from the date thereof, be
forwarded by the Company Liquidator to the Registrar who shall record in the
register relating to the company a minute of the dissolution of the company.
(4)
If the Company Liquidator makes a default in forwarding a copy of the
order within the period specified in sub-section (3), the Company Liquidator
shall be punishable with fine which may extend to five thousand rupees for
every day during which the default continues.
303. Appeals from orders made before commencement of Act.—Nothing in
this Chapter shall affect the operation or enforcement of any order made by any
Court in any proceedings for the winding up of a company immediately before
the commencement of this Act and an appeal against such order shall be filed
before such authority competent to hear such appeals before such
commencement.
PART II—Voluntary winding up
304. Circumstances in which company may be wound up voluntarily.—
A company may be wound up voluntarily,—
(a) if the company in general meeting passes a resolution
requiring the company to be wound up voluntarily as a result of the
expiry of the period for its duration, if any, fixed by its articles or on
the occurrence of any event in respect of which the articles provide
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that the company should be dissolved; or
(b) if the company passes a special resolution that the company
be wound up voluntarily.
305. Declaration of solvency in case of proposal to wind up voluntarily.—
(1) Where it is proposed to wind up a company voluntarily, its director or
directors, or in case the company has more than two directors, the majority of its
directors, shall, at a meeting of the Board, make a declaration verified by an
affidavit to the effect that they have made a full inquiry into the affairs of the
company and they have formed an opinion that the company has no debt or
whether it will be able to pay its debts in full from the proceeds of assets sold
in voluntary winding up.
(2)
A declaration made under sub-section (I) shall have no effect for the
purposes of this Act, unless—
(a) it is made within five weeks immediately preceding the date of
the passing of the resolution for winding up the company and it is
delivered to the Registrar for registration before that date;
(b) it contains a declaration that the company is not being wound
up to defraud any person or persons;
(c) it is accompanied by a copy of the report of the auditors of
the company prepared in accordance with the provisions of this Act,
on the profit and loss account of the company for the period
commencing from the date up to which the last such account was
prepared and ending with the latest practicable date immediately before
the making of the declaration and the balance sheet of the company
made out as on that date which would also contain a statement of the
assets and liabilities of the company on that date; and
(d) where there are any assets of the company, it is accompanied
by a report of the valuation of the assets of the company prepared by
a registered valuer.
(3)
Where the company is wound up in pursuance of a resolution passed
within a period of five weeks after the making of the declaration, but its debts
are not paid or provided for in full, it shall be presumed, until the contrary is
shown, that the director or directors did not have reasonable grounds for his or
their opinion under sub-section (1).
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(4)
Any director of a company making a declaration under this section
without having reasonable grounds for the opinion that the company will be
able to pay its debts in full from the proceeds of assets sold in voluntary
winding up shall be punishable with imprisonment for a term which shall not be
less than three years but which may extend to five years or with fine which
shall not be less than fifty thousand rupees but which may extend to three lakh
rupees, or with both.
306. Meeting of creditors.—(1) The company shall along with the calling
of meeting of the company at which the resolution for the voluntary winding up
is to be proposed, cause a meeting of its creditors either on the same day or on
the next day and shall cause a notice of such meeting to be sent by registered
post to the creditors with the notice of the meeting of the company under
section 304.
(2)
The Board of Directors of the company shall—
(a) cause to be presented a full statement of the position of the
affairs of the company together with a list of creditors of the
company, if any, copy of declaration under section 305 and the
estimated amount of the claims before such meeting; and
(b) appoint one of the directors to preside at the meeting.
(3)
Where two-thirds in value of creditors of the company are of the
opinion that—
(a) it is in the interest of all parties that the company be wound
up voluntarily, the company shall be wound up voluntarily; or
(b) the company may not be able to pay for its debts in full from
the proceeds of assets sold in voluntary winding up and pass a
resolution that it shall be in the interest of all parties if the company is
wound up by the Tribunal in accordance with the provisions of Part I
of this Chapter, the company shall within fourteen days thereafter file
an application before the Tribunal.
(4)
The notice of any resolution passed at a meeting of creditors in
pursuance of this section shall be given by the company to the Registrar within
ten days of the passing thereof.
(5)
If a company contravenes the provisions of this section, the company
shall be punishable with fine which shall not be less than fifty thousand rupees
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but which may extend to two lakh rupees and the director of the company who
is in default shall be punishable with imprisonment for a term which may extend
to six months or with fine which shall not be less than fifty thousand rupees but
which may extend to two lakh rupees, or with both.
307. Publication of resolution to wind up voluntarily.—(1) Where a
company has passed a resolution for voluntary winding up and a resolution
under sub-section (3) of section 306 is passed, it shall within fourteen days of
the passing of the resolution give notice of the resolution by advertisement in
the Official Gazette and also in a newspaper which is in circulation in the district
where the registered office or the principal office of the company is situate.
(2)
If a company contravenes the provisions of sub-section (1), the
company and every officer of the company who is in default shall be punishable
with fine which may extend to five thousand rupees for every day during which
such default continues.
308. Commencement of voluntary winding up.—A voluntary winding up
shall be deemed to commence on the date of passing of the resolution for
voluntary winding up under section 304.
309. Effect of voluntary winding up.— In the case of a voluntary winding
up, the company shall from the commencement of the winding up cease to carry
on its business except as far as required for the beneficial winding up of its
business:
Provided that the corporate state and corporate powers of the company
shall continue until it is dissolved.
310. Appointment of Company Liquidator.—(1) The company in its
general meeting, where a resolution of voluntary winding up is passed shall
appoint a Company Liquidator from the panel prepared by the Central
Government for the purpose of winding up its affairs and distributing the assets
of the company and recommend the fee to be paid to the Company Liquidator.
(2)
Where the creditors have passed a resolution for winding up the
company under sub-section (3) of section 306, the appointment of the Company
Liquidator under this section shall be effective only after it is approved by the
majority of creditors in value of the company:
Provided that where such creditors do not approve the appointment of
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such Company Liquidator, creditors shall appoint another Company Liquidator.
(3)
The creditors while approving the appointment of Company Liquidator
appointed by the company or appointing the Company Liquidator of their own
choice, as the case may be, pass suitable resolution with regard to the fee of the
Company Liquidator.
(4)
On appointment as Company Liquidator, such liquidator shall file a
declaration in the prescribed form within seven days of the date of appointment
disclosing conflict of interest or lack of independence in respect of his
appointment, if any, with the company and the creditors and such obligation
shall continue throughout the term of his or its appointment.
311. Power to remove and fill vacancy of Company Liquidator.—(1) A
Company Liquidator appointed under section 310 may be removed by the
company where his appointment has been made by the company and, by the
creditors, where the appointment is approved or made by such creditors.
(2)
Where a Company Liquidator is sought to be removed under this
section, he shall be given a notice in writing stating the grounds of removal
from his office by the company or the creditors, as the case may be.
(3) Where three-fourth members of the company or three-fourth of creditors
in value, as the case may be, after consideration of the reply, if any, filed by
the Company Liquidator, in their meeting decide to remove the Company
Liquidator, he shall vacate his office.
(4)
If a vacancy occurs by death, resignation, removal or otherwise in the
office of any Company Liquidator appointed under section 310, the company or
the creditors, as the case may be, fill the vacancy in the manner specified in that
section.
312. Notice of appointment of Company Liquidator to be given to
Registrar.—(1) The company shall give notice to the Registrar of the
appointment of a Company Liquidator along with the name and particulars of the
Company Liquidator, of every vacancy occurring in the office of Company
Liquidator, and of the name of the Company Liquidator appointed to fill every
such vacancy within ten days of such appointment or the occurrence of such
vacancy.
(2)
If a company contravenes the provisions of sub-section (I), the
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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
such default continues.
313. Cesser of Board’s powers on appointment of Company Liquidator.—
On the appointment of a Company Liquidator, all the powers of the Board of
Directors and of the managing or whole-time directors and manager, if any, shall
cease, except for the purpose of giving notice of such appointment of the
Company Liquidator to the Registrar.
314. Powers and duties of Company Liquidator in voluntary
winding up.—(1) The Company Liquidator shall perform such functions and
discharge such duties as may be determined from time to time by the company
or the creditors, as the case may be
(2)
The Company Liquidator shall settle the list of contributories, which
shall be prima facie evidence of the liability of the persons named therein to be
contributories.
(3)
The Company Liquidator shall call general meetings of the company for
the purpose of obtaining the sanction of the company by ordinary or special
resolution, as the case may require, or for any other purpose he may consider
necessary.
(4)
The Company Liquidator shall maintain regular and proper books of
account in such form and in such manner as may be prescribed and the
members and creditors and any officer authorised by the Central Government
may inspect such books of account.
(5)
The Company Liquidator shall prepare quarterly statement of accounts
in such form and manner as may be prescribed and file such statement of
accounts duly audited within thirty days from the close of each quarter with the
Registrar, failing which the Company Liquidator shall be punishable with fine
which may extend to five thousand rupees for every day during which the failure
continues.
(6)
The Company Liquidator shall pay the debts of the company and shall
adjust the rights of the contributories among themselves.
(7)
The Company Liquidator shall observe due care and diligence in the
discharge of his duties.
(8)
If the Company Liquidator fails to comply with the provisions of this
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section except sub-section (5) he shall be punishable with fine which may extend
to ten lakh rupees.
315. Appointment of committees.—Where there are no creditors of a
company, such company in its general meeting and, where a meeting of creditors
is held under section 306, such creditors, as the case may be, may appoint such
committees as considered appropriate to supervise the voluntary liquidation and
assist the Company Liquidator in discharging his or its functions.
316. Company Liquidator to submit report on progress of winding up.—
(1) The Company Liquidator shall report quarterly on the progress of winding up
of the compay in such form and in such manner as may be prescribed to the
members and creditors and shall also call a meeting of the members and the
creditors as and when necessary but at least one meeting each of creditors and
members in every quarter and apprise them of the progress of the winding up of
the company in such form and in such manner as may be prescribed.
(2)
If the Company Liquidator fails to comply with the provisions of sub-
section (1), he shall be punishable, in respect of each such failure, with fine
which may extend to ten lakh rupees.
317. Report of Company Liquidator to Tribunal for examination of
persons.—(1) Where the Company Liquidator is of the opinion that a fraud has
been committed by any person in respect of the company, he shall immediately
make a report to the Tribunal and the Tribunal shall, without prejudice to the
process of winding up, order for investigation under section 210 and on
consideration of the report of such investigation, the Tribunal may pass such
order and give such directions under this Chapter as it may consider necessary
including the direction that such person shall attend before the Tribunal on a
day appointed by it for that purpose and be examined as to the promotion or
formation or the conduct of the business of the company or as to his conduct
and dealings as officer thereof or otherwise.
(2)
The provisions of section 300 shall mutatis mutandis apply in relation
to any examination directed under sub-section (1).
318. Final meeting and dissolution of company.—(1) As soon as the
affairs of a company are fully wound up, the Company Liquidator shall prepare a
report of the winding up showing that the property and assets of the company
have been disposed of and its debt fully discharged or discharged to the
satisfaction of the creditors and thereafter call a general meeting of the company
for the purpose of laying the final winding up accounts before it and giving
any explanation therefor.
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(2)
The meeting referred to in sub-section (1) shall be called by the
Company Liquidator in such form and manner as may be prescribed.
(3)
If the majority of the members of the company after considering the
report of the Company Liquidator are satisfied that the company shall be wound
up, they may pass a resolution for its dissolution.
(4)
Within two weeks after the meeting, the Company Liquidator shall—
(a) send to the Registrar—
(i)
a copy of the final winding up accounts of the company
and shall make a return in respect of each meeting and of the date
thereof; and
(ii) copies of the resolutions passed in the meetings; and
(b) file an application along with his report under sub-section (l)
in such manner as may be prescribed along with the books and papers
of the company relating to the winding up, before the Tribunal for
passing an order of dissolution of the company.
(5)
If the Tribunal is satisfied, after considering the report of the Company
Liquidator that the process of winding up has been just and fair, the Tribunal
shall pass an order dissolving the company within sixty days of the receipt of
the application under sub-section (4).
(6)
The Company Liquidator shall file a copy of the order under
sub-section (5) with the Registrar within thirty days.
(7)
The Registrar, on receiving the copy of the order passed by the
Tribunal under sub-section (5), shall forthwith publish a notice in the Official
Gazette that the company is dissolved.
(8)
If the Company Liquidator fails to comply with the provisions of this
section, he shall be punishable with fine which may extend to one lakh rupees.
319. Power of Company Liquidator to accept shares, etc., as consideration
for sale of property of company.—(1) Where a company (the transferor
company) is proposed to be, or is in the course of being, wound up voluntarily
and the whole or any part of its business or property is proposed to be
transferred or sold to another company (the transferee company), the Company
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Liquidator of the transferor company may, with the sanction of a special
resolution of the company conferring on him either a general authority or an
authority in respect of any particular arrangement,—
(a) receive, by way of compensation wholly or in part for the
transfer or sale of shares, policies, or other like interest in the
transferee company, for distribution among the members of the
transferor company; or
(b) enter into any other arrangement whereby the members of the
transferor company may, in lieu of receiving cash, shares, policies or
other like interest or in addition thereto, participate in the profits of, or
receive any other benefit from, the transferee company:
Provided that no such arrangement shall be entered into without the
consent of the secured creditors.
(2)
Any transfer, sale or other arrangement in pursuance of this section
shall be binding on the members of the transferor company.
(3)
Any member of the transferor company who did not vote in favour of
the special resolution and expresses his dissent therefrom in writing addressed
to the Company Liquidator, and left at the registered office of the company
within seven days after the passing of the resolution, may require the liquidator
either—
(a) to abstain from carrying the resolution into effect; or
(b) to purchase his interest at a price to be determined by
agreement or the registered valuer.
(4)
If the Company Liquidator elects to purchase the member’s interest, the
purchase money, raised by him in such manner as may be determined by a
special resolution, shall be paid before the company is dissolved.
320. Distribution of property of company.—Subject to the provisions of
this Act as to overriding preferential payments under section 326, the assets of
a company shall, on its winding up, be applied in satisfaction of its liabilities
pari passu and, subject to such application, shall, unless the articles otherwise
provide, be distributed among the members according to their rights and
interests in the company.
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321. Arrangement when binding on company and creditors.—(1) Any
arrangement other than the arrangement referred to in section 319 entered into
between the company which is about to be, or is in the course of being wound
up and its creditors shall be binding on the company and on the creditors if it
is sanctioned by a special resolution of the company and acceded to by the
creditors who hold three-fourths in value of the total amount due to all the
creditors of the company,
(2)
Any creditor or contributory may, within three weeks from the
completion of the arrangement, apply to the Tribunal and the Tribunal may
thereupon amend, vary, confirm or set aside the arrangement.
322. Power to apply to Tribunal to have questions determined, etc.—
(1) The Company Liquidator or any contributory or creditor may apply to the
Tribunal.
(a) to determine any question arising in the course of the winding
up of a company; or
(b) to exercise as respects the enforcing of calls, the staying of
proceedings or any other matter, all or any of the powers which the
Tribunal might exercise if the company were being wound up by the
Tribunal.
(2)
The Company Liquidator or any creditor or contributory may apply to
the Tribunal for an order setting aside any attachment, distress or execution put
into force against the estate or effects of the company after the commencement
of the winding up.
(3)
The Tribunal, if satisfied on an application under sub-section (1) or
sub-section (2) that the determination of the question or the required exercise of
power or the order applied for will be just and fair, may allow the application on
such terms and conditions as it thinks fit or may make such other order on the
application as it thinks fit.
(4)
A copy of an order staying the proceedings in the winding up, made
under this section, shall forthwith be forwarded by the company, or otherwise as
may be prescribed, to the Registrar, who shall make a minute of the order in his
books relating to the company.
323. Costs of voluntary winding up.—All costs, charges and expenses
properly incurred in the winding up, including the fee of the company Liquidator,
shall, subject to the rights of secured creditors, if any, be payable out of the
assets of the company in priority to all other claims.
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PART III.—Provisions applicable to every mode of winding up
324. Debts of all descriptions to be admitted to proof.—In every winding
up (subject, in the case of insolvent companies, to the application in accordance
with the provisions of this Act or of the law of insolvency), all debts payable on
a contingency, and all claims against the company, present or future, certain or
contingent, ascertained or sounding only in damages, shall be admissible to
proof against the company, a just estimate being made, so far as possible, of the
value of such debts or claims as may be subject to any contingency, or may
sound only in damages, or for some other reason may not bear a certain value.
325. Application of insolvency rules in winding up of insolvent
companies.—(1) In the winding up of an insolvent company, the same rules
shall prevail and be observed with regard to—
(a) debts provable;
(b) the valuation of annuities and future and contingent liabilities;
and
(c) the respective rights of secured and unsecured creditors,
as are in force for the time being under the law of insolvency with respect to
the estates of persons adjudged insolvent:
Provided that the security of every secured creditor shall be deemed to be
subject to a pari passu charge in favour of the workmen to the extent of the
workmen’s portion therein, and, where a secured creditor, instead of relinquishing
his security and proving his debts, opts to realise his security,—
(i)
the liquidator shall be entitled to represent the workmen and
enforce such charge;
(ii) any amount realised by the liquidator by way of enforcement
of such charge shall be applied rateably for the discharge of
workmen’s dues; and
(iii) so much of the debts due to such secured creditor as could
not be realised by him or the amount of the workmen’s portion in his
security, whichever is less, shall rank pari passu with the workmen’s
dues for the purposes of section 326.
(2)
All persons under sub-section (1) shall be entitled to prove and
receive dividends out of the assets of the company under winding up, and make
such claims against the company as they respectively are entitled to make by
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virtue of this section:
Provided that if a secured creditor, instead of relinquishing his security and
proving his debts, proceeds to realise his security, he shall be liable to pay his
portion of the expenses incurred by the liquidator, including a provisional
liquidator, if any, for the preservation of the security before its realisation by
the secured creditor.
Explanation.—For the purposes of this sub-section, the portion of
expenses incurred by the liquidator for the preservation of a security which the
secured creditor shall be liable to pay shall be the whole of the expenses less
an amount which bears to such expenses the same proportion as the workmen’s
portion in relation to the security bears to the value of the security.
(3) For the purposes of this section, section 326 and section 327,—
(a) “workmen”, in relation to a company, means the employees of
the company, being workmen within the meaning of clause (s) of
section 2 of the Industrial Disputes Act, 1947 (14 of 1947);
(b) “workmen’s dues”, in relation to a company, means the
aggregate of the following sums due from the company to its
workmen, namely:—
(i)
all wages or salary including wages payable for time or
piece work and salary earned wholly or in part by way of
commission of any workman in respect of services rendered to the
company and any compensation payable to any workman under
any of the provisions of the Industrial Disputes Act, 1947
(14 of 1947);
(ii) all accrued holiday remuneration becoming payable to any
workman or, in the case of his death, to any other person in his
right on the termination of his employment before or by the effect
of the winding up order or resolution;
(iii) unless the company is being wound up voluntarily merely
for the purposes of reconstruction or amalgamation with another
company or unless the company has, at the commencement of the
winding up, under such a contract with insurers as is mentioned in
section 14 of the Workmen’s Compensation Act, 1923 (8 of 1923),
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rights capable of being transferred to and vested in the workmen,
all amount due in respect of any compensation or liability for
compensation under the said Act in respect of the death or
disablement of any workman of the company;
(iv) all sums due to any workman from the provident fund, the
pension fund, the gratuity fund or any other fund for the welfare
of the workmen, maintained by the company;
(c) “workmen’s portion”, in relation to the security of any secured
creditor of a company, means the amount which bears to the value
of the security the same proportion as the amount of the workmen’s
dues bears to the aggregate of the amount of workmen’s dues and the
amount of the debts due to the secured creditors.
Illustration
The value of the security of a secured creditor of a company is
Rs. 1,00,000. The total amount of the workmen’s dues is Rs. 1,00,000. The
amount of the debts due from the company to its secured creditors is
Rs. 3,00,000. The aggregate of the amount of workmen’s dues and the amount of
debts due to secured creditors is Rs. 4,00,000. The workmen’s portion of the
security is, therefore, one-fourth of the value of the security, that is Rs. 25,000.
326. Overriding preferential payments.—(1) Notwithstanding anything
contained in this Act or any other law for the time being in force, in the winding
up of a company,—
(a) workmen’s dues; and
(b) debts due to secured creditors to the extent such debts rank
under clause (iii) of the proviso to sub-scction (1) of section 325
pari passu with such dues,
shall be paid in priority to all other debts:
Provided that in case of the winding up of a company, the sums towards
wages or salary referred to in sub-clause (i) of clause (b) of sub-section (3) of
section 325, which are payable for a period of two years preceding the winding
up order or such other period as may be prescribed, shall be paid in priority to
all other debts (including debts due to secured creditors), within a period of
328
thirty days of sale of assets and shall be subject to such charge over the
security of secured creditors as may be prescribed.
(2)
The debts payable under the proviso to sub-section (1) shall be paid
in full before any payment is made to secured creditors and thereafter debts
payable under that sub-section shall be paid in full, unless the assets are
insufficient to meet them, in which case they shall abate in equal proportions.
327. Preferential payments.—(1) In a winding up, subject to the
provisions of section 326, there shall be paid in priority to all other debts,—
(a) all revenues, taxes, cesses and rates due from the company to
the Central Govemment or a State Government or to a local authority
at the relevant date, and having become due and payable within the
twelve months immediately before that date;
(b) all wages or salary including wages payable for time or piece
work and salary earned wholly or in part by way of commission of any
employee in respect of services rendered to the company and due for
a period not exceeding four months within the twelve months
immediately before the relevant date, subject to the condition that the
amount payable under this clause to any workman shall not exceed
such amount as may be notified;
(c) all accrued holiday remuneration becoming payable to any
employee, or in the case of his death, to any other person claiming
under him, on the termination of his employment before, or by the
winding up order, or, as the case may be, the dissolution of the
company;
(d) unless the company is being wound up voluntarily merely for
the purposes of reconstruction or amalgamation with another company,
all amount due in respect of contributions payable during the period of
twelve months immediately before the relevant date by the company as
the employer of persons under the Employees’ State Insurance Act,
1948 (34 of 1948), or any other law for the time being in force;
(e) unless the company has, at the commencement of winding up,
under such a contract with any insurer as is mentioned in section 14
of the Workmen’s Compensation Act, 1923 (8 of 1923), rights capable
329
of being transferred to and vested in the workmen, all amount due in
respect of any compensation or liability for compensation under the
said Act in respect of the death or disablement of any employee of the
company:
Provided that where any compensation under the said Act is a
weekly payment, the amount payable under this clause shall be taken
to be the amount of the lump sum for which such weekly payment
could, if redeemable, be redeemed if the employer has made an
application under that Act;
(f)
all sums due to any employee from the provident fund, the
pension fund, the gratuity fund or any other fund for the welfare of
the employees, maintained by the company; and
(g) the expenses of any investigation held in pursuance of
sections 213 and 216, in so far as they are payable by the company.
(2)
Where any payment has been made to any employee of a company on
account of wages or salary or accrued holiday remuneration, himself or, in the
case of his death, to any other person claiming through him, out of money
advanced by some person for that purpose, the person by whom the money
was advanced shall, in a winding up, .have a right of priority in respect of the
money so advanced and paid-up to the amount by which the sum in respect of
which the employee or other person in his right would have been entitled to
priority in the winding up has been reduced by reason of the payment having
been made.
(3)
The debts enumerated .in this section shall—
(a) rank equally among themselves and be paid in full, unless
the assets are insufficient to meet them, in which case they shall
abate in equal proportions; and
(b) so far as the assets of the company available for payment
to genera1 creditors are insufficient to meet them, have priority
over the claims of holders of debentures under any floating charge
created by the company, and be paid accordingly out of any
property comprised in or subject to that charge.
(4)
Subject to the retention of such sums as may be necessary for the
costs and expenses of the winding up, the debts under this section shall be
discharged forthwith so far as the assets are sufficient to meet them, and in the
330
case of the debts to which priority is given under clause (d) of sub-section (1),
formal proof thereof shall not be required except in so far as may be otherwise
prescribed.
(5)
In the event of a landlord or other person distraining or having
distrained on any goods or effects of the company within three months
immediately before the date of a winding up order, the debts to which priority is
given under this section shall be a first charge on the goods or effects so
distrained on or the proceeds of the sale thereof:
Provided that, in respect of any money paid under any such charge, the
landlord or other person shall have the same rights of priority as the person to
whom the payment is made.
(6)
Any remuneration in respect of a period of holiday or of absence from
work on medical grounds through sickness or other good cause shall be
deemed to be wages in respect of services rendered to the company during that
period.
Explanation.—For the purposes of this section,—
(a) the expression “accrued holiday remuneration” includes, in
relation to any person, all sums which, by virtue either of his contract
of employment or of any enactment including any order made or
direction given thereunder, are payable on account of the remuneration
which would, in the ordinary course, have become payable to him in
respect of a period of holiday, had his employment with the company
continued until he became entitled to be allowed the holiday;
(b) the expression “employee” does not include a workman; and
(c) the expression “relevant date” means—
(i)
in the case of a company being wound up by the
Tribunal, the date of appointment or first appointment of a
provisional liquidator, or if no such appointment was made, the
date of the winding up order, unless, in either case, the company
had commenced to be wound up voluntarily before that date; and
(ii) in any other case, the date of the passing of the
resolution for the voluntary winding up of the company.
328. Fraudulent preference.—(1) Where a company has given preference
331
to a person who is one of the creditors of the company or a surety or guarantor
for any of the debts or other liabilities of the company, and the company does
anything or suffers anything done which has the effect of putting that person
into a position which, in the event of the company going into liquidation, will be
better than the position he would have been in if that thing had not been done
prior to six months of making winding up application, the Tribunal, if satisfied
that, such transaction is a fraudulent preference may order as it may think fit for
restoring the position to what it would have been if the company had not given
that preference.
(2)
If the Tribunal is satisfied that there is a preference transfer of
property, movable or immovable, or any delivery of goods, payment, execution
made, taken or done by or against a company within six months before making
winding up application, the Tribunal may order as it may think fit and may
declare such transaction invalid and restore the position.
329. Transfers not in good faith to be void.—Any transfer of property,
movable or immovable, or any delivery of goods, made by a company, not being
a transfer or delivery made in the ordinary course of its business or in favour of
a purchaser or encumbrance in good faith and for valuable consideration, if made
within a period of one year before the presentation of a petition for winding up
by the Tribunal or the passing of a resolution for voluntary winding up of the
company, shall be void against the Company Liquidator.
330. Certain transfers to be void.—Any transfer or assignment by a
company of all its properties or assets to trustees for the benefit of all its
creditors shall be void.
331. Liabilities and rights of certain persons fraudulently preferred.—(1)
Where a company is being wound up and anything made, taken or done after
the commencement of this Act is invalid under section 328 as a fraudulent
preference of a person interested in property mortgaged or charged to secure
the company’s debt, then, without prejudice to any rights or liabilities arising,
apart from this provision, the person preferred shall be subject to the same
liabilities, and shall have the same rights, as if he had undertaken to be
personally liable as a surety for the debt, to the extent of the mortgage or charge
on the property or the value of his interest, whichever is less.
(2)
The value of the interest of the person preferred under
sub-section (l) shall be determined as at the date of the transaction constituting
332
the fraudulent preference, as if the interest were free of all encumbrances other
than those to which the mortgage or charge for the debt of the company was
then subject.
(3)
On an application made to the Tribunal with respect to any payment
on the ground that the payment was a fraudulent preference of a surety or
guarantor, the Tribunal shall have jurisdiction to determine any questions with
respect to the payment arising between the person to whom the payment was
made and the surety or guarantor and to grant relief in respect thereof,
notwithstanding that it is not necessary so to do for the purposes of the
winding up, and for that purpose, may give leave to bring in the surety or
guarantor as a third party as in the case of a suit for the recovery of the
sum paid.
(4)
The provisions of sub-section (3) shall apply mutatis mutandis in
relation to transactions other than payment of money.
332. Effect of floating charge.—Where a company is being wound up, a
floating charge on the undertaking or property of the company created within
the twelve months immediately preceding the commencement of the winding up,
shall, unless it is proved that the company immediately after the creation of the
charge was solvent, be invalid, except for the amount of any cash paid to the
company at the time of, or subsequent to the creation of, and in consideration
for, the charge, together with interest on that amount at the rate of five per cent.
per annum or such other rate as may be notified by the Central Government
in this behalf.
333. Disclaimer of onerous property.—(1) Where any part of the property
of a company which is being wound up consists of—
(a) land of any tenure, burdened with onerous covenants;
(b) shares or stocks in companies;
(c) any other property which is not saleable or is not readily
saleable by reason of the possessor thereof being bound either to the
performance of any onerous act or to the payment of any sum of
money; or
(d) unprofitable contracts,
333
the Company Liquidator may, notwithstanding that he has endeavoured to sell
or has taken possession of the property or exercised any act of ownership in
relation thereto or done anything in pursuance of the contract, with the leave of
the Tribunal and subject to the provisions of this section, by writing signed by
him, at any time within twelve months after the commencement of the winding
up or such extended period as may be allowed by the Tribunal, disclaim the
property:
Provided that where the Company Liquidator had not become aware of the
existence of any such property within one month from the commencement of the
winding up, the power of disclaiming the property may be exercised at any time
within twelve months after he has become aware thereof or such extended period
as may be allowed by the Tribunal.
(2)
The disclaimer shall operate to determine, as from the date of
disclaimer, the rights, interest and liabilities of the company in or in respect of
the property disclaimed, but shall not, except so far as is necessary for the
purpose of releasing the company and the property of the company from
liability, affect the rights interest or liabilities of any other person.
(3)
The Tribunal, before or on granting leave to disclaim, may require such
notices to be given to persons interested, and impose such terms as a condition
of granting leave, and make such other order in the matter as the Tribunal
considers just and proper.
(4)
The Company Liquidator shall not be entitled to disclaim any property
in any case where an application in writing has been made to him by any person
interested in the property requiring him to decide whether he will or will not
disclaim and the Company Liquidator has not, within a period of twenty-eight
days after the receipt of the application or such extended period as may be
allowed by the Tribunal, give notice to the applicant that he intends to apply to
the Tribunal for leave to disclaim, and in case the property is under a contract,
if the Company Liquidator after such an application as aforesaid does not within
the said period or extended period disclaim the contract, he shall be deemed to
have adopted it.
334
(5)
The Tribunal may, on the application of any person who is, as against
the Company Liquidator, entitled to the benefit or subject to the burden of a
contract made with the company, make an order rescinding the contract on such
terms as to payment by or to either party of damages for the non-performance
of the contract, or otherwise as the Tribunal considers just and proper, and any
damages payable under the order to any such person may be proved by him as
a debt in the winding up.
(6)
The Tribunal may, on an application by any person who either claims
any interest in any disclaimed property or is under any liability not discharged
under this Act in respect of any disclaimed property, and after hearing any such
persons as it thinks fit, make an order for the vesting of the property in, or the
delivery of the property to, any person entitled thereto or to whom it may seem
just that the property should be delivered by way of compensation for such
liability as aforesaid, or a trustee for him, and on such terms as the Tribunal
considers just and proper, and on any such vesting order being made, the
property comprised therein shall vest accordingly in the person named therein in
that behalf without any conveyance or assignment for the purpose:
Provided that where the property disclaimed is of a leasehold nature, the
Tribunal shall not make a vesting order in favour of any person claiming under
the company, whether as under-lessee or as mortgagee or holder of a charge by
way of demise, except upon the terms of making that person—
(a) subject to the same liabilities and obligations as those to
which the company was subject under the lease in respect of the
property at the commencement of the winding up; or
(b) if the Tribunal thinks fit, subject only to the same liabilities
and obligations as if the lease had been assigned to that person at
that date,
and in either event as if the lease had comprised only the property comprised in
the vesting order, and any mortgagee or under-lessee declining to accept a
vesting order upon such terms shall be excluded from all interest in, and
security upon the property, and, if there is no person claiming under the
company who is willing to accept an order upon such terms, the Tribunal shall
have power to vest the estate and interest of the company in the property in
335
any person liable, either personally or in a representative character, and either
alone or jointly with the company, to perform the covenants of the lessee in the
lease, free and discharged from all estates, encumbrances and interests created
therein by the company.
(7)
Any person affected by the operation of a disclaimer under this
section shaIl be deemed to be a creditor of the company to the amount of the
compensation or damages payable in respect of such effect, and may
accordingly prove the amount as a debt in the winding up.
334. Trasfers, etc., after commencement of winding up to be void.—(1) In
the case of a voluntary winding up, any transfer of shares in the company, not
being a transfer made to or with the sanction of the Company Liquidator, and
any alteration in the status of the members of the company, made after the
commencement of the winding up, shall be void.
(2)
In the case of a winding up by the Tribunal, any disposition of the
property, including actionable claims, of the company, and any transfer of shares
in the company or alteration in the status of its members, made after the
commencement of the winding up, shall, unless the Tribunal otherwise orders,
be void.
335. Certain attachments, executions, etc., in winding up by Tribunal to
be void.—(1) Where any company is being wound up by the Tribunal,—
(a) any attachment, distress or execution put in force, without
leave of the Tribunal against the estate or effects of the company,
after the commencement of the winding up; or
(b) any sale held, without leave of the Tribunal of any of the
properties or effects of the company, after such commencement,
shall be void.
(2) Nothing in this section shall apply to any proceedings for the recovery
of any tax or impost or any dues payable to the Government.
336. Offences by officers of companies in liquidation.—(1) If any person,
who is or has been an officer of a company which, at the time of the
336
commission of the alleged offence, is being wound up, whether by the Tribunal
or voluntarily, or which is subsequently ordered to be wound up by the Tribunal
or which subsequently passes a resolution for voluntary winding up,—
(a) does not, to the best of his knowledge and belief, fully and
truly disclose to the Company Liquidator all the property, movable and
immovable, of the company, and how and to whom and for what
consideration and when the company disposed of any part thereof,
except such part as has been disposed of in the ordinary course of
the business of the company;
(b) does not deliver up to the Company Liquidator, or as he
directs, all such part of the movable and immovable property of the
company as is in his custody or under his control and which he is
required by law to deliver up;
(c) does not deliver up to the Company Liquidator, or as he
directs, all such books and papers of the company as are in his
custody or under his control and which he is required by law to
deliver up;
(d) within the twelve months immediately before the
commencement of the winding up or at any time thereafter,—
(i)
conceals any part of the property of the company to the
value of one thousand rupees or more, or conceals any debt due
to or from the company;
(ii) fraudulently removes any part of the property of the
company to the value of one thousand rupees or more;
(iii) conceals, destroys, mutilates or falsifies, or is privy to the
concealment, destruction, mutilation or falsification of, any book or
paper affecting or relating to, the property or affairs of the
company;
(iv) makes, or is privy to the making of, any false entry in any
book or paper affecting or relating to, the property or affairs of the
company;
337
(v) fraudulently parts with, alters or makes any omission in, or
is privy to the fraudulent parting with, altering or making of any
omission in, any book or paper affecting or relating to the property
or affairs of the company;
(vi) by any false representation or other fraud, obtains on
credit, for or on behalf of the company, any property which the
company does not subsequently pay for;
(vii) under the false pretence that the company is carrying on
its business, obtains on credit, for or on behalf of the company,
any property which the company does not subsequently pay
for; or
(viii) pawns, pledges or disposes of any property of the
company which has been obtained on credit and has not been
paid for, unless such pawning, pledging or disposing of the
property is in the ordinary course of business of the company;
(e) makes any material omission in any statement relating to the
affairs of the company;
(f)
knowing or believing that a false debt has been proved by any
person under the winding up, fails for a period of one month to inform
the Company Liquidator thereof;
(g) after the commencement of the winding up, prevents the
production of any book or paper affecting or relating to the property
or affairs of the company;
(h) after the commencement of the winding up or at any meeting
of the creditors of the company within the twelve months next before
the commencement of the winding up, attempts to account for any
part of the property of the company by fictitious losses or expenses;
or
(i)
is guilty of any false representation or fraud for the purpose
of obtaining the consent of the creditors of the company or any of
them, to an agreement with reference to the affairs of the company or
to the winding up,
he shall be punishable with imprisonment for a term which shall not be less than
338
made or caused to be made any gift or transfer of, or charge on, or has caused
or connived at the levying of any execution against, the property of the
company ; or
(c) with intent to defraud creditors of the company, has concealed or
removed any part of the property of the company since the date of any
unsatisfied judgment or order for payment of money obtained against the
company or within two months before that date,
he shall be punishable with imprisonment for a term which shall not be less than
one year but which may extend to three years and with fine which shall not be
less than one lakh rupees but which may extend to three lakh rupees.
338. Liability where proper accounts not kept.—(1)
Where a company is
being wound up, if it is shown that proper books of account were not kept by the
company throughout the period of two years immediately preceding the
commencement of the winding up, or the period between the incorporation of the
company and the commencement of the winding up, whichever is shorter, every
officer of the company who is in default shall, unless he shows that he acted
honestly and that in the circumstances in which the business of the company was
carried on, the default was excusable, be punishable with imprisonment for a
term which shall not be less than one year but which may extend to three years
and with fine which shall not be less than one lakh rupees but which may extend
to three lakh rupees.
(2) For the purposes of sub-section (1), it shall be deemed that proper
books of account have not been kept in the case of any company,—
(a) if such books of account as are necessary to exhibit and
explain the transactions and financial position of the business of the
company, including books containing entries made from day-to-day in
sufficient detail of all cash received and all cash paid, have not been kept;
and
(b) where the business of the company has involved dealings in
goods, statements of the annual stock takings and, except in the case of
goods sold by way of ordinary retail trade, of all goods sold and
purchased, showing the goods and the buyers and the sellers there of in
sufficient detail to enable those goods and those buyers and sellers to be
identified, have not been kept.
339
339. Liability for fraudulent conduct of business.—(1) If in the course of
the winding up of a company, it appears that any business of the company has
been carried on with intent to defraud creditors of the company or any other
persons or for any fraudulent purpose, the Tribunal, on the application of the
Official Liquidator, or the Company Liquidator or any creditor or contributory of
the company, may, if it thinks it proper so to do, declare that any person, who is
or has been a director, manager, or officer of the company or any persons who
were knowingly parties to the carrying on of the business in the manner aforesaid
shall be personally responsible, without any limitation of liability, for all or any
of the debts or other liabilities of the company as the Tribunal may direct :
Provided that on the hearing of an application under this sub-section, the
Official Liquidator or the Company Liquidator, as the case may be, may himself
give evidence or call witnesses.
(2) Where the Tribunal makes any such declaration, it may give such
further directions as it thinks proper for the purpose of giving effect to that
declaration and, in particular,—
(a) make provision for making the liability of any such person under
the declaration a charge on any debt or obligation due from the company
to him, or on any mortgage or charge or any interest in any mortgage or
charge on any assets of the company held by or vested in him, or any
person on his behalf, or any person claiming as assignee from or through
the person liable or any person acting on his behalf ;
(b) make such further order as may be necessary for the purpose of
enforcing any charge imposed under this sub-section.
(3) Where any business of a company is carried on with such intent or for
such purpose as is mentioned in sub-section (1), every person who was
knowingly a party to the carrying on of the business in the manner aforesaid,
shall be liable for action under Section 447.
(4) This section shall apply, notwithstanding that the person concerned may
be punishable under any other law for the time being in force in respect of the
matters on the ground of which the declaration is to be made.
340
Explanation.—For the purposes of this section,—
(a)
the expression “assignee” includes any person to whom or in
whose favour, by the directions of the person liable, the debt, obligation,
mortgage or charge was created, issued or transferred or the interest was
created, but does not include an assignee for valuable consideration, not
including consideration by way of marriage, given in good faith and without
notice of any of the matters on the ground of which the declaration is
made ;
(b)
the expression “officer” includes any person in accordance with
whose directions or instructions the directors of the company have been
accustomed to act.
340. Power of Tribunal to assess damages aganist deliquent directors,
etc.—(1) If in the course of winding up of a company, it appears that any person
who has taken part in the promotion or formation of the company, or any person,
who is or has been a director, manager, Company Liquidator or officer of the
company—
(a)
has misapplied, or retained, or become liable or accountable
for, any money or property of the company; or
(b)
has been guilty of any misfeasance or breach of trust in relation
to the company,
the Tribunal may, on the application of the Official Liquidator, or the Company
Liquidator, or of any creditor or contributory, made within the period specified in
that behalf in sub-section (2), inquire into the conduct of the person, director,
manager, Company Liquidator or officer aforesaid, and order him to repay or
restore the money or property or any part thereof respectively, with interest at
such rate as the Tribunal considers just and proper, or to contribute such sum to
the assets of the company by way of compensation in respect of the
misapplication, retainer, misfeasance or breach of trust, as the Tribunal considers
just and proper.
(2) An application under sub-section (1) shall be made within five years
from the date of the winding up order, or of the first appointment of the
Company Liquidator in the winding up, or of the misapplication, retainer,
misfeasance or breach of trust, as the case may be, whichever is longer.
(3) This section shall apply, notwithstanding that the matter is one for
which the person concerned may be criminally liable.
341
341. Liability under Sections 339 and 340 to extend to partners or
directors in forms or companies.—Where a declaration under Section 339 or an
order under Section 340 is made in respect of form or body corporate, the
Tribunal shall also have power to make a declaration under Section 339, or pass
an order under Section 340, as the case may be, in respect of any person
who was at the relevant time a partner in that firm or a director of
that body corporate.
342. Prosecution of delinquent officers and members of company.—(1) If
it appears to the Tribunal in the course of a winding up by the Tribunal, that any
person who is or has been an officer, or any member, of the company has been
guilty of any offence in relation to the company, the Tribunal may, either on the
application of any person interested in the winding up or suo motu, direct the
liquidator to prosecute the offender or to refer the matter to the Registrar.
(2) If it appears to the Company Liquidator in the course of a voluntary
winding up that any person, who is or has been an Officer, or any member, of
the company has been guilty of any offence in relation to the company under this
Act, he shall forthwith report the matter to the Registrar and shall furnish to him
such information and give to him such access to and facilities for inspecting and
taking copies of any books and papers, being information or books and papers in
the possession or under the control of the Company Liquidator and relating to the
matter in question, as the Registrar may require.
(3) Where any report is made under sub-section (2) to the Registrar,—
(a)
if he thinks fit, he may apply to the Central Government for an
order to make further inquiry into the affairs of the company by any person
designated by him and for conferring on such person all the powers of
investigation as are provided under this Act ;
(b)
if he considers that the case is one in which a prosecution
ought to be instituted, he shall report the matter to the Central Government,
and that Government may, after taking such legal advice as it thinks fit,
direct the Registrar to institute prosecution :
Provided that no report shall be made by the Registrar under this clause
without first giving the accused person a reasonable opportunity of making a
statement in writing to the Registrar and of being heard thereon.
342
(4) If it appears to the Tribunal in the course of a voluntary winding up
that any person, who is or has been an officer, or any member, of the company
has been guilty as aforesaid, and that no report with respect to the matter has
been made by the Company Liquidator to the Registrar under sub-section (2), the
Tribunal may, on the application of any person interested in the winding up or
suo motu, direct the Company Liquidator to make such a report, and on a report
being made, the provisions of this section shall have effect as though the report
had been made in pursuance of the provisions of sub-section (2).
(5)
When any prosecution is instituted under this section, it shall be the
duty of the liquidator and of every person, who is or has been an officer and
agent of the company to give all assistance in connection with the prosecution
which he is reasonably able to give.
Explanation.—For the purposes of this sub-section, the expression “agent”,
in relation to a company, shall include any banker or legal adviser of the
company and any person employed by the company as auditor.
(6)
If a person fails or neglects to give assistance required by sub-section
(5), he shall be liable to pay fine which shall not be less than twenty-five
thousand rupees but which may extend to one lakh rupees.
343. Company Liquidator to exercise certain powers subject to sanction.—
(1)
The Company Liquidator may—
(a)
with the sanction of the Tribunal, when the company is being
wound up by the Tribunal; and
(b) with the sanction of a special resolution of the company and prior
approval of the Tribunal, in the case of a voluntary winding up,—
(i)
pay any class of creditors in full ;
(ii)
make any compromise or arrangement with creditors or
persons claiming to be creditors, or having or alleging themselves to
have any claim, present or future, certain or contingent, against the
company, or whereby the company may be rendered liable; or
(iii) compromise any call or liability to call, debt, and liability
capable of resulting in a debt, and any claim, present or future, certain
or contingent, ascertained or sounding only in damages, subsisting or
alleged to subsist between the company and a contributory or alleged
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contributory or other debtor for person apprehending liability to the
company, and all questions in any way relating to or affecting the
assets or liabilities or the winding up of the company, on such terms as
may be agreed, and take any security for the discharge of any such
call, debt, liability or claim, and give a complete discharge in respect
thereof.
(2)
Notwithstanding anything contained in sub-section (1), in the case of a
winding up by the Tribunal, the Central Government may make rules to provide
that the Company Liquidator may, under such circumstances, if any, and subject
to such conditions, restrictions and limitations, if any, as may be prescribed,
exercise any of the powers referred to in sub-clause (ii) or sub-clause (iii) of
clause (b) of sub-section (1) without the sanction of the Tribunal.
(3) Any creditor or contributory may apply in the manner prescribed to the
Tribunal with respect to any exercise or proposed exercise of powers by the
Company Liquidator under this section, and the Tribunal shall after giving a
reasonable opportunity to such applicant and the Company Liquidator, pass such
orders as it may think fit.
344. Statement that company is in liquidation.—(1) Where a company
is being wound up, whether by the Tribunal or voluntarily, every invoice, order-
for goods or business letter issued by or on behalf of the company or a Company
Liquidator of the company, or a receiver or manager of the property of the
company, being a document on or in which the name of the company appears,
shall contain a statement that the company is being wound up.
(2)
If a company contravenes the provisions of sub-section (1), the
company, and every officer of the company, the Company Liquidator and any
receiver or manager, who wilfully authorises or permits the non-compliance, shall
be punishable with fine which shall not be less than fifty thousand rupees but
which may extend to three lakh rupees.
345. Books and papers of company to be evidence—where a company is
being wound up, all books and papers of the company and of the Company
Liquidator shall, as between the contributories of the company, be prima facie
evidence of the truth of all matters purporting to be recorded therein.
344
346. Inspection of books and papers by creditors and contributories—(1)
At any time after the making of an order for the winding up of a company by
the Tribunal, any creditor or contributory of the company may inspect the books
and papers of the company only in accordance with, and subject to such rules as
may be prescribed.
(2) Nothing contained in sub-section (1) shall exclude or restrict any rights
conferred by any law for the time being in force—
(a)
on the Central Government or a State Government ;
(b)
on any authority or officer thereof ; or
(c)
on any person acting under the authority of any such
Government or of any such authority or officer.
347. Disposal of books and papers of company.—(1) When the affairs of a
company have been completely wound up and it is about to be dissolved, its
books and papers and those of the Company Liquidator may be disposed of as
follows :—
(a)
in the case of winding up by the Tribunal, in such manner as the
Tribunal directs ; and
(b)
in the case of voluntary winding up, in such manner as the
company by special resolution with the prior approval of the creditors
direct.
(2)
After the expiry of five years from the dissolution of the company, no
responsibility shall devolve on the company, the Company Liquidator, or any
person to whom the custody of the books and papers has been entrusted, by
reason of any book or paper not being forthcoming to any person claiming to be
interested therein.
(3)
The Central Government may, by rules,—
(a)
prevent for such period as it thinks proper the destruction of
the books and papers of a company which has been wound up and of its
Company Liquidator; and
(b)
enable any creditor or contributory of the company to make
representations to the Central Government in respect of the matters
specified in clause (a) and to appeal to the Tribunal from any order
which may be made by the Central Government in the matter.
345
(4)
If any person acts in contravention of any rule framed or an order
made under sub-section (3), he shall be punishable with imprisonment for a term
which may extend to six months or with fine which may extend to fifty thousand
rupees, or with both.
348. Information as to pending liquidations.—(1) If the winding up of a
company is not concluded within one year after its commencement, the Company
Liquidator shall, unless he is exempted from so doing either wholly or in part by
the Central Government, within two months of the expiry of such year and
thereafter until the winding up is concluded, at intervals of not more than one
year or at such shorter intervals, if any, as may be prescribed, file a statement in
such form containing such particulars as may be prescribed, duly audited, by a
person qualified to act as auditor of the company, with respect to the proceedings
in, and position of, the liquidation,—
(a)
in the case of a winding up by the Tribunal, with the Tribunal ; and
(b)
in the case of a voluntary winding up, with the Registrar :
Provided that no such audit as is referred to in this sub-section shall be
necessary where the provisions of section 294 apply.
(2)
When the statement is filed with the Tribunal under clause (a) of sub-
section (1), a copy shall simultaneously be filed with the Registrar and shall be
kept by him along with the other records of the company.
(3)
Where a statement referred to in sub-section (1) relates to a
Government company in liquidation, the Company Liquidator shall forward a
copy thereof—
(a) to the Central Government, if that Government is a member of the
Government company;
(b) to any State Government, if that Government is a member of the
Government company; or
(c) to the Central Government and any State Government, if both the
Governments are members of the Government company.
(4)
Any person stating himself in writing to be a creditor or contributory
of the company shall be entitled, by himself or by his agent, at all reasonable
times, on payment of the prescribed fee, to inspect the statement referred to in
sub-section (I), and to receive a copy thereof or an extract therefrom.
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346
(5)
Any person fraudulently stating himself to be a creditor or
contributory under sub-section (4) shall be deemed to be guilty of an offence
under section 182 of the Indian Penal Code (45 of 1860) and shall, on the
application of the Company Liquidator, be punishable accordingly.
(6)
If a Company Liquidator contravenes the provisions of this section,
the Company Liquidator shall be punishable with fine which may extend to five
thousand rupees for every day during which the failure continues.
(7)
If a Company Liquidator makes wilful default in causing the
statement referred to in sub-section (I) audited by a person who is not qualified
to act as an auditor of the company, the Company Liquidator shall be punishable
with imprisonment for a term which may extend to six months or with fine which
may extend to one lakh rupees, or with both.
349. Official Liquidator to make payments into public account of India.—
Every Official Liquidator shall, in such manner and at such times as may be
prescribed, pay the monies received by him as Official Liquidator of any
company, into the public account of India in the Reserve Bank of India.
350. Company Liquidator to deposit monies into scheduled bank.—(1)
Every Company Liquidator of a company shall, in such manner and at such times
as may be prescribed, deposit the monies received by him in his capacity as such
in a scheduled bank to the credit of a special bank account opened by him in that
behalf :
Provided that if the Tribunal considers that it is advantageous for the
creditors or contributories or the company, it may permit the account to be
opened in such other bank specified by it.
(2) If any Company Liquidator at any time retains for more than ten days a
sum exceeding five thousand rupees or such other amount as the Tribunal may,
on the application of the Company Liquidator, authorise him to retain, then,
unless he explains the retention to the satisfaction of the Tribunal, he shall—
(a) pay interest on the amount so retained in excess, at the rate of
twelve percent. per annum and also pay such penalty as may be
determined by the Tribunal ;
(b)
be liable to pay any expenses occasioned by reason of his
default; and
347
(c) also be liable to have all or such part of his remuneration, as the
Tribunal may consider just and proper, disallowed, or may also be removed
from his office.
351. Liquidator not to deposit monies into private banking account.—
Neither the Official Liquidator nor the Company Liquidator of a company shall
deposit any monies received by him in his capacity as such into any private
banking account.
352. Company Liquidation Dividend and Undistributed Assets Account.—
(1) Where any company is being wound up and the liquidator has in his hands
or under his control any money representing—
(a)
dividends payable to any creditor but which had remained
unpaid for six months after the date on which they were declared; or
(b) assets refundable to any contributory which have remained
undistributed for six months after the date on which they become
refundable,
The liquidator shall forthwith deposit the said money into a separate special
account to be known as the Company Liquidation Dividend and undistributed
Assets Account maintained in a scheduled bank.
(2)
The liquidator shall, on the dissolution of the company, pay into the
Company Liquidation Dividend and Undistributed Assets Account any money
representing unpaid dividends or undistributed assets in his hands at the date of
dissolution.
(3) The liquidator shall, when making any payment referred to in sub-
sections (1) and (2), furnish to the Registrar, a statement in the prescribed form,
setting forth, in respect of all sums included in such payment, the nature of the
sums, the names and last known addresses of the persons entitled to participate
therein, the amount to which each is entitled and the nature of his claim thereto,
and such other particulars as may be prescribed.
(4)
The liquidator shall be entitled to a receipt from the scheduled bank
for any money paid to it under sub-sections (1) and (2), and such receipt shall be
an effectual discharge of the Company Liquidator in respect thereof.
(5)
Where a company is being wound up voluntarily, the Company
Liquidator shall, when filing a statement in pursuance of sub-section (1) of section 348,
indicate the sum of money which is payable under sub-sections (1) and (2) of
348
this section during the six months preceding the date on which the said statement
is prepared, and shall, within fourteen days of the date of filing the said
statement, pay that sum into the Company Liquidation Dividend and
Undistributed Assets Account.
(6) Any person claiming to be entitled to any money paid into the
Company Liquidation Dividend and Undistributed Assets Account, whether paid
in pursuance of this section or under the provisions of any previous company law
may apply to the Registrar for payment thereof, and the Registrar, if satisfied that
the person claiming is entitled, may make the payment to that person of the sum
due:
Provided that the Registrar shall settle the claim of such person within a
period of sixty days from the date of receipt of such claim, failing which the
Registrar shall make a report to the Regional Director giving reasons of such
failure.
(7)
Any money paid into the Company Liquidation Dividend and
undistributed Assets Account in pursuance of this section, which remains
unclaimed thereafter for a period of fifteen years, shall be transferred to the
general revenue account of the Central Government, but a claim to any money so
transferred may be preferred under sub-section (6) and shall be dealt with as if
such transfer had not been made and the order, if any, for payment on the claim
will be treated as an order for refund of revenue.
(8)
Any liquidator retaining any money which should have been paid by
him into the Company Liquidation Dividend and Undistributed Assets Account
under this section shall—
(a) pay interest on the amount so retained at the rate of twelve per
cent. per annum and also pay such penalty as may be determined by the
Registrar:
Provided that the Central Government may in any proper case remit
either in part or in whole the amount of interest which the liquidator is
required to pay under this clause;
(b) be liable to pay any expenses occasioned by reason of his
default; and
(c) where the winding up is by the Tribunal, also be liable to have all
or such part of his remuneration, as the Tribunal may consider just and
proper, to be disallowed, and to be removed from his office by the
Tribunal.
349
353. Liquidator to make returns, etc.—(1) If any Company Liquidator who
has made any default in filing, delivering or making any return, account or other
document, or in giving any notice which he is by law required to file, deliver,
make or give, fails to make good the default within fourteen days after the
service on him of a notice requiring him to do so, the Tribunal may, on an
application made to it by any contributory or creditor of the company or by the
Registrar, make an order directing the Company Liquidator to make good the
default within such time as may be specified in the order.
(2)
Any order under sub-section (1) may provide that all costs of,
and incidental to, the application shall be borne by the Company Liquidator.
(3)
Nothing in this section shall prejudice the operation of any
enactment imposing penalties on a Company Liquidator in respect of any such
default as aforesaid.
354. Meetings to ascertain wishes of creditors or contributories—(1) In all
matters relating to the winding up of a company, the Tribunal may—
(a) have regard to the wishes of creditors or contributories of the
company, as proved to it by any sufficient evidence;
(b) if it thinks fit for the purpose of ascertaining those wishes, direct
meetings of the creditors or contributories to be called, held and conducted
in such manner as the Tribunal may direct; and
(c) appoint a person to act as chairman of any such meeting and to
report the result thereof to the Tribunal.
(2) While ascertaining the wishes of creditors under sub-section (1), regard
shall be had to the value of each debt of the creditor.
(3) While ascertaining the wishes of contributories under sub-section (1),
regard shall be had to the number of votes which may be cast by each
contributory.
355. Court tribunal or person, etc., before whom affidavit may be sworn—
(I) Any affidavit required to be sworn under the provisions, or for the purposes,
of this Chapter may be sworn—
350
(a) in India before any court, tribunal, judge or person lawfully
authorised to take and receive affidavits; and
(b) in any other country before any court, judge or person lawfully
authorised to take and receive affidavits in that country or before an
Indian diplomatic or consular officer.
(2) All tribunals, judges, justices, commissioners and persons acting judicially
in India shall take judicial notice of the seal, stamp or signature, as the case may
be, of any such court, tribunal, judge, person, diplomatic or consular officer,
attached, appended or subscribed to any such affidavit or to any other document
to be used for the purposes of this Chapter.
356. Powers of Tribunal to declare dissolution of company void.—(1)
Where a company has been dissolved, whether in pursuance of this Chapter or
of section 232 or otherwise, the Tribunal may at any time within two years of the
date of the dissolution, on application by the Company Liquidator of the
company or by any other person who appears to the Tribunal to be interested,
make an order, upon such terms as the Tribunal thinks fit, declaring the
dissolution to be void, and thereupon such proceedings may be taken as if the
company had not been dissolved.
(2) It shall be the duty of the Company Liquidator or the person on whose
application the order was made, within thirty days after the making of the order
or such further time as the Tribunal may allow, to file a certified copy of the
order with the Registrar who shall register the same, and if the Company
Liquidator or the person fails so to do, the Company Liquidator or the person
shall be punishable with fine which may extend to ten thousand rupees for every
day during which the default continues.
357. Commencement of winding up by Tribunal.—(1) Where, before the
presentation of a petition for the winding up of a company by the Tribunal, a
resolution has been passed by the company for voluntary winding up, the
winding up of the company shall be deemed to have commenced at the time of
the passing of the resolution, and unless the Tribunal, on proof of fraud or
mistake, thinks fit to direct otherwise, all proceedings taken in the voluntary
winding up shall be deemed to have been validly taken.
(2) In any other case, the winding up of a company by the Tribunal shall be
deemed to commence at the time of the presentation of the petition for the
winding up.
351
358. Exclusion of certain time in computing period of Limitation.—
Notwithstanding anything in the Limitation Act, 1963 (36 of 1963), or in any
other law for the time being in force, in computing the period of limitation
specified for any suit or application in the name and on behalf of a company
which is being wound up by the Tribunal, the period from the date of
commencement of the winding up of the company to a period of one year
immediately following the date of the winding up order shall be excluded.
PART IV.—Official Liquidators
359. Appointment of Official Liquidator.—(1) For the purposes of this Act,
so far as it relates to the winding up of companies by the Tribunal, the Central
Government may appoint as many Official Liquidators, Joint, Deputy or Assistant
Official Liquidators as it may consider necessary to discharge the functions of the
Official Liquidator.
(2)
The liquidators appointed under sub-section (1) shall be whole-time
officers of the Central Government.
(3) The salary and other allowances of the Official Liquidator, Joint
Official Liquidator, Deputy Official LiquIdator and Assistant Official Liquidator
shall be paid by the Central Government.
360. Powers and functions of Official Liquidator.—(1) The Official
Liquidator shall exercise such powers and perform such duties as the Central
Government may prescribe.
(2) Without prejudice to the provisions of sub-section (1), the Official
Liquidator may—
(a)
exercise all or any of the powers as may be exercised by a
Company Liquidator under the provisions of this Act; and
(b)
conduct inquiries or investigations, if directed by the Tribunal or
the Central Government, in respect of matters arising out of winding up
proceedings.
352
361. Summary procedure for liquidation.—(1) Where the company to be
wound up under this Chapter,—
(i) has assets of book value not exceeding one crore rupees; and
(ii) belongs to such class or classes of companies as may be
prescribed, the Central Government may order it to be wound up by
summary procedure provided under this Part.
(2) Where an order under sub-section (1) is made, the Central Government
shall appoint the Official Liquidator as the liquidator of the company.
(3)
The Official Liquidator shall forthwith take into his custody or control
all assets, effects and actionable claims to which the company is or appears to be
entitled.
(4)
The Official Liquidator shall, within thirty days of his appointment,
submit a report to the Central Government in such manner and form, as may be
prescribed, including a report whether in his opinion, any fraud has been
committed in promotion, formation or management of the affairs of the company
or not.
(5)
On receipt of the report under sub-section (4), if the Central
Government is satisfied that any fraud has been committed by the promoters,
directors or any other officer of the company, it may direct further investigation
into the affairs of the company and that a report shall be submitted within such
time as may be specified.
(6)
After considering the investigation report under sub-section (5), the
Central Government may order that winding up may be proceeded under Part I
of this Chapter or under the provision of this Part.
362. Sale of assets and recovery of debts due to company.—(1) The
Official Liquidator shall expeditiously dispose of all the assets whether movable
or immovable within sixty days of his appointment.
(2)
The Official Liquidator shall serve a notice within thirty days of his
appointment caIling upon the debtors of the company or the contributories, as the
case may be, to deposit within thirty days with him the amount payable to the
company.
353
(3) Where any debtor does not deposit the amount under sub-section (2),
the Central Government may, on an application made to it by the Official
Liquidator, pass such orders as it thinks fit.
(4)
The amount recovered under this section by the Official Liquidator
shall be deposited in accordance with the provisions of section 349.
363. Settlement of claims of creditors by Official Liquidator.—(1) The
Official Liquidator within thirty days of his appointment shall call upon the
creditors of the company to prove their claims in such manner as may be
prescribed, within thirty days of the receipt of such call.
(2)
The Official Liquidator shall prepare a list of claims of creditors in
such manner as may be prescribed and each creditor shall be communicated of
the claims accepted or rejected along with reasons to be recorded in writing.
364. Appeal by creditor.—(1) Any creditor aggrieved by the decision of
the Official Liquidator under section 363 may file an appeal before the Central
Government within thirty days of such decision.
(2)
The Central Government may after calling the report from the Official
Liquidator either dismiss the appeal or modify the decision of the Official
Liquidator.
(3)
The Official Liquidator shall make payment to the creditors whose
claims have been accepted.
(4)
The Central Government may at any stage during settlement of claims,
if considers necessary, refer the matter to the Tribunal for necessary orders.
365. Order of dissolution of company.—(1) The Official Liquidator shall if
he is satisfied that the company is finally wound up submit a final report to—
(i)
the Central Government, in case no reference was made to the
Tribunal under sub-section (4) of section 364; and
(ii)
in any other case, the Central Government and the Tribunal.
(2)
The Central Government, or as the case may be, the Tribunal on
receipt of such report shall order that the company be dissolved.
(3)
Where an order is made under sub-section (2), the Registrar shall
strike off the name of the company from the register of companies and publish a
notification to this effect.
354
CHAPTER XXI
PART 1.—Companies Authorised to Register under this Act
366. Companies capable of being registered.—(1)
For the purposes of
this Part, the word “company” includes any partnership firm, limited liability
partnership, co-operative society, society or any other business entity formed
under any other law for the time being in force which applies for registration
under this Part.
(2) With the exceptions and subject to the provisions contained in this
section, any company formed, whether before or after the commencement of this
Act, in pursuance of any Act of Parliament other than this Act or of any other
law for the time being in force or being otherwise duly constituted according to
law, and consisting of seven or more members, may at any time register under
this Act as an unlimited company, or as a company limited by shares, or as a
company limited by guarantee, in such manner as may be prescribed and the
registration shall not be invalid by reason only that it has taken place with a view
to the company’s being wound up :
Provided that—
(i)
a company registered under the Indian Companies Act, I882
(6 of 1882) or under the Indian Companies Act, 1913 (7 of 1913) or the
Companies Act, 1956 (1 of 1956) shall not register in pursuance of this
section;
(ii)
a company having the liability of its members limited by any Act
of Parliament other than this Act or by any other law for the time being in
force, shall not register in pursuance of this section as an unlimited
company or as a company limited by guarantee;
(iii) a company shall be registered in pursuance of this section as a
company limited by shares only if it has a permanent paid-up or
nominal share capital of fixed amount divided into shares, also of fixed
amount, or held and transferable as stock, or divided and held partly in the
one way and partly in the other, and formed on the principle of having for
its members the holders of those shares or that stock, and no other
persons;
355
(iv)
a company shall not register in pursuance of this section without
the assent of a majority of such of its members as are present in person,
or where proxies are allowed, by proxy, at a general meeting summoned for
the purpose;
(v)
where a company not having the liability of its members-limited
by any Act of Parliament or any other law for the time being in force is
about register as a limited company, the majority required to assent as
aforesaid shall consist of not less than three-fourths of the members
present in person, or where proxies are allowed, by proxy, at the meeting;
(vi)
where a company is about to register as a company limited by
guarantee, the assent to its being so registered shall be accompanied by a
resolution declaring that each member undertakes to contribute to the
assets of the company, in the event of its being wound up while he is a
member, or within one year after he ceases to be a member, for payment
of the debts and liabilities of the company or of such debts and liabilities
as may have been contracted before he ceases to be a member, and of the
costs, charges and expenses of winding up, and for the adjustment of the
rights of the contributories among themselves, such amount as may be
required, not exceeding a specified amount.
(3)
In computing any majority required for the purposes of sub-section
(1), when a poll is demanded, regard shaIl be had to the number of votes to
which each member is entitled according to the regulations of the company.
367. Certificate of Registration of existing companies.—On compliance
with the requirements of this Chapter with respect to registration, and on payment
of such fees, if any, as are payable under section 403, the Registrar shall certify
under his hand that the company applying for registration is incorporated as a
company under this Act, and in the case of a limited company that it is limited
and thereupon the company shall be so incorporated.
368. Vesting of property on Registration.—All property, movable and
immovable (including actionable claims), belonging to or vested in a company at
the date of its registration in pursuance of this Part, shall, on such registration,
pass to and vest in the company as incorporated under this Act for all the estate
and interest of the company therein.
356
369. Saving of existing liabilities.—The registration of a company in
pursuance of this Part shall not affect its rights or liabilities in respect of any
debt or obligation incurred, or any contract entered into, by, to, with, or on
behalf of, the company before registration.
370. Continuation of pending legal proceedings.—All suits and other legal
proceedings taken by or against the company, or any public officer or member
thereof, which are pending at the time of the registration of a company in
pursuance of this Part, may be continued in the same manner as if the registration
had not taken place :
Provided that execution shall not issue against the property or persons of
any individual member of the company on any decree or order obtained in any
such suit or proceeding; but, in the event of the property of the company being
insufficient to satisfy the decree or order, an order may be obtained for winding
up the company.
371. Effect of Registration under this Part.—(1) When a company is
registered in pursuance of this Part, sub-sections (2) to (7) shall apply.
(2)
All provisions contained in any Act of Parliament or any other law
for the time being in force, or other instrument constituting or regulating the
company, including, in the case of a company registered as a company limited by
guarantee, the resolution declaring the amount of the guarantee, shall be deemed
to be conditions and regulations of the company, in the same manner and with
the same incidents as if so much thereof as would, if the company had been
formed under this Act, have been required to be inserted in the memorandum,
were contained in a registered memorandum, and the residue thereof were
contained in registered articles.
(3)
All the provisions of this Act shall apply to the company and the
members, contributories and creditors thereof, in the same manner in all respects
as if it had been formed under this Act, subject as follows :—
(a) Table F in Schedule I shall not apply unless and except in so far
as it is adopted by special resolution ;
(b) the provisions of this Act relating to the numbering of shares
shall not apply to any company whose shares are not numbered ;
357
(c) in the event of the company being wound up, every person
shall be a contributory, in respect of the debts and liabilities of the
company contracted before registration, who is liable to pay or
contribute to the payment of any debt or liability of the company contracted
before registration, or to pay or contribute to the payment of any sum for
the adjustment of the rights of the members among themselves in respect
of any such debt or liability, or to pay or contribute to the payment of the
costs, charges and expenses of winding up the company, so far as relates
to such debts or liabilities as aforesaid ;
(d) in the event of the company being wound up, every contributory
shall be liable to contribute to the assets of the company, in the course of
the winding up, all sums due from him in respect of any such liability as
aforesaid; and in the event of the death or insolvency of any contributory,
the provisions of this Act with respect to the legal representatives of
deceased contributories, or with respect to the assignees of insolvent
contributories, as the case may be, shall apply.
(4) The provisions of this Act with respect to—
(a) the registration of an unlimited company as a limited company;
(b) the powers of an unlimited company on registration as a limited
company, to increase the nominal amount of its share capital and to
provide that a portion of its share capital shall not be capable of being
called-up except in the event of winding up;
(c) the power of a limited company to determine that a portion of its
share capital shall not be capable of being called-up except in the event
of winding up, shall apply, notwithstanding anything in any Act of
Parliament or any other law for the time being in force, or other instrument
constituting or regulating the company.
.
(5) Nothing in this section shall authorise the company to alter any
such provisions contained in any instrument constituting or regulating the
company as would, if the company had originally been formed under this Act,
have been required to be contained in the memorandum and are not authorised to
be altered by this Act.
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358
(6) None of the provisions of this Act (a part from those of
section 242) shall derogate from any power of altering its constitution or
regulations which may be vested in the company, by virtue of any Act of
Parliament or any other law for the time being in force, or other instrument
constituting or regulating the company.
(7) In this section, the expression “instrument” includes deed of settlement,
deed of partnership, or limited liability partnership.
372. Power of Court to stay or restrain proceedings.—The provisions of
this Act with respect to staying and restraining suits and other legal proceedings
against a company at any time after the presentation of a petition for winding up
and before the making of a winding up order, shall, in the case of a company
registered in pursuance of this Part, where the application to stay or restrain is by
a creditor, extend to suits and other legal proceedings against any contributory of
the company.
373. Suits stayed on winding up order.—Where an order has been made
for winding up, or a provisional liquidator has been appointed for, a company
registered in pursuance of this Part, no suit or other legal proceeding shall be
proceeded with or commenced against the company or any contributory of the
company in respect of any debt of the company, except by leave of the Tribunal
and except on such terms as the Tribunal may impose.
374. Obligations of companies registering under this Part.—Every
company which is seeking registration under this Part shall,—
.
(a) ensure that secured creditors of the company, prior to its
registration under this Part, have either consented to or have given their
no objection to company’s registration under this Part;
(b) publish in a newspaper, advertisement one in English and one in
vernacular language in such form as may be prescribed giving notice about
registration under this Part, seeking objections and address them suitably;
(c) file an affidavit, duly notarised, from all the members or partners
to provide that in the event of registration under this Part, necessary
documents or papers shall be submitted to the registering or other
authority with which the company was earlier registered, for its dissolution
as partnership firm, limited liability partnership, co-operative society, society
or any other business entity, as the case may be.
(d) comply with such other conditions as may be prescribed.
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PART II.—Winding up of unregistered companies
375. Winding up of unregistered companies.—(1) Subject to the provisions
of this Part, any unregistered company may be wound up under this Act, in such
manner as may be prescribed, and all the provisions of this Act, with respect to
winding up shall apply to an unregistered company, with the exceptions and
additions mentioned in sub-sections (2) to (4).
(2) No unregistered company shall be wound up under this Act voluntarily.
(3) An unregistered company may be wound up under the following
circumstances, namely :—
(a) if the company is dissolved, or has ceased to carry on business,
or is carrying on business only for the purpose of winding up its affairs;
(b) if the company is unable to pay its debts;
(c)
if the Tribunal is of opinion that it is just and equitable that the
company should be wound up.
(4)
An unregistered company shall, for the purposes of this Act, be
deemed to be unable to pay its debts—
(a)
if a creditor, by assignment or otherwise, to whom the
company is indebted in a sum exceeding one lakh rupees then due, has
served on the company, by leaving at its principal place of business, or
by delivering to the secretary, or some director, manager or principal
officer of the company, or by otherwise serving in such manner as the
Tribunal may approve or direct, a demand under his hand requiring the
company to pay the sum so due, and the company has, for three weeks
after the service of the demand, neglected to pay the sum or to secure
or compound for it to the satisfaction of the creditor;
(b)
if any suit or other legal proceeding has been instituted
against any member for any debt or demand due, or claimed to be due,
from the company, or from him in his character as a member, and
notice in writing of the institution of the suit or other legal proceeding
having been served on the company by leaving the same at its
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principal place of business or by delivering it to the secretary, or some
director, manager or principal officer of the company or by otherwise
serving the same in such manner as the Tribunal may approve or
direct, the company has not, within ten days after service of the
notice,—
(i) paid, secured or compounded for the debt or demand ;
(ii) procured the suit or other legal proceeding to be
stayed ; or
(iii) indemnified the defendant to his satisfaction against
the suit or other legal proceeding, and against all
costs, damages and expenses to be incurred by him by reason
of the same ;
(c)
if execution or other process issued on a decree or order of
any Court or Tribunal in favour of a creditor against the company, or
any member thereof as such, or any person authorised to be sued as
nominal defendant on behalf of the company, is returned unsatisfied in
whole or in part ;
(d)
if it is otherwise proved to the satisfaction of the Tribunal
that the
company is unable to pay its debts.
Explanation.—For the purposes of this Part, the expression
“unregistered company”—
(a)
shall not inc1ude-—
(i) a railway company incorporated under any Act of
Parliament or other Indian law or any Act of Parliament
of the United Kingdom ;
(ii)
a company registered under this Act; or
(iii)
a company registered under any previous companies
law and not being a company the registered office whereof was
in Burma, Aden, Pakistan immediately before the separation of
that country from India ; and
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(b) save as aforesaid, shall include any partnership firm, limited
liability partnership or society or co-operative society, association or
company consisting of more than seven members at the time when the
petition for winding up the partnership firm, limited liability
partnership or society or co-operative society, association or company,
as the case may be, is presented before the Tribunal.
376. Power to wind up foreign companies, although dissolved.—Where a
body corporate incorporated outside India which has been carrying on business in
India, ceases to carry on business in India, it may be wound up as an
unregistered company under this Part, notwithstanding that the body corporate has
been dissolved or otherwise ceased to exist as such under or by virtue of the
laws of the country under which it was incorporated.
377. Provisions of Chapter cumulative.—(1) The provisions of this Part,
with respect to unregistered companies shall be in addition to and not in
derogation of, any provisions herein before in this Act contained with respect to
the winding up of companies by the Tribunal.
(2) The Tribunal or Official Liquidator may exercise any powers or do
any act in the case of unregistered companies which might be exercised or done
by the Tribunal or Official Liquidator in winding up of companies formed and
registered under this Act :
Provided that an unregistered company shall not, except in the event of its
being wound up, be deemed to be a company under this Act, and then only to
the extent provided by this Part.
378. Saving and construction of enactments conferring power to wind up
partnership firm, Association or company, etc., incertain cases.—Nothing in this
Part, shall affect the operation of any enactment which provides for any
partnership firm, limited liability partnership or society or co-operative society,
association or company being wound up, or being wound up as a company or as
an unregistered company, under the Companies Act, 1956 (1 of 1956), or any
Act repealed by that Act:
Provided that references in any such enactment to any provision contained
in the Companies Act, 1956 (1 of 1956) or in any Act repealed by that Act shall
be read as references to the corresponding provision, if any, contained in this Act.
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CHAPTER XXII
COMPANIES INCORPORATED OUTSIDE INDIA
379. Application of Act to foreign companies.—Where not less than fifty
per cent of the paid-up share capital, whether equity or preference or partly
equity and partly preference, of a foreign company is held by one or more
citizens of India or by one or more companies or bodies corporate incorporated
in India, or by one or more citizens of India and one or more companies or
bodies corporate incorporated in India, whether singly or in the aggregate, such
company shall comply with the provisions of this Chapter and such other
provisions of this Act as may be prescribed with regard to the business carried
on by it in India as if it were a company incorporated in India.
380. Documents, etc., to be delivered to Registrar by forgein companies.—
(1)
Every foreign company shall, within thirty days of the establishment of its
place of business in India, deliver to the Registrar for registration—
(a) a certified copy of the charter, statutes or memorandum and
articles, of the company or other instrument constituting or defining
the constitution of the company and, if the instrument is not in the
English language, a certified translation thereof in the English
language ;
(b) the full address of the registered or principal office of the
company ;
(c) a list of the directors and secretary of the company
containing such particulars as may be prescribed ;
(d) the name and address or the names and addresses of one or
more persons resident in India authorised to accept on behalf of the
company service of process and any notices or other documents
required to be served on the company ;
(e) the full address of the office of the company in India which is
deemed to be its principal place of business in India ;
(f) particulars of opening and closing of a place of business in
India on earlier occasion or occasions ;
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(g)
declaration that none of the directors of the company or the
authorised representative in India has ever been convicted for
debarred from formation of companies and management in India
or abroad ; and
(h)
any other information as may be prescribed.
(2)
Every foreign company existing at the commencement of this Act shall,
if it has not delivered to the Registrar before such commencement, the documents
and particulars specified in sub-section (1) of section 592 of the Companies Act,
1956 (1 of 1956) continue to be subject to the obligation to deliver those
documents and particulars in accordance with that Act.
(3)
Where any alteration is made or occurs in the documents delivered to
the Registrar under this section, the foreign company shall, within thirty days of
such alteration, deliver to the Registrar for registration, a return containing the
particulars of the alteration in the prescribed form.
381. Accounts of foreign company.—(1) Every foreign company shall, in
every calendar year,—
(a) make out a balance sheet and proft and loss account in
such form, containing such particulars and including or having
annexed or attached thereto such documents as may be prescribed;
and
(b) deliver a copy of those documents to the Registrar :
Provided that the Central Government may, by notification, direct that, in
the case of any foreign company or class of foreign companies, the requirements
of clause (a) shall not apply, or shall apply subject to such exceptions and
modifications as may be specified in that notification.
(2)
If any such document as is mentioned in sub-section (1) is not in
the English language, there shall be annexed to it a certified translation thereof in
the English language.
(3)
Every foreign company shall send to the Registrar along with the
documents required to be delivered to him under sub-section (1), a copy of a list
in the prescribed form of all places of business established by the company in
India as at the date with reference to which the balance sheet referred to in sub-
section (1) is made out.
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382. Display of name, etc., of foreign company.—Every foreign company
shall—
(a) conspicuously exhibit on the outside of every office or place
where it carries on business in India, the name of the company and the
country in which it is incorporated, in letters easily legible in English
characters, and also in the characters of the language or one of the
languages in general use in the locality in which the office or place is
situate ;
(b) cause the name of the company and of the country in which
the
company is incorporated, to be stated in legible English
characters in all business letters, bill-heads and letter paper, and in all
notices, and other official publications of the company; and
(c) if the liability of the members of the company is limited,
cause notice of that fact—
(i) to be stated in every such prospectus issued and in all
business letters, bill-heads, letter paper, notices, advertisements
and other official publications of the company, in legible English
characters; and
(ii)
to be conspicuously exhibited on the outside of every office
or place where it carries on business in India, in legible English
characters and also in legible characters of the language or one of
the languages in general use in the locality in which the office or place
is situate.
383. Service on foreign company.—Any process, notice, or other document
required to be served on a foreign company shall be deemed to be sufficiently
served, if addressed to any person whose name and address have been delivered
to the Registrar under section 380 and left at, or sent by post to, the address
which has been so delivered to the Registrar or by electronic mode.
384. Debentures, annual return, registration of charges, books of account
and their inspection.— (1) The provisions of section 71 shall apply mutatis
mutandis to a foreign company.
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(2) The provisions of section 92 shall, subject to such exceptions,
modifications and adaptations as may be made therein by rules made under this Act,
apply to a foreign company as they apply to a company incorporated in India.
(3)
The provisions of section 128 shall apply to a foreign company to
the extent of requiring it to keep at its principal place of business in India, the
books of account referred to in that section, with respect to monies received and
spent, sales and purchases made, and assets and liabilities, in the course of or in
relation to its business in India.
(4)
The provisions of Chapter VI shall apply mutatis mutandis to
charges on properties which are created or acquired by any foreign company.
(5)
The provisions of Chapter XIV shall apply mutatis mutandis to the
Indian business of a foreign company as they apply to a company incorporated in
India.
385. Fee for registration of documents.—There shall be paid to the Registrar
for registering any document required by the provisions of this Chapter to be
registered by him, such fee, as may be prescribed.
386. Interpretation.—For the purposes of the foregoing provisions of this
Chapter,—
(a)
the expression “certified” means certified in the prescribed
manner to be a true copy or a correct translation ;
(b)
the expression “director”, in relation to a foreign company,
includes any person in accordance with whose directions or instructions
the Board of Directors of the company is accustomed to act ; and
(c)
the expression “place of business” includes a share transfer or
registration office.
387. Dating of prospectus and particulars to be contained therein.—
(1) No person shall issue, circulate or distribute in India any prospectus offering to
subscrib for securities of a company incorporated or to be incorporated outside
India, whether the company has or has not established, or when formed will or will
not establish, a place of business in India, unless the prospectus is dated and signed,
and—
(a) contains particulars with respect to the following matters, namely:—
(i) the instrument constituting or defining the constitution of the
company ;
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(ii)
the enactments or provisions by or under which the
incorporation of the company was effected;
(iii)
address in India where the said instrument, enactments or
provisions, or copies thereof, and if the same are not in the English
language, a certified translation thereof in the English language can b
inspected;
(iv)
the date on which and the country in which the company
would be or was incorporated; and
(v)
whether the company has established a place of business
in India and, if so, the address of its principal office in India; and
(b) states the matters specified under section 26:
Provided that sub-clauses (i), (ii) and (iii) of clause (a) of this sub-section
shall not apply in the case of a prospectus issued more than two years after the
date at which the company is entitled to commence business.
(2)
Any condition requiring or binding an applicant for securities to waive
compliance with any requirement imposed by virtue of sub-section (1), or
purporting to impute him with notice of any contract, documents or matter not
specifically referred to in the prospectus, shall be void.
(3)
No person shall issue to any person in India a form of application for
securities of such a company or intended company as is mentioned in
sub-section (1), unless the form is issued with a prospectus which complies with
the provisions of this Chapter and such issue does not contravene the provisions
of section 388:
Provided that this sub-section shall not apply if it is shown that the form of
application was issued in connection with a bonafide invitation to a person to
enter into an underwriting agreement with respect to securities.
(4) This section—
(a) shall not apply to the issue to existing members or debenture
holders of a company of a prospectus or form of applicaition relating to
securities of the company, whether an applicant for securities will or will
not have the right to renounce in favour of other persons; and
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(b)
except in so far as it requires a prospectus to be dated, to the
issue of a prospectus relating to securities which are or are to be in all
respects uniform with securities previously issued and for the time being
dealt in or quoted on a recognised stock exchange,
but, subject as aforesaid, this section shall apply to a prospectus or form of
application whether issued on or with reference to the formation of a company or
subsequently.
(5) Nothing in this section shall limit or diminish any liability which any
person may incur under any law for the time being in force in India or under this
Act apart from this section.
388. Provisions as to expert’s consent and allotment.—(1) No person shall
issue, circulate or distribute in India any prospectus offering for subscription in
securities of a company incorporated or to be incorporated outside India, whether
the company has or has not been established, or when formed will or will not
establish, a place of business in India,—
(a)
if where the prospectus includes a statement purporting to be
made by an expert, he has not given, or has before delivery of the
prospectus for registration withdrawn, his written consent to the issue of
the prospectus with the statement included in the form and context in
which it is included, or there does not appear in the prospectus a
statement that he has given and has not withdrawn his consent as
aforesaid; or
(b)
if the prospectus does not have the effect, where an
application is made in pursuance thereof, of rendering all persons
concerned bound by all the provisions of sections 33 and 40, so far as
applicable.
(2) For the purposes of this section, a statement shall be deemed to be
included in a prospectus, if it is contained in any report or memorandum
appearing on the face thereof or by reference incorporated therein or issued
therewith.
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389. Registration of Prospectus.—No person shall issue, circulate or
distribute in India any prospectus offering for subscription in securities of a
company incorporated or to be incorporated outside India, whether the company
has or has not established, or when formed will or will not establish, a place of
business in India, unless before the issue, circulation or distribution of the
prospectus in India, a copy thereof certified by the chairperson of the company
and two other directors of the company as having been approved by resolution of
the managing body has been delivered for registration to the Registrar and the
prospectus states on the face of it that a copy has been so delivered, and there is
endorsed on or attached to the copy, any consent to the issue of the prospectus
required by section 388 and such documents as may be prescribed.
390. Offer of Indian Depository Receipts.—Notwithstanding anything
contained in any other law for the time being in force, the Central Government
may make rules applicable for—
(a)
the offer of Indian Depository Receipts;
(b)
the requirement of disclosures in prospectus or letter of offer
issued in connection with Indian Depository Receipts;
(c)
the manner in which the Indian Depository Receipts shall be dealt
with in a depository mode and by custodian and underwriters; and
(d)
the manner of sale, transfer or transmission of Indian Depository
Receipts,
by a company incorporated or to be incorporated outside India, whether the
company has or has not established, or will or will not establish, any place of
business in India.
391. Application of sections 34 to 36 and Chapter XX.—(1) The provisions
of sections 34 to 36 (both inclusive) shall apply to—
(i) the issue of a prospectus by a company incorporated outside India
under section 389 as they apply to prospectus issued by an Indian company;
(ii) the issue of Indian Depository Receipts by a foreign company.
(2)
The provisions of Chapter XX shall apply mutatis mutandis for closure
of the place of business of a foreign company in India as if it were a company
incorporated in India.
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392. Punishment for contravention.—Without prejudice to the provisions of
section 391, if a foreign company contravenes the provisions of this Chapter, the
foreign company shall be punishable with fine which shall not be less than one
lakh rupees but which may extend to three lakh rupees and in the case of a
continuing offence, with an additional fine which may extend to fifty thousand
rupees for every day after the first during which the contravention continues and
every officer of the foreign company who is in default shall be punishable with
imprisonment for a term which may extend to six months or with fine which
shall not be less than twenty-five thousand rupees but which may extend to five
lakh rupees, or with both.
393. Company’s failure to comply with provisions of this Chapter not to
affect validity of contracts, etc.—Any failure by a company to comply with the
provisions of this Chapter shall not affect the validity of any contract, dealing or
transaction entered into by the company or its liability to be sued in respect
thereof, but the company shall not be entitled to bring any suit, claim any set-off,
make any counter-claim or institute any legal proceeding in respect of any such
contract, dealing or transaction, until the company has complied with the
provisions of this Act applicable to it.
CHAPTER XXIII
GOVERNMENT COMPANIES
394. Annual reports on Government companies.—(1) Where the Central
Government is a member of a Government company, the Central Government
shall cause an annual report on the working and affairs of that company to be—
(a) prepared within three months of its annual general meeting before
which the comments given by the Comptroller and Auditor-General of
India and the audit report is placed under the proviso to sub-section (6) of
section 143; and
(b) as soon as may be after such preparation, laid before both
Houses of Parliament together with a copy of the audit report
and comments upon or supplement to the audit report, made by the
Comptroller and Auditor-General of India.
G. 64/2013/DTP.
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(2) Where in addition to the Central Government, any State Government
is also a member of a Government company, that State Government shall cause a
copy of the annual report prepared under sub-section (1) to be laid before the
House or both Houses of the State Legislature together with a copy of the audit
report and the comments upon or supplement to the audit report referred to in
sub-section (1).
395. Annual reports where one or more State Governments are members of
companies.—(1) Where the Central Government is not a member of a
Government company, every State Government which is a member of that
company, or where only one State Government is a member of the company, that
State Government shall cause an annual report on the working and affairs of the
company to be—
(a) prepared within the time specified in sub-section (1) of section 394; and
(b) as soon as may be after such preparation, laid before the House or
both Houses of the State Legislature together with a copy of the audit
report and comments upon or supplement to the audit report referred
to in sub-section (1) of that section.
(2) The provisions of this section and section 394 shall, so far as may be,
apply to a Government company in liquidation as they apply to any other
Government company.
CHAPTER XXIV
REGISTRATION OFFICES AND FEES
396.
Registration offices.—(1) For the purposes of exercising such powers
and discharging such functions as are conferred on the Central Government by or
under this Act or under the rules made thereunder and for the purposes of
registration of companies under this Act, the Central Government shall, by
notification, establish such number of offices at such places as it thinks fit,
specifying their jurisdiction.
(2) The Central Government may appoint such Registrars, Additional,
Joint, Deputy and Assistant Registrars as it considers necessary for the
registration of companies and discharge of various functions under this Act, and
the powers and duties that may be exercisable by such officers shall be such as
may be prescribed.
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(3) The terms and conditions of service, including the salaries payable to
persons appointed under sub-section (2), shall be such as may be prescribed.
(4) The Central Government may direct a seal or seals to be prepared for
the authentication of documents required for, or connected with, the registration
of companies.
397.
Admissibility of certain documents as evidence.—Notwithstanding
anything contained in any other law for the time being in force, any document
reproducing or derived from returns and documents filed by a company with the
Registrar on paper or in electronic form or stored on any electronic data storage
device or computer readable media by the Registrar, and authenticated by the
Registrar or any other officer empowered by the Central Government in such
manner as may be prescribed, shall be deemed to be a document for the purposes
of this Act and the rules made thereunder and shall be admissible in any
proceedings thereunder without further proof or production of the original as
evidence of any contents of the original or of any fact stated therein of which
direct evidence is admissible.
398.
Provisions relating to filing of applications, documents, inspection etc.
in electronic form.—(1) Notwithstanding anything to the contrary contained in
this Act, and without prejudice to the provisions contained in section 6 of the
Information Technology Act, 2000 (21 of 2000), the Central Government may
make rules so as to require from such date as may be prescribed in the rules
that—
(a) such applications, balance sheet, prospectus, return, declaration,
memorandum, articles, particulars of charges, or any other particulars or
document as may be required to be filed or delivered under this Act or
the rules made thereunder, shall be filed in the electronic form and
authenticated in such manner as may be prescribed;
(b) such document, notice, any communication or intimation, as may
be required to be served or delivered under this Act, in the electronic form
and authenticated in such manner as may be prescribed;
(c) such applications, balance sheet, prospectus, return, register,
memorandum, articles, particulars of charges, or any other particulars or
document and return filed under this Act or rules made thereunder shall be
maintained by the Registrar in the electronic form and registered or
authenticated, as the case may be, in such manner as may be prescribed ;
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(d) such inspection of the memorandum, articles, register, index,
balance sheet, return or any other particulars or document maintained in
the electronic form, as is otherwise available for inspection under this Act
or the rules made thereunder, may be made by any person through the
electronic form in such manner as may be prescribed;
(e) such fees, charges or other sums payable under this Act or the
rules made thereunder shall be paid through the electronic form and in
such manner as may be prescribed; and
(f) the Registrar shall register change of registered office, alteration
of memorandum or articles, prospectus, issue certificate of incorporation,
register such document, issue such certificate, record the notice, receive
such communication as may be required to be registered or issued or
recorded or received, as the case may be, under this Act or the rules made
thereunder or perform duties or discharge functions or exercise powers
under this Act or the rules made thereunder or do any act which is by this
Act directed to be performed or discharged or exercised or done by the
Registrar in the electronic form in such manner as may be prescribed.
Explanation.—For the removal of doubts, it is hereby clarified that the rules
made under this section shall not relate to imposition of fines or other pecuniary
penalties or demand or payment of fees or contravention of any of the provisions
of this Act or punishment therefor.
(2) The Central Government may, by notification, frame a scheme to carry
out the provisions of sub-section (1) through the electronic form.
399.
Inspection—production and evidence of documents kept by Register.
(1)
Save as otherwise provided elsewhere in this Act, any person may—
(a) inspect by electronic means any documents kept by the Registrar
in accordance with the rules made, being documents filed or registered by
him in pursuance of this Act, or making a record of any fact required or
authorised to be recorded or registered in pursuance of this Act, on
payment for each inspection of such fees as may be prescribed;
(b) require a certificate of the incorporation of any company, or a
copy or extract of any other document or any part of any other document
to be certified by the Registrar, on payment in advance of such fees as
may be prescribed:
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Provided that the rights conferred by this sub-section shall be
exercisable—
(i) in relation to documents delivered to the Registrar with a
prospectus in pursuance of section 26, only during the fourteen
days beginning with the date of publication of the prospectus;
and at other times, only with the permission of the Central
Government; and
(ii) in relation to documents so delivered in pursuance of clause (b)
of sub-section (1) of section 388, only during the fourteen days
beginning with the date of the prospectus; and at other times,
only with the permission of the Central Government.
(2) No process for compelling the production of any document kept by
the Registrar shall issue from any court or the Tribunal except with the leave of
that court or the Tribunal and any such process, if issued, shall bear thereon a
statement that it is issued with the leave of the court or the Tribunal.
(3) A copy of, or extract from, any document kept and registered at any
of the offices for the registration of companies under this Act, certified to be a
true copy by the Registrar (whose official position it shall not be necessary to
prove), shall, in all legal proceedings, be admissible in evidence as of equal
validity with the original document.
400.
Electronic form to be exclusive, alternative or in addition to physical
form.—The Central Government may also provide in the rules made under
section 398 and section 99 that the electronic form for the purposes specified in
these sections shall be exclusive, or in the alternative or in addition to the
physical form, therefor.
401.
Provision of value added services through electronic form.—
The Central Government may provide such value added services through the
electronic form and levy such fee thereon as may be prescribed.
402.
Application of provisions of Information Technology Act,
2000.—All the provisions of the Information Technology Act, 2000 (21 of 2000)
relating to the electronic records, including the manner and format in which the
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electronic records, shall be filed, in so far as they are not inconsistent with this
Act, shall apply in relation to the records in electronic form specified under
section 398.
403.
Fee for filing, etc.—(1) Any document, required to be submitted, filed,
registered or recorded, or any fact or information required or authorised to be
registered under this Act, shall be submitted, filed, registered or recorded within
the time specified in the relevant provision on payment of such fee as may be
prescribed:
Provided that any document, fact or information may be submitted, filed,
registered or recorded, after the time specified in relevant provision for such
submission, filing, registering or recording, within a period of two hundred and
seventy days from the date by which it should have been submitted, filed,
registered or recorded, as the case may be, on payment of such additional fee as
may be prescribed:
Provided further that any such document, fact or information may, without
prejudice to any other legal action or liability under the Act, be also submitted,
filed, registered or recorded, after the first time specified in first proviso on
payment of fee and additional fee specified under this section.
(2) Where a company fails or commits any default to submit, file, register
or record any document, fact or information under sub-section (1) before the
expiry of the period specified in the first proviso to that sub-section with
additional fee, the company and the officers of the company who are in default,
shall, without prejudice to the liability for payment of fee and additional fee, be
liable for the penalty or punishment provided under this Act for such failure or
default.
404.
Fees, etc. to be credited into public account.—All fees, charges and
other sums received by any Registrar, Additional, Joint, Deputy or Assistant
Registrar or any other officer of the Central Government in pursuance of any
provision of this Act shall be paid into the public account of India in the Reserve
Bank of India.
375
CHAPTER XXV
COMPANIES TO FURNISH INFORMATION OR STATISTICS
405. Power of Central Government to direct companies to furnish
information or statistics.—(1) The Central Government may, by order, require
companies generally, or any class of companies, or any company, to furnish such
information or statistics with regard to their or its constitution or working, and
within such time, as may be specified in the order.
(2) Every order under sub-section (1) shall be published in the Official
Gazette and may be addressed to companies generally or to any class of
companies, in such manner, as the Central Government may think fit and the date
of such publication shall be deemed to be the date on which requirement for
information or statistics is made on such companies or class of companies, as the
case may be.
(3) For the purpose of satisfying itself that any information or statistics
furnished by a company or companies in pursuance of any order under
sub-section (1) is correct and complete, the Central Government may by order
require such company or companies to produce such records or documents in its
possession or allow inspection thereof by such officer or furnish such further
information as that Government may consider necessary.
(4) If any company fails to comply with an order made under
sub-section (1) or sub-section (3), or knowingly furnishes any information or
statistics which is incorrect or incomplete in any material respect, the company
shall be punishable with fine which may extend to twenty-five thousand rupees
and every officer of the company who is in default, shall be punishable with
imprisonment for a term which may extend to six months or with fine which
shall not be less than twenty-five thousand rupees but which may extend to three
lakh rupees, or with both.
(5) Where a foreign company carries on business in India, all references
to a company in this section shall be deemed to include references to the foreign
company in relation, and only in relation, to such business.
376
CHAPTER XXVI
NIDHIS
406.
Power to modify Act in its application to Nidhis.—(1) In this section,
“Nidhi” means a company which has been incorporated as a Nidhi with the
object of cultivating the habit of thrift and savings amongst its members,
receiving deposits from, and lending to, its members only, for their mutual
benefit, and which complies with such rules as are prescribed by the Central
Government for regulation of such class of companies.
(2)
Save as otherwise expressly provided, the Central Government may,
by notification, direct that any of the provisions of this Act shall not apply, or
shall apply with such exceptions, modifications and adaptations as may be
specified in that notification, to any Nidhi or Nidhis of any class or description as
may be specified in that notification.
(3)
A copy of every notification proposed to be issued under
sub-section (2), shall be laid in draft before each House of Parliament, while it is
in session, for a total period of thirty days which may be comprised in one
session or in two or more successive sessions, and if, before the expiry of the
session immediately following the session or the successive sessions aforesaid,
both Houses agree in disapproving the issue of the notification or both Houses
agree in making any modification in the notification, the notification shall not be
issued or, as the case may be, shall be issued only in such modified form as may
be agreed upon by both the Houses.
CHAPTER XXVII
NATIONAL COMPANY LAW TRIBUNAL AND APPELLATE TRIBUNAL
407.
Definitions.—In this Chapter, unless the context otherwise requires,—
(a) “Chairperson” means the Chairperson of the Appellate Tribunal;
(b) “Judicial Member” means a member of the Tribunal or the
Appellate Tribunal appointed as such and includes the President or the
Chairperson, as the case may be;
377
(c) “Member” means a member, whether Judicial or Technical of the
Tribunal or the Appellate Tribunal and includes the President or the
Chairperson, as the case may be;
(d) “President” means the President of the Tribunal;
(e) “Technical Member” means a member of the Tribunal or the
Appellate Tribunal appointed as such.
408.
Constitution of National Company law Tribunal.—The Central
Government shall, by notification, constitute, with effect from such date as may
be specified therein, a Tribunal to be known as the National Company Law
Tribunal consisting of a President and such number of Judicial and Technical
members, as the Central Government may deem necessary, to be appointed by it
by notification, to exercise and discharge such powers and functions as are, or
may be, conferred on it by or under this Act or any other law for the time being
in force.
409.
Qualification of President and Members of Tribunal.—(1) The
President shall be a person who is or has been a Judge of a High Court for five
years.
(2)
A person shall not be qualified for appointment as, a Judicial Member
unless he—
(a) is, or has been, a judge of a High Court; or
(b) is, or has been, a District Judge for at least five years; or
(c) has, for at least ten years been an advocate of a court.
Explanation.—For the purposes of clause (c), in computing the
period during which a person has been an advocate of a court, there shall be
included any period during which the person has held judicial office
or the office of a member of a tribunal or any post, under the Union or a
State, requiring special knowledge of law after he become an advocate.
(3) A person shall not be qualified for appointment as a Technical
Member unless he—
(a) has, for at least fifteen years been a member of the Indian
Corporate Law Service or Indian Legal Service out of which at least three
years shall be in the pay scale of Joint Secretary to the Government of
India or equivalent or above in that service; or
378
(b) is, or has been, in practice as a chartered accountant for at least
fifteen years; or
(c) is, or has been, in practice as a cost accountant for at least fifteen
years; or
(d) is, or has been, in practice as a company secretary for at least
fifteen years; or
(e) is a person of proven ability, integrity and standing having special
knowledge and experience, of not less than fifteen years, in law, industrial
finance, industrial management or administration, industrial reconstruction,
investment, accountancy, labour matters, or such other disciplines related
to management, conduct of affairs, revival, rehabilitation and winding
up of companies; or
(f) is, or has been, for at least five years, a presiding officer of a
Labour Court, Tribunal or National Tribunal constituted under the
Industrial Disputes Act, 1947 (14 of 1947).
410.
Constitution of Appellate Tribunal.—The Central Government shall, by
notification, constitute, with effect from such date as may be specified therein, an
Appellate Tribunal to be known as the National Company Law Appellate
Tribunal consisting of a chairperson and such number of Judicial and Technical
Members, not exceeding eleven, as the Central Government may deem fit, to be
appointed by it by notification, for hearing appeals against the orders of the
Tribunal.
411.
Qualification of chairperson and Members of Appellate Tribunal.—(1)
The chairperson shall be a person who is or has been a Judge of the Supreme
Court or the Chief Justice of a High Court.
(2) A Judicial Member shall be a person who is or has been a Judge of a
High Court or is a Judicial Member of the Tribunal for five years.
(3) A Technical member shall be a person of proven ability, integrity and
standing having special knowledge and experience, of not less than
twenty-five years, in law, industrial finance, industrial management or
administration, industrial reconstruction, investment, accountancy, labour matters,
or such other disciplines related to management, conduct of affairs, revival,
rehabilitation and winding up of companies.
379
412.
Selection of Members of Tribunal and Appellate Tribunal.—(1) The
President of the Tribunal and the chairperson and Judicial Members of the
Appellate Tribunal, shall be appointed after consultation with the Chief Justice of
India.
(2) The Members of the Tribunal and the Technical Members of the
Appellate Tribunal shall be appointed on the recommendation of a Selection
Committee consisting of—
(a) Chief Justice of India or his nominee—Chairperson;
(b) a senior Judge of the Supreme Court or a Chief Justice of High
Court—Member;
(c) Secretary in the Ministry of Corporate Affairs—member;
(d) Secretary in the Ministry of Law and Justice—Member; and
(e) Secretary in the Department of Financial Services in the Ministry
of Finance—Member.
(3)
The Secretary, Ministry of Corporate Affairs shall be the Convener of
the Selection Committee.
(4)
The Selection Committee shall determine its procedure for
recommending persons under sub-section (2).
(5)
No appointment of the Members of the Tribunal or the Appellate
Tribunal shall be invalid merely by reason of any vacancy or any defect
in the constitution of the Selection Committee.
413. Term of Office of President, Chairperson and other Members.—(1)
The President and every other Member of the Tribunal shall hold office as such
for a term of five years from the date on which he enters upon his office, but
shall be eligible for re-appointment for another term of five years.
(2) A Member of the Tribunal shall hold office as such until he attains,—
(a) in the case of the President, the age of sixty-seven years;
(b) in the case of any other Member, the age of sixty-five years:
Provided that a person who has not completed fifty years of age shall not
be eligible for appointment as Member:
380
Provided further that the Member may retain his lien with his parent carde
or Ministry or Department, as the case may be, while holding office as such for
a period not exceeding one year.
(3) The chairperson or a Member of the Appellate Tribunal shall hold
office as such for a term of five years from the date on which he enters upon his
office, but shall be eligible for re-appointment for another term of five years.
(4) A Member of the Appellate Tribunal shall hold office as such until he
attains,—
(a) in the case of the Chairperson, the age of seventy years;
(b) in the case of any other Member, the age of sixty-seven years:
Provided that a person who has not completed fifty years of age shall not be
eligible for appointment as member:
Provided further that the Member may retain his lien with his parent cadre
or Ministry or Department, as the case may be, while holding office as such for
a period not exceeding one year.
414. Salary, allowances and other terms and conditions of service of
Members.—The salary, allowances and other terms and conditions of service of
the Members of the Tribunal and the Appellate Tribunal shall be such as may be
prescribed:
Provided that neither the salary and allowances nor the other terms and
conditions of service of the Members shall be varied to their disadvantage after
their appointment.
415.
Acting President and Chairperson of Tribunal or Appellate
Tribunal.—(1) In the event of the occurrence of any vacancy in the office of the
President or the Chairperson by reason of his death, resignation or otherwise, the
senior-most Member shall act as the President or the Chairperson, as the case
may be, until the date on which a new President or Chairperson appointed in
accordance with the provisions of this Act to fill such vacancy enters upon his
office.
381
(2) When the President or the Chairperson is unable to discharge his
functions owing to absence, illness or any other cause, the senior-most Member
shall discharge .the functions of the President or the Chairperson, as the case may
be, until the date on which the President or the Chairperson resumes his duties.
416.
Resignation of Members.—The President, the Chairperson or any
Member may, by notice in writing under his hand addressed to the Central
Government, resign from his office:
Provided that the President, the Chairperson, or the Member shall continue
to hold office until the expiry of three months from the date of receipt of such
notice by the Central Government or until a person duly appointed as his
successor enters upon his office or until the expiry of his term of office,
whichever is earliest.
417.
Removal of Members.—(1) The Central Government may, after
consultation with the Chief Justice of India, remove from office the President,
Chairperson or any Member, who—
(a) has been adjudged an insolvent; or
(b) has been convicted of an offence which, in the opinion of the
Central Government, involves moral turpitude; or
(c) has become physically or mentally incapable of acting as such
President, the Chairperson, or Member; or
(d) has acquired such financial or other interest as is likely to affect
prejudicially his functions as such President, the Chairperson or
Member; or
(e) has so abused his position as to render his continuance in office
prejudicial to the public interest:
Provided that the President, the Chairperson or the Member shall not be
removed on any of the grounds specified in clauses (b) to (e) without giving him
a reasonable opportunity of being heard.
(2) Without prejudice to the provisions of sub-section (1), the President,
the Chairperson or the Member shall not be removed from his office except by
an order made by the Central Government on the ground of proved misbehaviour
or incapacity after an inquiry made by a Judge of the Supreme Court nominated
by the Chief Justice of India on a reference made to him by the Central
Government in which such President, the Chairperson or Member had been
informed of the charges against him and given a reasonable opportunity of being
heard.
382
(3) The Central Government may, with the concurrence of the Chief
Justice of India, suspend from office, the President, the Chairperson or Member
in respect of whom reference has been made to the Judge of the Supreme Court
under sub-section (2) until the Central Government has passed orders on receipt
of the report of the Judge of the Supreme Court on such reference.
(4) The Central Government shall, after consultation with the Supreme
Court, make rules to regulate the procedure for the inquiry on the ground of
proved misbehaviour or incapacity referred to in sub-section (2).
418.
Staff of Tribunal and Appellate Tribunal.—(1) The Central
Government shall, in consultation with the Tribunal and the Appellate Tribunal,
provide the Tribunal and the Appellate Tribunal, as the case may be, with such
officers and other employees as may be necessary for the exercise of the powers
and discharge of the functions of the Tribunal and the Appellate Tribunal.
(2) The officers and other employees of the Tribunal and the Appellate
Tribunal shall discharge their functions under the general superintendence and
control of the President, or as the case may be, the Chairperson, or any other
Member to whom powers for exercising such superintendence and control are
delegated by him.
(3) The salaries and allowances and other conditions of service of the
officers and other employees of the Tribunal and the Appellate Tribunal shall be
such as may be prescribed.
419.
Benches of Tribunal.—(1) There shall be constituted such number of
Benches of the Tribunal, as may, by notification, be specified by the Central
Government.
(2) The Principal Bench of the Tribunal shall be at New Delhi which
shall be presided over by the President of the Tribunal.
(3) The powers of the Tribunal shall be exercisable by Benches consisting
of two Members out of whom one shall be a Judicial Member and the other shall
be a Technical Member:
Provided that it shall be competent for the Members of the Tribunal
authorised in this behalf to function as a Bench consisting of a single Judicial
Member and exercise the powers of the Tribunal in respect of such class of cases
or such matters pertaining to such class of cases, as the President may, by general
or special order, specify:
383
Provided further that if at any stage of the hearing of any such case or
matter, it appears to the Member that the case or matter is of such a nature that
it ought to be heard by a Bench consisting of two Members, the case or matter
may be transferred by the President, or, as the case may be, referred to him for
transfer, to such Bench as the President may deem fit.
(4) The President shall, for the disposal of any case relating to
rehabilitation, restructuring, reviving or winding up, of companies, constitute one
or more Special Benches consisting of three or more Members, majority
necessarily being of Judicial Members.
(5) If the Members of a Bench differ in opinion on any point or points, it
shall be decided according to the majority, if there is a majority, but if the
Members are equally divided, they shall state the point or points on which they
differ, and the case shall be referred by the President for hearing on such point
or points by one or more of the other Members of the Tribunal and such point or
points shall be decided according to the opinion of the majority of Members who
have heard the case, including those who first heard it.
420.
Orders of Tribunal.—(1) The Tribunal may, after giving the parties to
any proceeding before it, a reasonable, opportunity of being heard, pass such
orders thereon as it thinks fit.
(2) The Tribunal may, at any time within two years from the date of the
order, with a view to rectifying any mistake apparent from the record, amend any
order passed by it, and shall make such amendment, if the mistake is brought to
its notice by the parties:
Provided that no such amendment shall be made in respect of any order
against which an appeal has been preferred under this Act.
(3) The Tribunal shall send a copy of every order passed under this
section to all the parties concerned.
421. Appeal from Orders of Tribunal.—(1) Any person aggrieved by an
order of the Tribunal may prefer an appeal to the Appellate Tribunal.
(2) No appeal shall lie to the Appellate Tribunal from an order made by
the Tribunal with the consent of parties.
384
(3) Every appeal under sub-section (1) shall be filed within a period of
forty-five days from the date on which a copy of the order of the Tribunal is
made available to the person aggrieved and shall be in such form, and
accompanied by such fees, as may be prescribed:
Provided that the Appellate Tribunal may entertain an appeal after the expiry
of the said period of forty-five days from the date aforesaid, but within a further
period not exceeding forty-five days, if it is satisfied that the appellant was
prevented by sufficient cause from filing the appeal within that period.
(4) On the receipt of an appeal under sub-section (1), the Appellate
Tribunal shall, after giving the parties to the appeal a reasonable opportunity of
being heard, pass such orders thereon as it thinks fit, confirming, modifying or
setting aside the order appealed against.
(5) The Appellate Tribunal shall send a copy of every order made by it to
the Tribunal and the parties to appeal.
422.
Expeditious disposal by Tribunal and Appellate Tribunal.—(1) Every
application or petition presented before the Tribunal and every appeal filed before
the Appellate Tribunal shall be dealt with and disposed of by it as expeditiously
as possible and every endeavour shall be made by the Tribunal or the Appellate
Tribunal, as the case may be, for the disposal of such application or petition or
appeal within three months from the date of its presentation before the Tribunal
or the filing of the appeal before the Appellate Tribunal.
(2) Where any application or petition or appeal is not disposed of within
the period specified in sub-section (1), the Tribunal or, as the case may be, the
Appellate Tribunal, shall record the reasons for not disposing of the application
or petition or the appeal, as the case may be, within the period so specified; and
the President or the Chairperson, as the case may be, may, after taking into
account the reasons so recorded, extend the period referred to in sub-section (1)
by such period not exceeding ninety days as he may consider necessary.
423.
Appeal to Supreme Court.—Any person aggrieved by any order of the
Appellate Tribunal may file an appeal to the Supreme Court within sixty days
from the date of receipt of the order of the Appellate Tribunal to him on any
question of law arising out of such order:
385
Provided that the Supreme Court may, if it is satistied that the appellant was
prevented by sufficient cause from filing the appeal within the said period, allow
it to be filed within a further period not exceeding sixty days.
424.
Procedure before Tribunal and Appellate Tribunal.—(1) The Tribunal
and the Appellate Tribunal shall, not while disposing of any proceeding before it
or, as the case may be, an appeal before it, be bound by the procedure laid down
in the Code of Civil Procedure, 1908 (5 of 1908) but shall be guided by the
principles of natural justice, and, subject to the other provisions of this Act and
of any rules made thereunder, the Tribunal and the Appellate Tribunal shall have
power to regulate their own procedure.
(2) The Tribunal and the Appellate Tribunal shall have, for the purposes
of discharging their functions under this Act, the same powers as are vested in a
civil court under the Code of Civil Procedure, 1908, (5 of 1908) while
trying a suit in respect of the following matters, namely:—
(a) summoning and enforcing the attendance of any person and
examining him on oath;
(b) requiring the discovery and production of documents;
(c) receiving evidence on affidavits;
(d) subject to the provisions of sections 123 and 124 of the Indian
Evidence Act, 1872 (1 of 1872), requisitioning any public record
or document or a copy of such record or document from
any office;
(e) issuing commissions for the examination of witnesses or
documents;
(f) dismissing a representation for default or deciding it ex parte;
(g) setting aside any order of dismissal of any representation for
default or any order passed by it ex parte; and
(h) any other matter which may be prescribed.
386
(3) Any order made by the Tribunal or the Appellate Tribunal may be
enforced by that Tribunal in the same manner as if it were a decree made by a
court in a suit pending therein, and it shall be lawful for the Tribunal or the
Appellate Tribunal to send for execution of its orders to the court within the
local limits of whose jurisdiction,—
(a) in the case of an order against a company, the registered office
of the company is situate; or
(b) in the case of an order against any other person, the person
concerned voluntarily resides or carries on business or personally
works for gain.
(4) All proceedings before the Tribunal or the Appellate Tribunal shall be
deemed to be judicial proceedings within the meaning of sections 193 and 228,
and for the purposes of section 196 of the Indian Penal Code (45 of 1860), and
the Tribunal and the Appellate Tribunal shall be deemed to be civil court for the
purposes of section 195 and Chapter XXVI of the Code of Criminal Procedure,
1973 (2 of 1974).
425.
Power to punish for contempt.—The Tribunal and the Appellate
Tribunal shall have the same jurisdiction, powers and authority in respect of
contempt of themselves as the High Court has and may exercise, for this purpose,
the powers under the provisions of the Contempt of Courts Act, 1971
(70 of 1971) which shall have the effect subject to modifications that—
(a) the reference therein to a High Court shall be construed
as including a referencer to the Tribunal and the Appellate
Tribunal; and
(b) the reference to Advocate-General in section 15 of the said Act
shall be construed as a reference to such Law Officers as the
Central Government may specify in this behalf.
426.
Delegation of powers.—The Tribunal or the Appellate Tribunal may,
by general or special order, direct, subject to such conditions, if any, as may be
specified in the order, any of its officers or employees or any other person
387
authorised by it to inquire into any matter connected with any proceeding or, as
the case may be, appeal before it and to report to it in such manner as may be
specified in the order.
427.
President, Members, Officers, etc. to be public servants.—The
President, Members, officers and other employees of the Tribunal and the
Chairperson, Members, officers and other employees of the Appellate Tribunal
shall be deemed to be public servants within the meaning of section 21 of the
Indian Penal Code (45 of 1860).
428.
Protection of action taken in good faith.— No suit, prosecution or
other legal proceeding shall lie against the Tribunal, the President, Member,
officer or other employee, or against the Appellate Tribunal, the Chairperson,
Member, officer or other employees thereof or liquidator or any other person
authorised by the Tribunal or the Appellate Tribunal for the discharge of any
function under this Act in respect of any loss or damage caused or likely to be
caused by any act which is in good faith done or intended to be done in
pursuance of this Act.
429.
Power to seek assistance of Chief Metropolitan Magistrate, etc.—
(1) The Tribunal may, in any proceeding relating to a sick company or winding
up of any other company, in order to take into custody or under its control all
property, books of account or other documents, request, in writing, the Chief
Metropolitan Magistrate, Chief Judicial Magistrate or the District Collector within
whose jurisdiction any such property, books of account or other documents of
such sick or other company, are situate or found, to take possession thereof, and
the Chief Metropolitan Magistrate, Chief Judicial Magistrate or the District
Collector, as the case may be, shall, on such request being made to him,—
(a) take possession of such property, books of account or other
documents; and
(b) cause the same to be entrusted to the Tribunal or other person
authorised by it.
(2)
For the purpose of securing compliance with the provisions of
sub-section (1), the Chief Metropolitan Magistrate, Chief Judicial Magistrate or
the District Collector may take or cause to be taken such steps and use or cause
to be used such force as may, in his opinion, be necessary.
388
(3) No act of the Chief Metropolitan Magistrate, Chief Judicial Magistrate
or the District Collector done in pursuance of this section shall be called in
question in any court or before any authority on any ground whatsoever.
430.
Civil court not to have jurisdiction.—No civil court shall have
jurisdiction to entertain any suit or proceeding in respect of any matter which the
Tribunal or the Appellate Tribunal is empowered to determine by or under this
Act or any other law for the time being in force and no injunction shall be
granted by any court or other authority in respect of any action taken or to be
taken in pursuance of any power conferred by or under this Act or any other law
for the time being in force, by the Tribunal or the Appellate Tribunal.
431.
Vacancy in Tribunal or Appellate Tribunal not to invalidate acts or
proceedings.—No act or proceeding of the Tribunal or the Appellate Tribunal
shall be questioned or shall be invalid merely on the ground of the existence of
any vacancy or defect in the constitution of the Tribunal or the Appellate
Tribunal, as the case may be.
432.
Right to legal representation.—A party to any proceeding or appeal
before the Tribunal or the Appellate Tribunal, as the case may be, may either
appear in person or authorise one or more chartered accountants or company
secretaries or cost accountants or legal practitioners or any other person to
present his case before the Tribunal or the Appellate Tribunal, as the case
may be.
433.
Limitation.—The provisions of the Limitation Act, 1963 (36 of 1963)
shall, as far as may be, apply to proceedings or appeals before the Tribunal or
the AppelIate Tribunal, as the case may be.
434.
Transfer of certain pending proceedings.—(1) On such date as may be
notified by the Central Government in this behalf,—
(a) all matters, proceedings or cases pending before the Board of
Company Law Administration (herein in this section referred to as
the Company Law Board) constituted under sub-section (1) of section 10E
of the Companies Act, 1956 (1 of 1956), immediately before such date
shall stand transferred to the Tribunal and the Tribunal shall dispose of
such matters, proceedings or cases in accordance with the provisions of
this Act;
389
(b) any person aggrieved by any decision or order of the Company
Law Board made before such date may file an appeal to the High Court
within sixty days from the date of communication of the decision or order
of the Company Law Board to him on any question of law arising out of
such order :
Provided that the High Court may if it is satisfied that the appellant was
prevented by sufficient cause from filing an appeal within the said period, allow
it to be filed within a further period not exceeding sixty days;
(c) all proceedings under the Companies Act, 1956 (1 of 1956),
including proceedings relating to arbitration, compromise, arrangements
and reconstruction and winding up of companies, pending immediately
before such date before any District Court or High Court, shall stand
transferred to the Tribunal and the Tribunal may proceed to deal with such
proceedings from the stage before their transfer.
(d) any appeal preferred to the Appellate Authority for Industrial
and Financial Reconstruction or any reference made or inquiry pending to
or before the Board of Industrial and Financial Reconstruction or any
proceeding of whatever nature pending before the Appellate Authority for
Industrial and Financial Reconstruction or the Board for Industrial and
Financial Reconstruction under the Sick Industrial Companies (Special
Provisions) Act, 1985 (1 of 1986) immediately before the commencement
of this Act shall stand abated:
Provided that a company in respect of which such appeal or reference
or inquiry stands abated under this clause may make a reference to the
Tribunal under this Act within one hundred and eighty days from the
commencement of this Act in accordance with the provisions of this Act:
Provided further that no fees shall be payable for making such
reference under this Act by a company whose appeal or reference or
inquiry stands abated under this clause.
(2) The Central Government may make rules consistent with the
provisions of this Act to ensure timely transfer of all matters, proceedings or
cases pending before the Company Law Board or the courts, to the Tribuhal
under this section.
390
CHAPTER XXVIII
SPECIAL COURTS
435.
Establishment of Special Courts.—(1) The Central Government may,
for the purpose of providing speedy trial of offences under this Act, by
notification, establish or designate as many Special Courts as may be necessary.
(2)
A Special Court shall consist of a single judge who shall be appointed
by the Central Government with the concurrence of the Chief Justice of the High
Court within whose jurisdiction the judge to be appointed is working.
(3)
A person shall not be qualified for appointment as a judge of a Special
Court unless he is, immediately before such appointment, holding office of a
Sessions Judge or an Additional Sessions Judge.
436.
Offences triable by Special Courts.—(1) Notwithstanding anything
contained in the Code of Criminal Procedure, 1973 (2 of 1974),—
(a)
all offences under this Act shall be triable only by the Special
Court established for the area in which the registered office of the
company in relation to which the offence is committed or where there are
more Special Courts than one for such area, by such one of them as may
be specified in this behalf by the High Court concerned;
(b)
where a person accused of, or suspected of the commission of,
an offence under this Act is forwarded to a Magistrate under sub-section
(2) or sub-section (2A) of section 167 of the Code of Criminal Procedure,
1973 (2 of 1974), such Magistrate may authorise the detention of such
person in such custody as he thinks fit for a period not exceeding fifteen
days in the whole where such Magistrate is a Judicial Magistrate and
seven days in the whole where such Magistrate is an Executive Magistrate:
Provided that where such Magistrate considers that the detention of such
person upon or before the expiry of the period of detention is
unnecessary, he shall order such person to be forwarded to the Special
Court having jurisdiction;
391
(c)
the Special Court may exercise, in relation to the person
forwarded to it under clause (b), the same power which a Magistrate
having jurisdiction to try a case may exercise under section 167 of the
Code of Criminal Procedure, 1973 (2 of 1974) in relation to an accused
person who has been forwarded to him under that section; and
(d)
a Special Court may, upon perusal of the police report of the
facts constituting an offence under this Act or upon a complaint in that
behalf, take cognizance of that offence without the accused being
committed to it for trial.
(2)
When trying an offence under this Act,. a Special Court may also try
an offence other than an offence under this Act with which the accused may,
under the Code of Criminal Procedure, 1973 (2 of 1974) be charged at the same
trial.
(3)
Notwithstanding anything contained in the Code of Criminal
Procedure, 1973 (2 of 1974), the Special Court may, if it thinks fit, try in a
summary way any offence under this Act which is punishable with imprisonment
for a term not exceeding three years:
Provided that in the case of any conviction in a summary trial, no sentence
of imprisonment for a term exceeding one year shall be passed:
Provided further that when at the commencement of, or in the course of, a
summary trial, it appears to the Special Court that the nature of the case is such
that the sentence of imprisonment for a term exceeding one year may have to be
passed or that it is, for any other reason, undesirable to try the case summarily,
the Special Court shall, after hearing the parties, record an order to that effect
and thereafter recall any witnesses who may have been examined and proceed to
hear or rehear the case in accordance with the procedure for the regular trial.
437.
Appeal and revision.—The High Court may exercise, so far as may be
applicable, all the powers conferred by Chapters XXlX and XXX of the Code of
Criminal Procedure, 1973 (2 of 1974) on a High Court, as if a Special Court
within the local limits of the jurisdiction of the High Court were a Court of
Session trying cases within the local limits of the jurisdiction of the High Court.
392
438.
Application of Code to proceedings before Special Court.—Save as
otherwise provided in this Act, the provisions of the Code of Criminal Procedure,
1973 (2 of 1974), shall apply to the proceedings before a Special Court and for
the purposes of the said provisions, the Special Court shall be deemed to be a
Court of Session and the person conducting a prosecution before a Special Court
shall be deemed to be a Public Prosecutor.
439.
Offences to be non-cognizable.—(1) Notwithstanding anything in the
Code of Criminal Procedure, 1973 (2 of 1974), every offence under this Act
except the offences referred to in sub-section (6) of section 212 shall be deemed
to be non-cognizable within the meaning of the said Code.
(2) No court shall take cognizance of any offence under this Act which is
alleged to have been committed by any company or any officer thereof, except
on the complaint in writing of the Registrar, a shareholder of the company, or of
a person authorised by the Central Government in that behalf:
Provided that the court may take cognizance of offences relating to issue and
transfer of securities and non-payment of dividend, on a complaint in writing, by
a person authorised by the Securities and Exchange Board of India:
Provided further that nothing in this sub-section shall apply to a prosecution
by a company of any of its officers.
(3)
Notwithstanding anything contained in the Code of Criminal
Procedure, 1973, (2 of 1974), where the complaint under sub-section (2) is the
Registrar or a person authorised by the Central Government, the presence of such
officer before the Court trying the offences shall not be necessary unless the
court requires his personal attendance at the trial.
(4) The provisions of sub-section (2) shall not apply to any action taken by
the liquidator of a company in respect of any offence alleged to have been
committed in respect of any of the matters in Chapter XX or in any other
provision of this Act relating to winding up of companies.
Explanation.—The liquidator of a company shall. not be deemed to be an
officer of the company within the meaning of sub-section (2).
393
440.
Transitional provisions.— Any offence committed under this Act,
which is triable by a Special Court shall, until a Special Court is established, be
tried by a Court of Session exercising jurisdiction over the area, notwithstanding
anything contained in the Code of Criminal Procedure, 1973 (2 of 1974):
Provided that nothing contained in this section shall affect the powers of the
High Court under section 407 of the Code to transfer any case or class of cases
taken cognizance by a Court of Session under this section.
441.
Compounding of certain offences.—(1) Notwithstanding anything
contained in the Code of Criminal Procedure, 1973 (2 of 1974), any offence
punishable under this Act (whether committed by a company or any officer
thereof) with fine only, may, either before or after the institution of any
prosecution, be compounded by—
(a) the Tribunal; or
(b)
where the maximum amount of fine which may be imposed for
such offence does not exceed five lakh rupees, by the Regional Director
any officer authorised by the Central Government,
on payment or credit, by the company or, as the case may be, the officer, to the
Central Government of such sum as that Tribunal or the Regional Director or any
officer authorised by the Central Government, as the case may be, may specify:
Provided that the sum so specified shall not, in any case, exceed the
maximum amount of the fine which may be imposed for the offence so
compounded:
Provided further that in specifying the sum required to be paid or credited
for the compounding of an offence under this sub-section, the sum, if any, paid
by way of additional fee under sub-section (2) of section 403 shall be taken into
account:
Provided also that any offence covered under this sub-section by any
company or its officer shall not be compounded if the investigation against such
company has been initiated or is pending under this Act.
394
(2)
Nothing in sub-section—(1) shall apply to an offence committed by a
company or its officer within a period of three years from the date on which a
similar offence committed by it or him was compounded under this section.
Explanation.—For the purposes of this section,—
(a)any second or subsequent offence committed after the expiry of a
period of three years from the date on which the offence was previously
compounded, shall be deemed to be a first offence;
(b)“Regional Director” means a person appointed by the Central
Government as a Regional Director for the purposes of this Act.
(3) (a)Every application for the compounding of an offence shall be made
to the Registrar who shall forward the same, together with his comments thereon,
to the Tribunal or the Regional Director or any officer authorised by the Central
Government, as the case may be.
(b)
Where any offence is compounded under this section, whether
before or after the institution of any prosecution, an intimation thereof shall be
given by the company to the Registrar within seven days from the date on which
the offence is so compounded.
(c) Where any offence is compounded before the institution of any
prosecution, no prosecution shall be instituted in relation to such offence, either
by the Registrar or by any shareholder of the company or by any person
authorised by the Central Government against the offender in relation to whom
the offence is so compounded.
(d) Where the compounding of any offence is made after the institution
of any prosecution, such compounding shall be brought by the Registrar in
writing, to the notice of the court in which the prosecution is pending and on
such notice of the compounding of the offence being given, the company or its
officer in relation to whom the offence is so compounded shall be discharged.
(4) The Tribunal or the Regional Director or any officer authorised by the
Central Government, as the case may be, while dealing with a proposal for the
compounding of an offence for a default in compliance with any provision of this
Act which requires a company or its officer to file or register with, or deliver or
send to, the Registrar any return, account or other document, may direct, by an
order, if it or he thinks fit to do so, any officer or other employee of the
company to file or register with, or on payment of the fee, and the additional fee,
required to be paid under section 403, such return, account or other document
within such time as may be specified in the order.
395
(5) Any officer or other employee of the company who fails to comply with
any order made by the Tribunal or the Regional Director or any officer
authorised by the Central Government under sub-section (4) shall be punishable
with imprisonment for a term which may extend to six months, or with fine not
exceeding one lakh rupees, or with both.
(6) Notwithstanding anything contained in the Code of Criminal Procedure,
1973 (2 of 1974),—
(a) any offence which is punishable under this Act, with
imprisonment or fine, or with imprisonment or fine or with both, shall be
compoundable with the permission of the Special Court, in accordance with
the procedure laid down in that Act for compounding of offences;
(b) any offence which is punishable under this Act with imprisonment
only or with imprisonment and also with fine shall not be compoundable.
(7) No offence specified in this section shall be compounded except under
and in accordance with the provisions of this section.
442.
Mediation and Conciliation Panel.—(1) The Central Government shall
maintain a panel of experts to be called as the Mediation and Conciliation Panel
consisting of such number of experts having such qualifications as may be
prescribed for mediation between the parties during the pendency of any
proceedings before the Central Government or the Tribunal or the Appellate
Tribunal under this Act.
(2) Any of the parties to the proceedings may, at any time during the
proceedings before the Central Government or the Tribunal or the Appellate
Tribunal, apply to the Central Government or the Tribunal or the Appellate
Tribunal, as the case may be, in such form along with such fees as may be
prescribed, for referring the matter pertaining to such proceedings to the
Mediation and Conciliation Panel and the Central Government or Tribunal or the
Appellate Tribunal, as the case may be, shall appoint one or more experts from
the panel referred to in sub-section (l).
(3) The Central Government or the Tribunal or the Appellate Tribunal before
which any proceeding is pending may, suo motu, refer any matter pertaining to
such proceeding to such number of experts from the Mediation and Conciliation
Panel as the Central Government or the Tribunal of the Appellate Tribunal, as the
case may be, deems fit.
396
(4) The fee and other terms and conditions of experts of the Mediation and
Conciliation Panel shall be such as may be prescribed.
(5) The Mediation and Conciliation Panel shall follow such procedure as
may be prescribed and dispose of the matter referred to it within a period of
three months from the date of such reference and forward its recommendations
to the Central Government or the Tribunal or the Appellate Tribunal, as the case
may be.
(6) Any party aggreived by the recommendation of the Mediation and
Conciliation Panel may file objections to the Central Government or the Tribunal
or the Appellate Tribunal, as the case may be.
443.
Power of Central Government to appoint company prosecutors.—
Notwithstanding anything contained in the Code of Criminal Procedure, 1973
(2 of 1974), the Central Government may appoint generally, or for any case, or
in any case, or for any specified class of cases in any local area, one or more
persons, as company prosecutors for the conduct of prosecutions arising out of
this Act and the persons so appointed as company prosecutors shall have all the
powers and privileges conferred by the Code on Public Prosecutors appointed
under section 24 of the Code.
444.
Appeal against acquittal.—Notwithstanding anything contained in the
Code of Criminal Procedure, 1973 (2 of 1974) , the Central Government may, in
any case arising under this Act, direct any company prosecutor or authorise any
other person either by name or by virtue of his office, to present an appeal from
an order of acquittal passed by any court, other than a High Court, and an appeal
presented by such prosecutor or other person shall be deemed to have been
validly presented to the appellate court.
445.
Compensation for accusation without reasonable cause.—The
provisions of section 250 of the Code of Criminal Procedure, 1973 (2 of 1974)
shall apply mutatis mutandis to compensation for accusation without reasonable
cause before the Special Court or the Court of Session.
446.
Application of fines.—The court imposing any fine under this Act
may direct that the whole or any part thereof shall be applied in or towards
payment of the costs of the proceedings, or in or towards the payment of a
reward to the person on whose information the proceedings were instituted.
397
CHAPTER XXIX
MISCELLANEOUS
447. Punishment for fraud.—Without prejudice to any liability including
repayment of any debt under this Act or any other law for the time being in
force, any person who is found to be guilty of fraud, shall be punishable with
imprisonment for a term which shall not be less than six months but which may
extend to ten years and shall also be liable to fine which shall not be less than
the amount involved in the fraud, but which may extend to three times the
amount involved in the fraud:
Provided that were the fraud in question involves public interest, the term of
imprisonment shall not be less than three years.
Explanation.—For the purposes of this section—
(i) “fraud” in relation to affairs of a company or any body corporate,
includes any act, omission, concealment of any fact or abuse of position
committed by any person or any other person with the connivance in any manner,
with intent to deceive, to gain undue advantage from, or to injure the interests of,
the company or its shareholders or its creditors or any other person, whether or
not there is any wrongful gain or wrongful loss;
(ii) “wrongful gain” means the gain by unlawful means of property to
which the person gaining is not legally entitled;
(iii) “wrongful loss” means the loss by unlawful means of property to
which the person losing is legally entitled.
448. Punishment for false statement.—Save as otherwise provided in this
Act, if in any return, report, certificate, financial statement, prospectus, statement
or other document required by, or for, the purposes of any of the provisions of
this Act or the rules made thereunder, any person makes a statement,—
(a)
which is false in any material particulars, knowing it to be false; or
(b)
which omits any material fact, knowing it to be material,
he shall be liable under section 447.
449. Punishment for false evidence.—Save as otherwise provided in this
Act, if any person intentionally gives false evidence—
(a)
upon any examination on oath or solemn affirmation, authorised
under this Act; or
398
(b)
in any affidavit, deposition or solemn affirmation, in or about the
winding up of any company under this Act, or otherwise in or about any
matter arising under this Act,
he shall be punishable with imprisonment for a term which shall not be less than
three years but which may extend to seven years and with fine which may extend
to ten lakh rupees.
450. Punishment were no specific penalty or punishment is provided.—If a
company or any officer of a company or any other person contravenes any of the
provisions of this Act or the rules made thereunder, or any condition, limitation
or restriction subject to which any approval, sanction, consent, confirmation,
recognition, direction or exemption in relation to any matter has been accorded,
given or granted, and for which no penalty or punishment is provided elsewhere
in this Act, the company and every officer of the company who is in default or
such other person shall be punishable with fine which may extend to ten
thousand rupees, and where the contravention is continuing one, with a further
fine which may extend to one thousand rupees for every day after the first during
which the contravention continues.
451. Punishment in case of repeated default.—lf a company or an officer
of a company commits an offence punishable either with fine or with
imprisonment and where the same offence is committed for the second or
subsequent occasions within a period of three years, then, that company and
every officer thereof who is in default shall be punishable with twice the amount
of fine for such offence in addition to any imprisonment provided for that
offence.
452.
Punishment for wrongful with holding of property.—(1) If any officer
or employee of a company—
(a) wrongfully obtains possession of any property, including cash of
the company; or
(b) having any such property including cash in his possession,
wrongfully withholds it or knowingly applies it for the purposes other than
those expressed or directed in the articles and authorised by this Act,
he shall, on the complaint of the company or of any member or creditor or
contributory thereof, be punishable with fine which shall not be less than one
lakh rupees but which may extend to five lakh rupees.
399
(2) The Court trying an offence under sub-section (1) may also order such
officer or employee to deliver up or refund, within a time to be fixed by it, any
such property or cash wrongfully obtained or wrongfully withheld or knowingly
misapplied, the benefits that have been derived from such property or cash or in
default, to undergo imprisonment for a term which may extend to two years.
453. Punishment for improper use of “Limited” or “Private Limited”.—If
any person or persons trade or carry on business under any name or title, of
which the word “Limited” or the words “Private Limited” or any contraction or
imitation thereof is or are the last word or words, that person or each of those
persons shall, unless duly incorporated with limited liability, or unless duly
incorporated as a private company with limited liability, as the case may be,
punishable with fine which shall not be less than five hundred rupees but may
extend to two thousand rupees for every day for which that name or title has
been used.
454. Adjudication of penalties.—(1) The Central Government may, by an
order published in the Official Gazette, appoint as many officers of the Central
Government, not below the rank of Registrar, as adjudicating officers for
adjudging penalty under the provisions of this Act in the manner as may be
prescribed.
(2)The Central Government shall while appointing adjudicating officers,
specify their jurisdiction in the order under sub-section (1).
(3)The adjudicating officer may, by an order impose the penalty on the
company and the officer who is in default stating any non-compliance or default
under the relevant provision of the Act.
(4)The adjudicating officer shall, before imposing any penalty, give a
reasonable opportunity of being heard to such company and the officer who is in
default.
(5)Any person aggrieved by an order made by the adjudicating officer
under sub-section (3) may prefer an appeal to the Regional Director having
jurisdiction in the matter.
(6)Every appeal under sub-section (5) shall be filed within sixty days from
the date on which the copy of the order made by the adjudicating officer is
received by the aggrieved person and shall be in such form, manner and be
accompanied by such fees as may be prescribed.
400
(7)
The Regional Director may, after giving the parties to the appeal an
opportunity of being heard, pass such order as he thinks fit, confirming,
modifying or setting aside the order appealed against.
(8)
(i) Where company does not pay the penalty imposed by the
adjudicating officer or the Regional Director within a period of ninety days from
the date of the receipt of the copy of the order, the company shall be punishable
with fine which shall not be less than twenty-five thousand rupees but which may
extend to five lakh rupees.
(ii)
Where an officer of a company who is in default does not pay
the penalty within a period of ninety days from the date of the receipt of the
copy of the order, such officer shall be punishable with imprisonment which may
extend to six months or with fine which shall not be less than twenty-five
thousand rupees but which may extend to one lakh rupees, or with both.
455. Dormant Company.—(1) Where a company is formed and registered
under this Act for a future project or to hold an asset or intellectual property and
has no significant accounting transaction, such a company or an inactive company
may make an application to the Registrar in such manner as may be prescribed
for obtaining the status of a dormant company.
Explanation.—For the purposes of this section,—
(i)
“inactive company” means a company which has not been
carrying on any business or operation, or has not made any significant
accounting transaction during the last two financial years or has not filed
financial statements and annual returns during the last two financial years.
(ii)
“significant accounting transaction” means any transaction other
than—
(a)
payment of fees by a company to the Registrar;
(b)
payments made by it to fulfil the requirements of this Act or
any other law;
(c)
allotment of shares to fulfil the requirements of this Act; and
(d)
payments for maintenance of its office and records.
(2) The Registrar on consideration of the application shall allow the status
of a dormant company to the applicant and issue a certificate in such form as
may be prescribed to that effect.
401
(3)
The Registrar shal1 maintain a register of dormant companies in such
form as may be prescribed.
(4)
In case of a company which has not filed financial statements or
annual returns for two financial years consecutively, the Registrar shall issue a
notice to that company and enter the name of such company in the register
maintained for dormant companies.
(5)
A dormant company shall have such minimum number of directors,
file such documents and pay such annual fee as may be prescribed to the
Registrar to retain its dormant status in the register and may become an active
company on an application made in this behalf accompanied by such documents
and fee as may be prescribed.
(6)
The Registrar shal1 strike off the name of a dormant company from
the register of dormant companies, which has failed to comply with the
requirements of this section.
456. Protection of action taken in good faith.—No suit, prosecution or other
legal proceeding shal1 lie against the Government or any office of the
Government or any other person in respect of anything which is in good faith
done or intended to be done in pursuance of this Act or of any rules or orders
made thereunder, or in respect of the publication by or under the authority of the
Government or such officer, of any report, paper or proceedings.
457. Non-disclosure of information in certain cases.—Notwithstanding
anything contained in any other law for the time being in force, the Registrar,
any officer of the Government or any other person shal1 not be compelled to
disclose to any court, Tribunal or other authority, the source from where he got
any information which—
(a)
has led the Central Government to order an investigation under
section 210; or
(b)
is or has been material or relevant in connection with such
investigation.
458. Deligation by Central Government of its powers and functions.—(1)
The Central Government may, by notification, and subject to such conditions,
limitations and restrictions as may be specified therein, delegate any of its powers
or functions under this Act other than the power to make rules to such authority
or officer as may be specified in the notification:
402
Provided that the powers to enforce the provisions contained in section 194
and section 195 relating to forward dealing and insider trading shal1 be delegated
to Securities and Exchange Board for listed companies or the companies which
intend to get their securities listed and in such case, any officer authorised by the
Securities and Exchange Board shal1 have the power to file a complaint in the
court of competent jurisdiction.
(2) A copy of every notification issued under sub-section (1) shal1, as soon
as may be after it is issued, be laid before each House of Parliament.
459.
Powers of Central Government of Tribunal to accord approval, etc.
subject to conditions and to prescribe fees on applications.—(1) Where the
Central Government or the Tribunal is required or authorised by any provision of
this Act—
(a) to accord approval, sanction, consent, confirmation or
recognition to, or in relation to, any matter; or
(b) to give any direction in relation to any matter; or
(c) to grant any exemption in relation to any matter,
then, the Central Government or the Tribunal may in the absence of anything to
the contrary contained in that provision or any other provision of this Act,
accord, give or grant such approval, sanction, consent, confirmation, recognition,
direction or exemption, subject to such conditions, limitations or restrictions as it
may think fit to impose and may, in the case of a contravention of any such
condition, limitation or restriction, rescind or withdraw such approval, sanction,
consent, confirmation, recognition, direction or exemption.
(2)
Save as otherwise provided in this Act, every application which may
be, or is required to be, made to the Central Government or the Tribunal under
any provision of this Act—
(a)
in respect of any approval, sanction, consent, confirmation or
recognition to be accorded by that Government or the Tribunal to, or
in relation to, any matter; or
(b)
in respect of any direction or exemption to be given or granted
by that Government or the Tribunal in relation to any matter; or
(c)
in respect of any other matter,
shall be accompanied by such fees as may be prescribed:
403
Provided that different fees may be prescribed for applications in respect of
different matters or in case of applications by different classes of companies.
460.
Condonation of delay in certain cases.—Notwithstanding anything
contained in this Act,—
(a)
where any application required to be made to the Central
Government under any provision of this Act in respect of any
matter is not made within the time specified therein, that Government
may, for reasons to be recorded in writing, condone the delay; and
(b) where any document required to be filed with the Registrar under
any provision of this Act is not filed within the time specified there in, the
Central Government may, for reasons to be recorded in writing, condone
the delay.
461. Annual report by Central Government.—The Central Government
shall cause a general annual report on the working and administration of this Act
to be prepared and laid before each House of Parliament within one year of the
close of the year to which the report relates.
462. Power to exempt class or classes of companies from provisions of this
Act.—(1)
The Central Government may in the public interest, by notification
direct that any of the provisions of this Act,—
(a) shall not apply to such class or classes of companies; or
(b) shall apply to the class or classes of companies with
such exceptions, modifications and adaptations as may be specified
in the notification.
(2)
A copy of every notification proposed to be issued under sub-
section—(1), shall be laid in draft before each House of Parliament, while it is in
session, for a total period of thirty days which may be comprised in one session
or in two or more successive sessions, and if, before the expiry of the session
immediately following the session or the successive sessions aforesaid, both
Houses agree in disapproving the issue of the notification or both Houses agree
in making any modification in the notification, the notification shall not be issued
or, as the case may be, shall be issued only in such modified form as may be
agreed upon by both the Houses.
404
463. Power of court to grant relief in certain cases.—(1) If in any
proceeding for negligence, default, breach of duty, misfeasance or breach of trust
against an officer of a company, it appears to the court hearing the case that he
is or may be liable in respect of the negligence, default, breach of duty,
misfeasance or breach of trust, but that he has acted honestly and reasonably, and
that having regard to all the circumstances of the case, including those connected
with his appointment, he ought fairly to be excused, the court may relieve him,
either wholly or partly, from his liability on such term, as it may think fit:
Provided that in a criminal proceeding under this sub-section, the court shall
have no power to grant relief from any civil liability which may attach to an
officer in respect of such negligence, default, breach of duty, misfeasance or
breach of trust.
(2) Where any such officer has reason to apprehend that any proceeding
will or might be brought against him in respect of any negligence, default, breach
of duty, misfeasance or breach of trust, he may apply to the High Court for relief
and the High Court on such application shall have the same power to relieve him
as it would have had if it had been a court before which a proceedings against
that officer for negligence, default, breach of duty, misfeasance or breach of trust
had been brought under sub-section (1).
(3) No court shall grant any relief to any officer under sub-section
(1) or sub-section (2) unless it has, by notice served in the manner specified by
it, required the Registrar and such other person, if any, as it thinks necessary, to
show cause why such relief should not be granted.
464. Prohibition of association or partnership of persons exceeding certain
number.—(1)
No association or partnership consisting of more than such
number of persons as may be prescribed shall be formed for the purpose of
carrying on any business that has for its object the acquisition of gain by the
association or partnership or by the individual members thereof, unless it is
registered as a company under this Act or is formed under any other law for the
time being in force:
Provided that the number of persons which may be prescribed under this
sub-section shall not exceed one hundred.
405
(2) Nothing in sub-section (1) shall apply to—
(a) a Hindu undivided family carrying on any business; or
(b) an association or partnership, if it is formed by professionals
who are governed by special Acts.
(3)
Every member of an association or partnership carrying on
business in contravention of sub-section (1) shall be punishable with fine which
may extend to one lakh rupees and shall also be personally liable for all
liabilities incurred in such business.
465. Repeal of certain enactments and savings.—(1)
The Companies
Act, 1956 (1 of 1956), and the Registration of Companies (Sikkim) Act, 1961
(Sikkim Act 8 of 1961), (hereafter in this section referred to as the repealed
enactments) shall stand repealed:
Provided that the provisions of Part IX A of the Companies Act, 1956
(1 of 1956) shall be applicable mutatis mutandis to a Producer Company in a
manner as if the Companies Act, 1956 has not been repealed until a special Act
is enacted for Producer Companies:
Provided further that until a date is notified by the Central Government
under sub-section (1) of Section 434 for transfer of all matters, proceedings or
cases to the Tribunal, the provisions of the Companies Act, 1956 (1 of 1956) in
regard to the jurisdiction, powers, authority and functions of the Board of
Company LawAdministration and court shall continue to apply as if the
companies Act, 1956 has not been repealed:
Provided also that provisions of the Companies Act, 1956 (1 of 1956)
referred in the notification issued under section 67 of the Limited Liability
Partnership Act, 2008 (6 of 2009) shall, until the relevant notification under such
section applying relevant corresponding provisions of this Act to limited liability
partnerships is issued, continue to apply as if the Companies Act, 1956 has not
been repealed.
(2) Notwithstanding the repeal under sub-section (1) of the repealed
enactments,—
(a)
anything done or any action taken or purported to have been
done or taken, including any rule, notification, inspection, order or notice
made or issued or any appointment or declaration made or any operation
406
undertaken or any direction given or any proceeding taken or a
penalty unishment, forfeiture or fine imposed under the repealed enactments
shall, insofar as it is not inconsistent with the provisions of this Act, be
deemed to have been done or taken under the corresponding provisions of
this Act;
(b) subject to the provisions of clause (a), any order, rule, notification,
regulation, appointment, conveyance, mortgage, deed, document or
agreement made, fee directed, resolution passed, direction given, proceeding
taken, instrument executed or issued, or thing done under or in pursuance of
any repealed enactment shall, if in force at the commencement of this Act
continue to be in force, and shall have effect as if made, directed, passed
given, taken, executed, issued or done under or in pursuance of this Act;
(c) any principle or rule of law, or established jurisdiction, form or
course of pleading, practice or procedure or existing usage, custom
privilege, restriction or exemption shall not be affected, notwithstanding that
the same respectively may have been in any manner affirmed or recognised
or derived by, in, or from, the repealed enactments;
(d) any person appointed to any office under or by virtue of any
repealed enactment shall be deemed to have been appointed to that office
under or by virtue of this Act;
(e) any jurisdiction, custom, liability, right, title, privilege, restriction,
exemption, usage, practice, procedure or other matter or thing not in
existence or in force shall not be revised or restored;
(f) the offices existing on the commencement of this Act for the
registration of companies shall continue as if they have been established
under the provisions of this Act;
(g) the incorporation of companies registered under the repealed
enactments shall continue to be valid and the provisions of this Act shall
apply to such companies as if they were registered under this Act;
(h) all registers and all funds constituted and established under the
repealed enactments shall be deemed to be registers and funds constituted or
established under the corresponding provisions of this Act;
(i) any prosecution instituted under the repealed enactments and
pending immediately before the commencement of this Act before any Court
shall, subject to the provisions of this Act, continue to be heard and
disposed’ of by the said Court;
407
(j) any inspection, investigation or inquiry ordered to be done under
the Companies Act, 1956 (1 of 1956) shall continue to be proceeded with as
if such inspection, investigation or inquiry as been ordered under the
corresponding provisions of this Act; and
(k) any matter filed with the Registrar, Regional Director or the Central
Government under the Companies Act, 1956 (1 of 1956) before the
commencement of this Act and not fully addressed at that time shall be
concluded by the Registrar, Regional Director or the Central Government, as
the case may be, in terms of that Act, despite its repeal.
(3)
The mention of particular matters in sub-section (2) shall not be held
to prejudice the general application of section 6 of the General Clauses Act,
1897 (10 of 1897) with regard to the effect of repeal of the repealed enactments
as if the Registration of Companies (Sikkim) Act, 1961 (Sikkim Act 8 of 1961)
were also a Central Act.
466.
Dissolution of Company Law Board and consequential provisions.—
(1) Notwithstanding anything contained in section 465, the Board of Company
Law Administration constituted under the Companies Act, 1956 (1 of 1956)
(hereafter in this section referred to as the Company Law Board) shall stand
dissolved on the constitution of the Tribunal and the Appellate Tribunal:
Provided that until the Tribunal and the Appellate Tribunal is
constituted, the Chairman, Vice-Chairman and Members of the Company Law
Board immediately before the constitution of the Tribunal and the Appellate
Tribunal, who fulfil the qualifications and requirements provided under this Act
regarding appointment as President or Chairperson or Member of the Tribunal or
the Appellate Tribunal, shall function as President, Chairperson or Member of the
Tribunal or the Appellate Tribunal:
Provided further that every officer or other employee, who had been
appointed on deputation basis to the Company Law Board, shall, on such
dissolution,—
(i) become officer or employee of the Tribunal or the Appellate
Tribunal, if he fulfils the qualifications and requirements under this Act; an
(ii) stand reverted to his parent cadre, Ministry or Department, in any
other case:
408
Provided also that every officer and the other employee of the Company
Law Board, employed on regular basis by that Board, shall become, on and from
such dissolution the officer and other employee, respectively, of the Tribunal or
the Appellate Tribunal with the same rights and privileges as to pension, gratuity
and other like benefits as would have been admissible to him if he had continued
to serve that Board and shall continue to do so unless and until his employment
in the Tribunal or the Appellate Tribunal is duly terminated or until his
remuneration, terms and conditions of employment are duly altered by the
Tribunal or the Appellate Tribunal, as the case may be:
Provided also that notwithstanding anything contained in the Industrial
Disputes Act, 1947 (14 of 1947) or in any other law for the time being in force,
any officer or other employee who becomes an officer or other employee of the
Tribunal or the Appellate Tribunal under the preceding proviso shall not be
entitled to any compensation under this Act or under any other law for the time
being in force and no such claim shall be entertained by any court, tribunal or
other authority:
Provided also that where the Company Law Board has etablished a
provident fund, superannuation fund, welfare fund or other fund for the benefit of
the officers and other employees employed in that Board, the monies relatable to
the officers and other employees who have become officers or employees of the
Tribunal or the Appellate Tribunal shall, out of the monies standing to the credit
of such provident fund, superannuation fund, welfare fund or other fund, stand
transferred to, and vest in, the Tribunal or the Appellate Tribunal, as the case
may be, and such monies which stand so transferred shall be dealt with by the
Tribunal or the Appellate Tribunal in such manner as may be prescribed.
(2)
The persons holding the offices of Chairman, Vice-Chairman and
Members, and officers and other employees of the Company Law Board
immediately before the constitution of the Tribunal and the Appellate Tribunal
who are not covered under proviso to sub-section (1) shall vacate their respective
offices on such constitution and no such Chairman, Vice-Chairman and Members
and officers or other employees shall be entitled to claim any
compensation for the premature termination of the term of his office or of any
contract of service, if any.
467.
Power of Central Government to amend Schedules.—(1) Subject to
the provisions of this section, the Central Government may, by notification, alter
any of the regulations, rules, Tables, forms and other provisions contained in any
of the Schedules to this Act.
409
(2)
Any alteration notified under sub-section (1) shall have effect as if
enacted in this Act and shall come into force on the date of the notification,
unless the notification otherwise directs:
Provided that no such alteration in Table F of Schedule I shall apply to
any company registered before the date of such alteration.
(3)
Every alteration made by the Central Government under
sub-section (1) shall be laid as soon as may be after it is made before each
House of Parliament while it is in session for a total period of thirty days which
may be comprised in one session or in two or more successive sessions, and if,
before the expiry of the session immediately following the session or the
successive sessions aforesaid, both Houses agree in making any modification in
the alteration, or both Houses agree that the alteration should not be made, the
alteration shall thereafter have effect only in such modified form or be of no
effect, as the case may be; so, however, that any such modification ar annulment
shall be without prejudice to the validity of anything previously done in
pursuance of that alteration.
468. Powers of Central Government to make rules relating to winding
up.— (1) The Central Government shall, make rules consistent with the Code of
Civil Procedure, 1908 (5 of 1908) providing for all matters relating to the
winding up of companies, which by this Act, are to be prescribed, and may make
rules providing for all such matters, as may be prescribed.
(2)
In particular, and without prejudice to the generality of the
foregoing power, such rules may provide for all or any of the following matters,
namely:—
(i)
as to the mode of proceedings to be held for winding up of
a company by the Tribunal;
(ii)
for the voluntary winding up of companies, whether by
members or by creditors;
(iii)
for the holding of meetings of creditors and members in
connection with proceedings under section 230;
(iv)
for giving effect to the provisions of this Act as to the
reduction of the capital;
(v)
generally for all applications to be made to the Tribunal
under the provisions of this Act;
(vi)
the holding and conducting of meetings to ascertain the
wishes of creditors and contributories;
410
(vii)
the settling of lists of contributories and the rectifying of
the register of members where required, and collecting and applying the
assets;
(viii)
the payment, delivery, conveyance, surrender or transfer of
money, property, books or papers to the liquidator;
(ix)
the making of calls; and
(x)
the fixing of a time within which debts and claims shall be
proved.
(3)
All rules made by the Supreme Court on the matters referred to
in this section as it stood immediately before the commencement of this Act and
in force at such commencement, shall continue to be in force, tiII such time the
rules are made by the Central Government and any reference to the High Court
in relation to winding up of a company in such rules shall be construed as a
reference to the Tribunal.
469. Power of Central Government to make rules.—(1) The Central
Government may, by notification, make rules for carrying out the provisions of
this Act.
(2)
Without prejudice to the generality of the provisions of
sub-section (l), the Central Government may make rules for all or any of the
matters which by this Act are required to be, or may be, prescribed or in respect
of which provision is to be or may be made by rules.
(3)
Any rule made under sub-section (l) may provide that a
contravention thereof shall be punishable with fine which may extend to five
thousand rupees and where the contravention is a continuing one, with a further
fine which may extend to five hundred rupees for every day after the first during
which such contravention continues.
(4)
Every rule made under this section and every regulation made by
Securities and Exchange Board under this Act, shall be laid, as soon as may be
after it is made, before each House of Parliament, while it is in session, for a
total period of thirty days which may be comprised in one session or in two or
more successive sessions, and if, before the expiry of the session immediately
following the session or the successive sessions aforesaid, both Houses agree in
making any modification in the rule or regulation or both Houses agree that the
rule or regulation should not be made, the rule or regulation shall thereafter have
effect only in such modified form or be of no effect, as the case may be; so,
however, that any such modification or annulment shall be without prejudice to
the validity of anything previously done under that rule or regulation.
411
470.
Power to remove difficulties.—(1) If any difficulty arises in giving
effect to the provisions of this Act, the Central Govement may by order
published in the Official Gazette, make such provisions, not inconsistent with the
provisions of this Act, as appear to it to be necessary or expedient for removing
the difficulty:
Provided that no such order shall be made after the expiry of a period of
five years from the date of commencement of section 1 of this Act.
(2) Every order made under this section shall, as soon as may be after it is
made, be laid before each House of Parliament.
SCHEDULE I
(See sections 4 and 5)
TABLE-A
MEMORANDUM OF ASSOCIATION OF A COMPANY LIMITED
BY SHARES
1st
The name of the company is “ ..................... Limited/Private Limited”.
2nd
The registered office of the company will be situated in the State
of...................................
3rd
(a) The objects to be pursued by the company on its incorporation
are:—
(b) Matters which are necessary for furtherance of the objects specified
in clause 3(a) are:—
4th
The liability of the member(s) is limited and this liability is limited to
the amount unpaid, if any, on the shares held by them.
5th
The share capital of the company is ............ rupees, divided into...............
shares of .......................................................... rupees each.
6th
We, the several persons, whose names and addresses are subscribed, are
desirous of being formed into a company in pursuance of this
`
memorandum of association, and we respectively agree to take the
number of shares in the capital of the company set against our
respective names:—
412
Names, addresses,
No. of shares
Signature of
Signature, names,
descriptions and
taken by each
subscriber
addresses,
occupations of
subscriber
descriptions
subscribers
and occupations
of witnesses
A.B. of .........Merchant
.............
Signed before me:
Signature...............
C.D. of .........Merchant
.............
Signed before me:
Signature...............
E.F. of .........Merchant
.............
Signed before me:
Signature...............
G.H. of .........Merchant
.............
Signed before me:
Signature...............
I.J. of
.........Merchant
.............
Signed before me:
Signature...............
K.L. of .........Merchant
.............
Signed before me:
Signature...............
M.N. of .........Merchant
.............
Signed before me:
Signature...............
Total shares taken:
7th I, whose name and address is given below, am desirous of forming a
company in pursuance of this memorandum of association and agree to take
all the shares in the capital of the company (Applicable in case of one
person company):—
Name, address, description
Signature of subscriber
Signature, name,
and occupation of subscriber
address, description
and occupation of
witness
A.B............Merchant
Signed before me:
Signature...........................
8th
Shri/Smt.........................,son/daughter of.............................,resident
of...........aged.........years shall be the nominee in the event of death of the
sole member (Applicable in case of one person company).
Dated...........................the day of..........................
413
TABLE-B
MEMORANDUM OF ASSOCIATION OF A COMPANY LIMITED BY
GUARANTEE AND NOT HAVING A SHARE CAPITAL
Ist
The name of the company is “.......................Limited/Private Limited”.
2nd The registered office of the company will be situated in the State
of..................................
3rd
(a) The objects to be pursued by the company on its incorporation are:—
(b) Matters which are necessary for furtherance of the objects specified in
clause 3(a) are:—
4th
The liability of the member(s) is limited.
5th
Every member of the company undertakes to contribute:
(i) to the assets of the company in the event of its being wound up while
he is a member, or within one year after he ceases to be a member, for
payment of the debts and liabilities of the company or of such debts
and liabilities as may have been contracted before he ceases to be a
member; and
(ii) to the costs, charges and expenses of winding up (and for the
adjustment of the rights of the contributories among themselves),
such amount as may be required, not exceeding...................rupees.
6th
We, the several persons, whose names and addresses are subscribed, are
desirous of being formed into a company in pursuance of this
memorandum of association.
Names, addresses,
Signature of
Signature,names,
descriptions and
subscriber
addresses,
occupations of
descriptions and
subscribers
occupations of
witnesses
(1)`
(2)
(3)
A.B. of .........Merchant
Signed before me:
Signature...............
C.D. of .........Merchant
Signed before me:
Signature...............
414
E.F. of .........Merchant
Signed before me:
Signature...............
G.H. of .........Merchant
Signed before me:
Signature...............
I.J. of
.........Merchant
Signed before me:
Signature...............
K.L. of .........Merchant
Signed before me:
Signature...............
M.N. of .........Merchant
Signed before me:
Signature...............
7th I, whose name and address is given below, am desirous of forming a
company in pursuance of this memorandum of association (Applicable in
case of one person company):—
Name, address, description
Signature of subscriber
Signature, name,
and occupation of subscriber
address, description
and occupation of
witness
A.B............Merchant
Signed before me:
Signature.....................
8th
Shri/Smt ................ ,son/daughter of....................,resident of...........aged.........
years shall be the nominee in the event of death of the sole member
(Applicable in case of one person company)
Dated ................................... the day of..........................
(1)`
(2)
(3)
415
TABLE-C
MEMORANDUM OF ASSOCIATION OF A COMPANY LIMITED BY
GUARANTEE AND HAVING A SHARE CAPITAL
Ist
The name of the company is “.......................Limited/Private Limited”.
2nd The registered office of the company will be situated in the State
of..................................
3rd
(a) The objects to be pursued by the company on its incorporation are:—
(b) Matters which are necessary for furtherance of the objects specified in
clause 3(a) are:—
4th
The liability of the member(s) is limited.
5th
Every member of the company undertakes to contribute:
(i) to the assets of the company in the event of its being wound up while
he is a member, or within one year after he ceases to be a member, for
payment of the debts and liabilities of the company or of such debts
and liabilities as may have been contracted before he ceases to be a
member; and
(ii) to the costs, charges and expenses of winding up (and for the
adjustment of the rights of the contributories among themselves),
such amount as may be required, not exceeding...................rupees.
6th
The share capital of the company is .................... rupees, divided into..........
shares of..................... rupees each.
7th
We, the several persons whose names, addresses are subscribed, are
desirous of being formed into a company in pursuance of this
memorandum of association and we respectively agree to take the number
of shares in the capital of the company set against our respective
names:—
416
Names, addresses,
No. of shares
Signature of
Signature, names,
descriptions and
taken by each
subscriber
addresses,
occupations of
subscriber
descriptions
subscribers
and occupations
of witnesses
A.B. of .........Merchant
.............
Signed before me:
Signature...............
C.D. of .........Merchant
.............
Signed before me:
Signature...............
E.F. of .........Merchant
.............
Signed before me:
Signature...............
G.H. of .........Merchant
.............
Signed before me:
Signature...............
I.J. of
.........Merchant
.............
Signed before me:
Signature...............
K.L. of .........Merchant
.............
Signed before me:
Signature...............
M.N. of .........Merchant
.............
Signed before me:
Signature...............
8th
I, whose name and address is given below, am desirous of forming a
company in pursuance of this memorandum of association and agree to
take all the shares in the capital of the company (Applicable in case of
one person company):—
Names, addresses,
Signature of
Signature,name,
descriptions and
subscriber
address,
occupations of
descriptions and
subscriber
occupations of
witness
A.B. of............Merchant
Signed before me:
Signature.....................
9th
Shri/Smt ................ ,son/daughter of................... ,resident of...........aged.........
years shall be the nominee in the event of death of the sole member
(Applicable in case of one person company)
Dated ................................... the day of..........................
417
TABLE-D
MEMORANDUM OF ASSOCIATION OF AN UNLIMITED COMPANY
AND NOT HAVING SHARE CAPITAL
Ist
The name of the company is “.......................Company”.
2nd The registered office of the company will be situated in the State
of..................................
3rd
(a) The objects to be pursued by the company on its incorporation are:—
(b) Matters which are necessary for furtherance of the objects specified in
clause 3(a) are:—
4th
The liability of the member(s) is unlimited.
5th
We, the several persons, whose names and addresses are subscribed are
desirous of being formed into a company in pursuance of this
memorandum of association.
Names, addresses,
Signature of
Signature,names,
descriptions and
subscriber
addresses,
occupations of
descriptions and
subscribers
occupations of
witnesses
A.B. of .........Merchant
Signed before me:
Signature........
C.D. of .........Merchant
Signed before me:
Signature...............
E.F. of .........Merchant
Signed before me:
Signature...............
G.H. of .........Merchant
Signed before me:
Signature...............
I.J. of
.........Merchant
Signed before me:
Signature...............
K.L. of .........Merchant
Signed before me:
Signature...............
M.N. of .........Merchant
Signed before me:
Signature...............
418
6th I, whose name and address is given below, am desirous of forming a
company in pursuance of this memorandum of association (Applicable in case of
one person company):—
Name, address,
Signature of
Signature, name,
description and
subscriber
address,
occupation of
description and
subscriber
occupation of
witness
A.B............Merchant
Signed before me:
Signature.....................
7th
Shri/Smt ................ ,son/daughter of................... ,resident of...........aged
.............................. years shall be the nominee in the event of death of the
sole member (Applicable in case of one person company)
Dated ............................................ the day of..........................
TABLE-E
MEMORANDUM OF ASSOCIATION OF AN UNLIMITED COMPANY
AND HAVING SHARE CAPITAL
1st
The name of the company is “.......................Company”.
2nd The registered office of the company will be situated in the State
of..................................
3rd
(a) The objects to be pursued by the company on its incorporation are:—
(b) Matters which are necessary for furtherance of the objects specified in
clause 3(a) are:—
4th
The liability of the member(s) is unlimited.
5th
The share capital of the company is .................... rupees, divided into
.....................shares of ....................rupees each.
6th
We, the several persons, whose names, and addresses are subscribed, are
desirous of being formed into a company in pursuance of this
memorandum of association and we respectively agree to take the number
of shares in the capital of the company set against our respective
names:—
419
Names, addresses,
Signature, names,
descriptions and
No. of shares
Signature of
addresses,
occupations of
taken by each
subscriber
descriptions and
subscribers
subscriber
occupations of
witnesses
A.B. of ............Merchant
..................
Signed before me:
Signature..................
C.D. of ............Merchant
..................
Signed before me:
Signature..................
E.F. of .............Merchant
..................
Signed before me:
Signature..................
G.H. of ............Merchant
..................
Signed before me:
Signature..................
I.J. of ...............Merchant
..................
Signed before me:
Signature..................
K.L. of .............Merchant
..................
Signed before me:
Signature..................
M.N. of ...........Merchant
..................
Signed before me:
Signature..................
7th I, whose name and address is given below, am desirous of forming a
company in pursuance of this memorandum of association and agree to take
all the shares in the capital of the company (Applicable in case of one
person company):—
Name, address, description
Signature of
Signature, name, address,
and occupation of
subscriber
description and occupation
subscriber
of witness
A.B. ............Merchant
Signed before me:
Signature...................
8th Shri/Smt. ....................................., son/daughter of ........................, resident of
.......................... aged ................ years shall be the nominee in the event of
death of the sole member (Applicable in case of one person company).
Dated................... the day of .............................
420
TABLE-F
ARTICLES OF ASSOCIATION OF A COMPANY LIMITED BY SHARES
Interpretation
I.
(1) In these regulations—
(a) “the Act” means the Companies Act, 2013,
(b) “the seal” means the common seal of the company.
(2) Unless the context otherwise requires, words or expressions
contained in these regulations shall bear the same meaning as in the Act or any
statutory modification thereof in force at the date at which these regulations
become binding on the company.
Share capital and variation of rights
II. 1.
Subject to the provisions of the Act and these Articles, the shares in
the capital of the company shall be under the control of the Directors who may
issue, allot or otherwise dispose of the same or any of them to such persons, in
such proportion and on such terms and conditions and either at a premium or at
par and at such time as they may from time to time think fit.
2.
(i)
Every person whose name is entered as a member in the register
of members shall be entitled to receive within two months after incorporation, in
case of subscribers to the memorandum or after allotment or within one month
after the application for the registration of transfer or transmission or within such
other period as the conditions of issue shall be provided,—
(a) one certificate for all his shares without payment of
any charges; or
(b) several certificates, each for one or more of his shares,
upon payment of twenty rupees for each certificate after the first.
(ii) Every certificate shall be under the seal and shall specify the
shares to which it relates and the amount paid-up thereon.
(iii) In respect of any share or shares held jointly by several persons,
the company shall not be bound to issue more than one certificate, and delivery
of a certificate for a share to one of several joint holders shall be sufficient
delivery to all such holders.
421
3. (i) If any share certificate be worn out, defaced, mutilated or torn or if
there be no further space on the back for endorsement of transfer, then upon
production and surrender thereof to the company, a new certificate may be issued
in lieu thereof, and if any certificate is lost or destroyed then upon proof thereof
to the satisfaction of the company and on execution of such indemnity as the
company deem adequate, a new certificate in lieu thereof shall be given. Every
certificate under this Article shall be issued on payment of twenty rupees for each
certificate.
(ii) The provisions of Articles (2) and (3) shall mutatis mutandis
apply to debentures of the company.
4. Except as required by law, no person shall be recognised by the
company as holding any share upon any trust, and the company shall not be
bound by, or be compelled in any way to recognise (even when having notice
thereof) any equitable, contingent, future or partial interest in any share, or any
interest in any fractional part of a share, or (except only as by these regulations
or by law otherwise provided) any other rights in respect of any share except an
absolute right to the entirety thereof in the registered holder.
5. (i) The company may exercise the powers of paying commissions
conferred by sub-section (6) of section 40, provided that the rate percent or the
amount of the commission paid or agreed to be paid shall be disclosed in the
manner required by that section and rules made thereunder.
(ii) The rate or amount of the commission shall not exceed the rate or
amount prescribed in rules made under sub-section (6) of section 40.
(iii) The commission may be satisfied by the payment of cash or
the allotment of fully or partly paid shares or partly in the one way and partly
in the other.
6. (i) If at any time the share capital is divided into different classes of
shares, the rights attached to any class (unless otherwise provided by the terms of
issue of the shares of that class) may, subject to the provisions of section 48, and
whether or not the company is being wound up, be varied with the consent in
writing of the holders of three-fourths of the issued shares of that class, or with
the sanction of a special resolution passed at a separate meeting of the holders of
the shares of that class.
(ii) To every such separate meeting, the provisions of these regulations
relating to general meetings shall mutatis mutandis apply, but so that the
necessary quorum shall be at least two persons holding at least one-third of the
issued shares of the class in question.
422
7. The rights conferred upon the holders of the shares of any class issued
with preferred or other rights shall not, unless otherwise expressly provided by
the terms of issue of the shares of that class, be deemed to be varied by the
creation or issue of further shares ranking pari passu therewith.
8. Subject to the provisions of section 55, any preference shares may, with
the sanction of an ordinary resolution, be issued on the terms that they are to be
redeemed on such terms and in such manner as the company before the issue of
the shares may, by special resolution, determine.
Lien
9. (i) The company shall have a first and paramount lien—
(a) on every share (not being a fully paid share), for all monies
(whether presently payable or not) called, or payable at a fixed time,
in respect of that share; and
(b) on all shares (not being fully paid shares) standing registered in
the name of a single person, for all monies presently payable by him or
his estate to the company:
Provided that the Board of directors may at any time declare
any share to be wholly or in part exempt from the provisions of
this clause.
(ii) The company’s lien, if any, on a share shall extend to all dividends
payable and bonuses declared from time to time in respect of such shares.
10. The company may sell, in such manner as the Board thinks fit, any
shares on which the company has a lien:
Provided that no sale shall be made—
(a) unless a sum in respect of which the lien exists is presently
payable; or
(b) until the expiration of fourteen days after a notice in writing
stating and demanding payment of such part of the amount in respect of
which the lien exists as is presently payable, has been given to the
registered holder for the time being of the share or the person entitled
thereto by reason of his death or insolvency.
423
11. (i) To give effect to any such sale, the Board may authorise some
person to transfer the shares sold to the purchaser thereof.
(ii) The purchaser shall be registered as the holder of the shares
comprised in any such transfer.
(iii) The purchaser shall not be bound to see to the application of the
purchase money, nor shall his title to the shares be affected by any irregularity or
invalidity in the proceedings in reference to the sale.
12. (i) The proceeds of the sale shall be received by the company and
applied in payment of such part of the amount in respect of which the lien exists
as is presently payable.
(ii) The residue, if any, shall, subject to a like lien for sums not
presently payable as existed upon the shares before the sale, be paid to the
person entitled to the shares at the date of the sale.
Calls on shares
13. (i) The Board may, from time to time, make calls upon the members in
respect of any monies unpaid on their shares (whether on account of the nominal
value of the shares or by way of premium) and not by the conditions of
allotment thereof made payable at fixed times:
Provided that no call shall exceed one-fourth of the nominal value of the
share or be payable at less than one month from the date fixed for the payment
of the last preceding call.
(ii) Each member shall, subject to receiving at least fourteen days’ notice
specifying the time or times and place of payment, pay to the company, at the
time or times and place so specified, the amount called on his shares.
(iii) A call may be revoked or postponed at the discretion of the Board.
14. A call shall be deemed to have been made at the time when the
resolution of the Board authorising the call was passed and may be required to
be paid by instalments.
15. The joint holders of a share shall be jointly and severally liable to pay
all calls in respect thereof.
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16. (i) If a sum called in respect of a share is not paid before or on the day
appointed for payment thereof, the person from whom the sum is due shall pay
interest thereon from the day appointed for payment thereof to the time of actual
payment at ten per cent. per annum or at such lower rate, if any, as the Board
may determine.
(ii) The Board shall be at liberty to waive payment of any such interest
wholly or in part.
17. (i) Any sum which by the terms of issue of a share becomes payable on
allotment or at any fixed date, whether on account of the nominal value of the
share or by way of premium, shall, for the purposes of these regulations, be
deemed to be a call duly made and payable on the date on which by the terms of
issue such sum becomes payable.
(ii) In case of non-payment of such sum, all the relevant provisions of
these regulations as to payment of interest and expenses, forfeiture or otherwise
shall apply as if such sum had become payable by virtue of a call duly made and
notified.
18. The Board—
(a) may, if it thinks fit, receive from any member willing to advance the
same, all or any part of the monies uncalled and unpaid upon any shares held by
him; and
(b) upon all or any of the monies so advanced, may (until the same
would, but for such advance, become presently payable) pay interest at such rate
not exceeding, unless the company in general meeting shall otherwise direct,
twelve per cent. per annum, as may be agreed upon between the Board and the
member paying the sum in advance.
Transfer of shares
19. (i) The instrument of transfer of any share in the company shall be
executed by or on behalf of both the transferor and transferee.
(ii) The transferor shall be deemed to remain a holder of the share
until the name of the transferee is entered in the register of members in respect
thereof.
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20. The Board may, subject to the right of appeal conferred by section 58
decline to register—
(a) the transfer of a share, not being a fully paid share, to a person of
whom they do not approve; or
(b) any transfer of shares on which the company has a lien.
21. The Board may decline to recognise any instrument of transfer unless—
(a) the instrument of transfer is in the form as prescribed in rules made
under sub-section (1) of section 56;
(b) the instrument of transfer is accompanied by the certificate of the
shares to which it relates, and such other evidence as the Board may
reasonably require to show the right of the transferor to make the
transfer; and
(c) the instrument of transfer is in respect of only one class of shares.
22. On giving not less than seven days’ previous notice in accordance with
section 91 and rules made thereunder, the registration of transfers may be
suspended at such times and for such periods as the Board may from time to
time determine:
Provided that such registration shall not be suspended for more than
thirty days at anyone time or for more than forty-five days in the aggregate
in any year.
Transmission of shares
23. (i) On the death of a member, the survivor or survivors where the
member was a joint holder, and his nominee or nominees or legal representatives
where he was a sole holder, shall be the only persons recognised by the company
as having any title to his interest in the shares.
(ii) Nothing in clause (i) shall release the estate of a deceased joint
holder from any liability in respect of any share which had been jointly held by
him with other persons.
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24. (i) Any person becoming entitled to a share in consequence of the death
or insolvency of a member may, upon such evidence being produced as may
from time to time properly be required by the Board and subject as hereinafter
provided, elect, either—
(a) to be registered himself as holder of the share ; or
(b) to make such transfer of the share as the deceased or insolvent
member could have made.
(ii) The Board shall, in either case, have the same right to decline or
suspend registration as it would have had, if the deceased or insolvent member
had transferred the share before his death or insolvency.
25. (i) If the person so becoming entitled shall elect to be registered as
holder of the share himself, he shall deliver or send to the company a notice in
writing signed by him stating that he so elects.
(ii) If the person aforesaid shall elect to transfer the share, he shall
testify his election by executing a transfer of the share.
(iii) All the limitations, restrictions and provisions of these regulations
relating to the right to transfer and the registration of transfers of shares shall be
applicable to any such notice or transfer as aforesaid as if the death or
Insolvency of the member had not occurred and the notice or transfer were a
transfer signed by that member.
26. A person becoming entitled to a share by reason of the death or
insolvency of the holder shall be entitled to the same dividends and other
advantages to which he would be entitled if he were the registered holder of the
share, except that he shall not, before being registered as a member in respect of
the share, be entitled in respect of it to exercise any right conferred by
membership in relation to meetings of the company :
Provided that the Board may, at any time, give notice requiring any such
person to elect either to be registered himself or to transfer the share, and if the
notice is not complied with within ninety days, the Board may thereafter withhold
payment of all dividends, bonuses or other monies payable in respect of the
share, until the requirements of the notice have been complied with.
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27. In case of a One Person Company—
(i) on the death of the sole member, the person nominated by such
member shall be the person recognised by the company as having title to all
the shares of the member ;
(ii) the nominee on becoming entitled to such shares in case of the
member’s death shall be informed of such event by the Board of the
company ;
(iii) such nominee shall be entitled to the same dividends and other
rights and liabilities to which such sole member of the company was entitled
or liable ;
(iv) on becoming member, such nominee shall nominate any other person
with the prior written consent of such person who, shall in the event of the
death of the member, become the member of the company.
Forfeiture of shares
28. If a member fails to pay any call, or instalment of a call, on the day
appointed for payment thereof, the Board may, at any time thereafter during such
time as any part of the call or instalment remains unpaid, serve a notice on him
requiring payment of so much of the call or instalment as is unpaid, together with
any interest which may have accrued.
29. The notice aforesaid shall—
(a) name a further day (Not being earlier than the expiry of fourteen
days from the date of service of the notice) on or before which the
payment required by the notice is to be made ; and
(b) state that, in the event of non-payment on or before the day so
named, the shares in respect of which the call was made shall be liable
to be forfeited.
30. If the requirements of any such notice as aforesaid are not complied
with, any share in respect of which the notice has been given may, at any time
thereafter, before the payment required by the notice has been made, be forfeited
by a resolution of the Board to that effect.
31. (i) A forfeited share may be sold or otherwise disposed of on such
terms and in such manner as the Board thinks fit.
(ii) At any time before a sale or disposal as aforesaid, the Board may
cancel the forfeiture on such terms as it thinks fit.
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32. (i) A person whose shares have been forfeited shall cease to be a
member in respect of the forfeited shares, but shall, notwithstanding the
forfeiture, remain liable to pay to the company all monies which, at the date of
forfeiture, were presently payable by him to the company in respect of the shares.
(ii) The liability of such person shall cease if and when the company
shall have received payment in full of all such monies in respect of the shares.
33. (i) A duly verified declaration in writing that the declarant is a director,
the manager or the secretary, of the company, and that a share in the company
has been duly forfeited on a date stated in the declaration, shall be conclusive
evidence of the facts therein stated as against all persons claiming to be entitled
to the share ;
(ii) The company may receive the consideration, if any, given for the
share on any sale or disposal thereof and may execute a transfer of the share in
favour of the person to whom the share is sold or disposed of ;
(iii) The transferee shall thereupon be registered as the holder of the
share ; and
(iv) The transferee shall not be bound to see to the application of the
purchase money, if any, nor shall his title to the share be affected by any
irregularity or invalidity in the proceedings in reference to the forfeiture, sale or
disposal of the share.
34. The provisions of these regulations as to forfeiture shall apply in the
case of non-payment of any sum which, by the terms of issue of a share,
becomes payable at a fixed time, whether on account of the nominal value of the
share or by way of premium, as if the same had been payable by virtue of a call
duly made and notified.
Alteration of capital
35. The company may, from time to time, by ordinary resolution increase the
share capital by such sum, to be divided into shares of such amount, as may be
specified in the resolution.
36. Subject to the provisions of section 61, the company may, by ordinary
resolution,—
(a) consolidate and divide all or any of its share capital into shares of
larger amount than its existing shares ;
429
(b) convert all or any of its fully paid-up shares into stock, and
reconvert that stock into fully paid-up shares of any denomination ;
(c) sub-divide its existing shares or any of them into shares of smaller
amount then is fixed by the memorandum ;
(d) cancel any shares which, at the date of the passing of the resolution,
have not been taken or agreed to be taken by any person.
37. Where shares are converted into stock,—
(a) the holders of stock may transfer the same or any part thereof in
the same manner as, and subject to the same regulations under which, the
shares from which the stock arose might before the conversion have been
transferred, or as near thereto as circumstances admit :
Provided that the Board may, from time to time, fix the minimum
amount of stock transferable, so, however, that such minimum shall not
exceed the nominal amount of the shares from which the stock arose.
(b) the holders of stock shall, according to the amount of stock held by
them, have the same rights, privileges and advantages as regards dividends,
voting at meetings of the company, and other matters, as if they held the
shares from which the stock arose; but no such privilege or advantage
(Except participation in the dividends and profits of the company and in the
assets on winding up) shall be conferred by an amount of stock which
would not, if existing in shares, have conferred that privilege or advantage.
(c) such of the regulations of the company as are applicable to paid-up
shares shall apply to stock and the words “share” and “shareholder” in
those regulations shall include “stock” and “stock-holder” respectively.
38. The company may, by special resolution, reduce in any manner and
with, and subject to, any incident authorised and consent required by law,—
(a) its share capital ;
(b) any capital redemption reserve account ; or
(c) any share premium account.
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Capitalisation of profits
39.(i) The company in general meeting may, upon the recommendation of
the Board, resolve—
(a)
that it is desirable to capitalise any part of the amount for the
time being standing to the credit of any of the company’s reserve accounts,
or to the credit of the profit and loss account, or otherwise available for
distribution; and
(b)
that such sum be accordingly set free for distribution in the
manner specified in clause (ii) amongst the members who would have been
entitled thereto, if distributed by way of dividend and in the same
proportions.
(ii) The sum aforesaid shall not be paid in cash but shall be applied,
subject to the provision contained in clause (iii), either in or towards—
(A)
paying up any amounts for the time being unpaid on any shares
held by such members respectively;
(B)
paying up in full, unissued shares of the company to be allotted
and distributed, credited as fully paid-up, to and amongst such members in
the proportions aforesaid;
(C) partly in the way specified in sub-clause (A) and partly in that
specified in sub-clause (B);
(D) A securities premium account and a capital redemption reserve
account may, for the purposes of this regulation, be applied in the paying up
of unissued shares to be issued to members of the company as fully paid
bonus shares;
(E)
The Board shall give effect to the resolution passed by the
company in pursuance of this regulation.
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40. (i)
Whenever such a resolution as aforesaid shall have been passed,
the Board shall—
(a)
make alI appropriations and applications of the undivided
profits resolved to be capitalised thereby, and all allotments and issues of
fully paid shares if any; and
(b) generally do all acts and things required to give effect thereto.
(ii) The Board shall have power—
(a) to make such provisions, by the issue of fractional certificates or
by payment in cash or otherwise as it thinks fit, for the case of shares
becoming distributable in fractions; and
(b) to authorise any person to enter, on behalf of all the members
entitled thereto, into an agreement with the company providing for the
allotment to them respectively, credited as fully paid-up, of any further
shares to which they may be entitled upon such capitalisation, or as the case
may require, for the payment by the company on their behalf, by the
application thereto of their respective proportions of profits resolved to be
capitalised, of the amount or any part of the amounts remaining unpaid on
their existing shares;
(iii) Any agreement made under such authority shall be effective and
binding on such members.
Buy-back of shares
41. Notwithstanding anything contained in these articles but subject to
the provisions of sections 68 to 70 and any other applicable provision of
the Act or any other law for the time being in force, the company may
purchase its own shares or other specified securities.
General meetings
42. All general meetings other than annual general meeting shall be
called extra-ordinary general meeting.
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43. (i) The Board may, whenever it thinks fit, call an extraordinary
general meeting.
(ii) If at any time directors capable of acting who are sufficient in
number to form a quorum are not within India, any director or any two
members of the company may call an extraordinary general meeting in the
same manner, as nearly as possible, as that in which such a meeting may be
called by the Board.
Proceedings at general meetings
44. (i) No business shall be transacted at any general meeting unless a
quorum of members is present at the time when the meeting proceeds to
business.
(ii) Save as otherwise provided herein, the quorum for the general
meetings shall be as provided in section 103.
45. The chairperson, if any, of the Board shall preside as Chairperson at
every general meeting of the company.
46. If there is no such Chairperson, or if he is not present within fifteen
minutes after the time appointed for holding the meeting, or is unwilling to act as
chairperson of the meeting, the directors present shall elect one of their members
to be Chairperson of the meeting.
47. If at any meeting no director is willing to act as Chairperson or if no
director is present within fifteen minutes after the time appointed for holding the
meeting, the members present shall choose one of their members to be
Chairperson of the meeting.
48. In case of a One Person Company—
(i) the resolution required to be passed at the general meetings of the
company shall be deemed to have been passed if the resolution is agreed upon
by the sole member and communicated to the company and entered in the
minutes book maintained under section 118;
(ii) such minutes book shall be signed and dated by the member;
(iii) the resolution shall become effective from the date of signing such
minutes by the sole member.
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Adjournment of meeting
49. (i)
The Chairperson may, with the consent of any meeting at which a
quorum is present, and shall, if so directed by the meeting, adjourn the meeting
from time to time and from place to place.
(ii)
No business shall be transacted at any adjourned meeting other
than the business left unfinished at the meeting from which the adjournment took
place.
(iii)
When a meeting is adjourned for thirty days or more, notice of the
adjourned meeting shall be given as in the case of an original meeting.
(iv)
Save as aforesaid, and as provided in section 103 of the Act, it
shall not be necessary to give any notice of an adjournment or of the business to
be transacted at an adjourned meeting.
Voting rights
50. Subject to any rights or restrictions for the time being attached to any
class or classes of shares,—
(a)
on a show of hands, every member present in person shall have
one vote; and
(b)
on a poll, the voting rights of members shall be in proportion to
his share in the paid-up equity share capital of the company.
51. A member may exercise his vote at a meeting by electronic means in
accordance with section 108 and shall vote only once.
52. (i)
In the case of joint holders, the vote of the senior who tenders a
vote, whether in person or by proxy, shall be accepted to the exclusion of the
votes of the other joint holders.
(ii)
For this purpose, seniority shall be determined by the order in
which the names stand in the register of members.
53. A member of unsound mind, or in respect of whom an order has been
made by any court having jurisdiction in lunacy, may vote, whether on a show of
hands or on a poll, by his committee or other legal guardian, and any such
committee or guardian may, on a poll, vote by proxy.
54. Any business other than that upon which a poll has been demanded
may be proceeded with, pending the taking of the poll.
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55. No member shall be entitled to vote at any general meeting unless all
calls or other sums presently payable by him in respect of shares in the company
have been paid.
56. (i)
No objection shall be raised to the qualification of any voter
except at the meeting or adjourned meeting at which the vote objected to is given
or tendered, and every vote not disallowed at such meeting shall be valid for all
purposes.
(ii)
Any such objection made in due time shall be referred to the
Chairperson of the meeting, whose decision shall be final and conclusive.
Proxy
57. The instrument appointing a proxy and the power-of-attorney or other
authority, if any, under which it is signed or a notarised copy of that power or
authority, shall be deposited at the registered office of the company not less than
48 hours before the time for holding the meeting or adjourned meeting at which
the person named in the instrument proposes to vote, or, in the case of a poll,
not less than 24 hours before the time appointed for the taking of the poll;
and in default the instrument of proxy shall not be treated as valid.
58. An instrument appointing a proxy shall be in the form as prescribed in
the rules made under section 105.
59. A vote given in accordance with the terms of an instrument of proxy
shall be valid, notwithstanding the previous death or insanity of the principal or
the revocation of the proxy or of the authority under which the proxy was
executed, or the transfer of the shares in respect of which the proxy is given:
Provided that no intimation in writing of such death, insanity, revocation or
transfer shall have been received by the company at its office before the
commencement of the meeting or adjourned meeting at which the proxy is used.
Board of Directors
60. The number of the directors and the names of the first directors
shall be determined in writing by the subscribers of the memorandum or a
majority of them.
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61. (i)
The remuneration of the directors shall, in so far as it consists of a
monthly payment, be deemed to accrue from day-to-day.
(ii)
In addition to the remuneration payable to them in pursuance of
the Act, the directors may be paid all travelling, hotel and other expenses
properly incurred by them—
(a) in attending and returning from meetings of the Board of
Directors or any committee thereof or general meetings of the
company; or
(b) in connection with the business of the company.
62. The Board may pay all expenses incurred in getting up and registering
the company.
63. The company may exercise the powers conferred on it by section 88
with regard to the keeping of a foreign register; and the Board may (subject to
the provisions of that section) make and vary such regulations as it may thinks fit
respecting the keeping of any such register.
64. All cheques, promissory notes, drafts, hundis, bills of exchange and
other negotiable instruments, and all receipts for monies paid to the company,
shall be signed, drawn, accepted, endorsed, or otherwise executed, as the case
may be, by such person and in such manner as the Board shall from time to time
by resolution determine.
65. Every director present at any meeting of the Board or of a committee
thereof shall sign his name in a book to be kept for that purpose.
66. (i)
Subject to the provisions of section 149, the Board shall have
power at any time, and from time to time, to appoint a person as an additional
director, provided the number of the directors and additional directors together
shall not at any time exceed the maximum strength fixed for the Board by the
articles.
(ii) Such person shall hold office only up to the date of the next annual
general meeting of the company but shall be eligible for appointment by the
company as a director at that meeting subject to the provisions of the Act.
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Proceedings of the Board
67. (i)
The Board of Directors may meet for the conduct of business,
adjourn and otherwise regulate its meetings, as it thinks fit.
(ii)
A director may, and the manager or secretary on the requisition of
a director shall, at any time, summon a meeting of the Board.
68. (i)
Save as otherwise expressly provided in the Act, questions
arising at any meeting of the Board shall be decided by a majority of votes.
(ii)
In case of an equality of votes, the Chairperson of the Board,
if any, shall have a second or casting vote.
69. The continuing directors may act notwithstanding any vacancy in the
Board; but, if and so long as their number is reduced below the quorum fixed by
the Act for a meeting of the Board, the continuing directors or director may act
for the purpose of increasing the number of directors to that fixed for the
quorum, or of summoning a general meeting of the company, but for no other
purpose.
70. (i)
The Board may elect a Chairperson of its meetings and
determine the period for which he is to hold office.
(ii)
If no such Chairperson is elected, or if at any meeting the
Chairperson is not present within five minutes after the time appointed for
holding the meeting, the directors present may choose one of their number to be
Chairperson of the meeting.
71. (i)
The Board may, subject to the provisions of the Act, delegate any
of its powers to committees consisting of such member or members of its body
as it thinks fit.
(ii)
Any committee so formed shall, in the exercise of the powers so
delegated, conform to any regulations that may be imposed on it by the Board.
72. (i)
A committee may elect a Chairperson of its meetings.
(ii)
If no such Chairperson is elected, or if at any meeting the
Chairperson is not present within five minutes after the time appointed for
holding the meeting, the members present may choose one of their members to
be Chairperson of the meeting.
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73. (i)
A committee may meet and adjourn as it thinks fit.
(ii)
Questions arising at any meeting of a committee shall be
determined by a majority of votes of the members present, and in case of
an equality of votes, the Chairperson shall have a second or casting vote.
74. All acts done in any meeting of the Board or of a committee thereof
or by any person acting as a director, shall, notwithstanding that it may be
afterwards discovered that there was some defect in the appointment of anyone or
more of such directors or of any person acting as aforesaid, or that they or any
of them were disqualified, be as valid as if every such director or such person
had been duly appointed and was qualified to be a director.
75. Save as otherwise expressly provided in the Act, a resolution in
writing, signed by all the members of the Board or of a committee thereof, for
the time being entitled to receive notice of a meeting of the Board or committee,
shall be valid and effective as if it had been passed at a meeting of the Board or
committee, duly convened and held.
76. In case of a One Person Company—
(i)
where the company is having only one director, all the businesses
to be transacted at the meeting of the Board shall be entered into minutes book
maintained under section 118;
(ii)
such minutes book shall be signed and dated by the director;
(iii)
the resolution shall become effective from the date of signing such
minutes by the director.
Chief Executive Officer, Manager, Company Secretary or
Chief Financial Officer
77.
Subject to the provisions of the Act,—
(i)
A chief executive officer, manager, company secretary or chief
financial officer may be appointed by the Board for such term, at such
remuneration and upon such conditions as it may thinks fit; and any chief
executive officer, manager, company secretary or chief financial officer so
appointed may be removed by means of a resolution of the Board;
(ii)
A director may be appointed as chief executive officer, manager,
company secretary or chief financial officer.
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78. A provision of the Act or these regulations requiring or authorising a
thing to be done by or to a director and chief executive officer, manager,
company secretary or chief financial officer shall not be satisfied by its being
done by or to the same person acting both as director and as, or in place of,
chief executive officer, manager, company secretary or chief financial officer.
The Seal
79. (i)
The Board shall provide for the safe custody of the seal.
(ii)
The seal of the company shall not be affixed to any instrument except
by the authority of a resolution of the Board or of a committee of the Board
authorised by it in that behalf, and except in the presence of at least two
directors and of the secretary or such other person as the Board may appoint for
the purpose; and those two directors and the secretary or other person aforesaid
shall sign every instrument to which the seal of the company is so affixed in
their presence.
Dividends and Reserve
80. The company in general meeting may declare dividends, but no
dividend shall exceed the amount recommended by the Board.
81. Subject to the provisions of section 123, the Board may from time to
time pay to the members such interim dividends as appear to it to be justified by
the profits of the company.
82. (i)
The Board may, before recommending any dividend, set aside out
of the profits of the company such sums as it thinks fit as a reserve or reserves
which shall, at the discretion of the Board, be applicable for any purpose to
which the profits of the company may be properly applied, including provision
for meeting contingencies or for equalising dividends; and pending such
application, may at the like discretion, either be employed in the business of the
company or be invested in such investments (other than shares of the company)
as the Board may, from time to time, thinks fit.
(ii)
The Board may also carry forward any profits which it may consider
necessary not to divide, without setting them aside as a reserve.
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83. (i)
Subject to the rights of persons, if any, entitled to shares with
special rights as to dividends, all dividends shall be declared and paid according
to the amounts paid or credited as paid on the shares in respect whereof the
dividend is paid, but if and so long as nothing is paid upon any of the shares in
the company, dividends may be declared and paid according to the amounts of
the shares.
(ii)
No amount paid or credited as paid on a share in advance of calls
shall be treated for the purposes of this regulation as paid on the share.
(iii)
All dividends shall be apportioned and paid proportionately to the
amounts paid or credited as paid on the shares during any portion or portions of
the period in respect of which the dividend is paid; but if any share is issued on
terms providing that it shall rank for dividend as from a particular date such
share shall rank for dividend accordingly.
84. The Board may deduct from any dividend payable to any member all
sums of money, if any, presently payable by him to the company on account of
calls or otherwise in relation to the shares of the company.
85. (i)
Any dividend, interest or other monies payable in cash in respect
of shares may be paid by cheque or warrant sent through the post directed to the
registered address of the holder or, in the case of joint holders, to the registered
address of that one of the joint holders who is first named on the register of
members, or to such person and to such address as the holder or joint holders
may in writing direct.
(ii)
Every such cheque or warrant shall be made payable to the order
of the person to whom it is sent.
86. Anyone of two or more joint holders of a share may give effective
receipts for any dividends, bonuses or other monies payable in respect of
such share.
87. Notice of any dividend that may have been declared shall be given to
the persons entitled to share therein in the manner mentioned in the Act.
88. No dividend shall bear interest against the company.
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Accounts
89. (i)
The Board shall from time to time determine whether and to what
extent and at what times and places and under what conditions or regulations, the
accounts and books of the company, or any of them, shall be open to the
inspection of members not being directors.
(ii)
No member (not being a director) shall have any right of
inspecting any account or book or document of the company except as conferred
by law or authorised by the Board or by the company in general meeting.
Winding up
90. Subject to the provisions of Chapter XX of the Act and Rules made
thereunder—
(i)
If the company shall be wound up, the liquidator may, with the
sanction of a special resolution of the company and any other sanction
required by the Act, divide amongst the members, in specie or kind, the
whole or any part of the assets of the company, whether they shall consist
of property of the same kind or not.
(ii)
For the purpose aforesaid, the liquidator may set such value as he
deems fair upon any property to be divided as aforesaid and may determine
how such division shall be carried out as between the members or different
classes of members.
(iii)
The liquidator may, with the like sanction, vest the whole or any
part of such assets in trustees upon such trusts for the benefit of the
contributories if he considers necessary, but so that no member shall be
compelled to accept any shares or other securities whereon there is any
liability.
Indemnity
91. Every officer of the company shall be indemnified out of the assets of
the company against any liability incurred by him in defending any proceedings,
whether civil or criminal, in which judgment is given in his favour or in which
he is acquitted or in which relief is granted to him by the court or the Tribunal.
441
Note:— The Articles shall be signed by each subscriber of the memorandum of
association who shall add his address, description and occupation, if any,
in the presence of atleast one witness who shall attest the signature and
shall likewise add his address, description and occupation, if any, and
such signatures shall be in form specified below :
Names, addresses, descriptions
Witnesses (along with names, addresses,
and occupations of subscribers
descriptions and occupations)
A.B. of .....................Merchant
Signed before me
Signature...........................
C.D. of .....................Merchant
Signed before me
Signature...........................
E.F. of .......................Merchant
Signed before me
Signature...........................
G.H. of .....................Merchant
Signed before me
Signature...........................
I.J. of ........................Merchant
Signed before me
Signature...........................
K.L. of ......................Merchant
Signed before me
Signature...........................
M.N. of ....................Merchant
Signed before me
Signature...........................
Dated the..................day of...........20.......
Place :..........................................
TABLE-G
ARTICLES OF ASSOCIATION OF A COMPANY LIMITED BY
GUARANTEE AND HAVING A SHARE CAPITAL
1. The number of members with which the company proposes to be
registered is hundred, but the Board of Directors may, from time to time, register
an increase of members.
2. All the articles of Table F in Schedule I annexed to the Companies Act,
2013 shall be deemed to be incorporated with these articles and to apply to the
company.
442
TABLE-H
ARTICLES OF ASSOCIATION OF A COMPANY LIMITED BY
GUARANTEE AND NOT HAVING SHARE CAPITAL
Interpretation
I.
(1)
In these regulations—
(a)
“the Act” means the Companies Act, 2013;
(b)
“the seal” means the common seal of the company.
(2)
Unless the context otherwise requires, words or expressions
contained in these regulations shall have the same meaning as in the Act or any
statutory modification thereof in force at the date at which these regulations
become binding on the company.
Members
II. 1.
The number of members with which the company proposes to be
registered is hundred, but the Board of Directors may, from time to time,
whenever the company or the business of the company requires it, register an
increase of members.
2.
The subscribers to the memorandum and such other persons as the
Board shall admit to membership shall be members of the company.
General meetings
3.
All general meetings other than annual general meeting shall be called
extraordinary general meeting.
4.
(i) The Board may, whenever it thinks fit, call an extraordinary general
meeting.
(ii) If at any time directors capable of acting who are sufficient in
number to form a quorum are not within India, any director or any two members
of the company may call an extraordinary general meeting in the same manner,
as nearly as possible, as that in which such a meeting may be called by the
Board.
443
Proceedings at general meetings
5.
(i) No business shall be transacted at any general meeting unless a
quorum of members is present at the time when the meeting proceeds to
business.
(ii) Save as otherwise provided herein, the quorum for the general
meetings shall be as provided in section 103.
6. The Chairperson, if any, of the Board shall preside as Chairperson at
every general meeting of the company.
7. If there is no such Chairperson, or if he is not present within fifteen
minutes after the time appointed for holding the meeting, or is unwilling to act as
Chairperson of the meeting, the directors present shall elect one of their members
to be Chairperson of the meeting.
8. If at any meeting no director is willing to act as Chairperson or if no
director is present within fifteen minutes after the time appointed for holding the
meeting, the members present shall choose one of their members to be
Chairperson of the meeting.
Adjournment of meeting
9.
(i) The Chairperson may, with the consent of any meeting at which a
quorum is present, and shall, if so directed by the meeting, adjourn the meeting
from time to time and from place to place.
(ii) No business shall be transacted at any adjourned meeting other
than the business left unfinished at the meeting from which the adjournment took
place.
(iii) When a meeting is adjourned for thirty days or more, notice of the
adjourned meeting shall be given as in the case of an original meeting.
(iv) Save as aforesaid, and as provided in section 103 of the Act, it
shall not be necessary to give any notice of an adjournment or of the business to
be transacted at an adjourned meeting.
444
Voting rights
10. Every member shall have one vote.
11. A member of unsound mind, or in respect of whom an order has been
made by any Court having jurisdiction in lunacy, may vote, whether on a show of
hands or on a poll, by his committee or other legal guardian, and any such
committee or guardian may, on a poll, vote by proxy.
12. No member shall be entitled to vote at any general meeting unless all
sums presently payable by him to the company have been paid.
13. (i) No objection shall be raised to the qualification of any voter except
at the meeting or adjourned meeting at which the vote objected to is given or
tendered, and every vote not disallowed at such meeting shall be valid for all
purposes.
(ii) Any such objection made in due time shall be reffered to the
Chairperson of the meeting, whose decision shall be final and conclusive.
14. A vote given in accordance with the terms of an instrument of proxy
shall be valid, notwithstanding the previous death or insanity of the principal or
the revocation of the proxy or of the authority under which the proxy was
executed, or the transfer of the shares in respect of which the proxy is given:
Provided that no intimation in writing of such death, insanity, revocation
or transfer shall have been received by the company at its office before the
commencement of the meeting or adjourned meeting at which the proxy is used.
15. A member may exercise his vote at a meeting by electronic means in
accordance with section 108 and shall vote only once.
16. Any business other than that upon which a poll has been demanded may
be proceeded with, pending the taking of the poll.
Board of Directors
17. The number of the directors and the names of the first directors
shall be determined in writing by the subscribers of the memorandum
or a majority of them.
445
18. (i) The remuneration of the directors shall, in so far as it consists of a
monthly payment, be deemed to accrue from day-to-day.
(ii) In addition to the remuneration payable to them in pursuance of the
Act, the directors may be paid all travelling, hotel and other expenses properly
incurred by them—
(a)
in attending and returning from meetings of the Board of
Directors or any committee thereof or general meetings of the company; or
(b)
in connection with the business of the company.
Proceedings of the Board
19. (i) The Board of Directors may meet for the conduct of business,
adjourn and otherwise regulate its meetings, as it thinks fit.
(ii) A director may, and the manager or secretary on the requisition of
a director shall, at any time, summon a meeting of the Board.
20. (i) Save as otherwise expressly provided in the Act, questions arising at
any meeting of the Board shall be decided by a majority of votes.
(ii) In case of an equality of votes, the Chairperson of the Board,
if any, shall have a second or casting vote.
21. The continuing directors may act notwithstanding any vacancy in the
Board; but, if and so long as their number is reduced below the quorum fixed by
the Act for a meeting of the Board, the continuing directors or director may act
for the purpose of increasing the number of directors to that fixed for the
quorum, or of summoning a general meeting of the company, but for no other
purpose.
22. (i) The Board may elect a Chairperson of its meetings and determine
the period for which he is to hold office.
(ii) If no such chairperson is elected, or if at any meeting the
Chairperson is not present within five minutes after the time appointed for
holding the meeting, the directors present may choose one of their members to be
Chairperson of the meeting.
23. (i) The Board may, subject to the provisions of the Act, delegate any of
its powers to committees consisting of such member or members of its body as it
thinks fit.
446
(ii) Any committee so formed shall, in the exercise of the powers so
delegated, conform to any regulations that may be imposed on it by the Board.
24. (i) A committee may elect a Chairperson of its meetings.
(ii) If no such Chairperson is elected, or if at any meeting the chairperson
is not present within five minutes after the time appointed for holding the meeting,
the members present may choose one of their members to be Chairperson of the
meeting.
25. (i) A committee may meet and adjourn as it thinks proper.
(ii) Questions arising at any meeting of a committee shall be determined
by a majority of votes of the members present, and in case of an equality of
votes, the chairman shall have a second or casting vote.
26. All acts done by any meeting of the Board or of a committee thereof or
by any person acting as a director, shall, notwithstanding that it may be afterwards
discovered that there was some defect in the appointment of anyone or more of
such directors or of any person acting as aforesaid, or that they or any of them
were disqualified, be as valid as if every such director or such person had been
duly appointed and was qualified to be a director.
27. Save as otherwise expressly provided in the Act, a resolution in writing,
signed by all the members of the Board or of a committee thereof, for the time
being entitled to receive notice of a meeting of the Board or committee, shall be
as valid and effective as if it had been passed at a meeting of the Board or
committee, duly convened and held.
Chief Executive Officer, Manager, Company Secretary or
Chief Financial Officer
28. Subject to the provisions of the Act,—
(i) A chief executive officer, manager, company secretary or chief
financial officer may be appointed by the Board for such term, at such
remuneration and upon such conditions as it thinks fit; and any chief
executive officer, manager, company secretary or chief financial officer so
appointed may be removed by means of a resolution of the Board.
(ii) A director may be appointed as chief executive officer, manager,
company secretary or chief financial officer.
447
29. A provision of the Act or these regulations requiring or authorising a
thing, to the done by or to a director and chief executive officer, manager,
company secretary or chief financial officer shall not be satisfied by its being done
by or to the same person acting both as director and as, or in place of, chief
executive officer, manager, company secretary or chief financial officer.
The Seal
30. (i) The Board shall provide for the safe custody of the seal.
(ii) The seal of the company shall not be affixed to any instrument except
by the authority of a resolution of the Board or of a committee of the Board
authorised by it in that behalf, and except in the presence of at least two directors
and of the secretary or such other person as the Board may appoint for the
purpose; and those two directors and the secretary or other person aforesaid shall
sign every instrument to which the seal of the company is so affixed in their
presence.
Note:—The Articles shall be signed by each subscriber of the memorandum of
association who shall add his address, description and occupation, if any,
in the presence of at least one witness who shall attest the signature and
shall likewise add his address, description and occupation, if any, and
such signatures shall be in form specified below:
Names, addresses, descriptions
Witnesses (along with names,
and occupations of subscribers
addresses descriptions
and occupations)
(1)
(2)
A. B. of ............................Merchant
Signed before me
Signature...........................
C. D. of ............................Merchant
Signed before me
Signature...........................
E. F. of ............................Merchant
Signed before me
Signature...........................
G. H. of ............................Merchant
Signed before me
Signature...........................
448
I. J. of ............................Merchant
Signed before me
Signature..........................
K. L. of ............................Merchant
Signed before me
Signature...........................
M. N. of ............................Merchant
Signed before me
Signature............................
Dated the.............day of...................20......
Place : ................................
TABLE-I
ARTICLES OF ASSOCIATION OF AN UNLIMITED COMPANY
AND
HAVING A SHARE CAPITAL
1. The number of members with which the company proposes to be
registered is hundred, but the Board of Directors may, from time to time, register
an increase of members.
2. All the articles of Table F in Schedule I annexed to the Companies Act,
2013 shall be deemed to be incorporated with these articles and to apply to the
company.
TABLE-J
ARTlCLES OF ASSOCIATION OF AN UNLIMITED COMPANY
AND
NOT HAVING SHARE CAPITAL
1. The number of members with which the company proposes to be
registered is hundred, but the Board of Directors may, from time to time,
whenever the company or the business of the company requires it, register an
increase of members.
2. The subscribers to the memorandum and such other persons as the Board
shall admit to membership shall be members of the company.
3. All the articles of Table H in Schedule I annexed to the Companies Act,
2013 shall be deemed to be incorporated with these articles and to apply to the
company.
(1)
(2)
449
SCHEDULE II
(See section 123)
USEFUL LIVES TO COMPUTE DEPRECIATION
PART ‘A’
1. Depreciation is the systematic allocation of the depreciable amount of an
asset over its useful life. The depreciable amount of an asset is the cost of an
asset or other amount substituted for cost, less its residual value. The useful life of
an asset is the period over which an asset is expected to be available for use by
an entity, or the number of production or similar units expected to be obtained
from the asset by the entity.
2.
For the purpose of this Schedule, the term depreciation includes
amortisation.
3. Without prejudice to the foregoing provisions of paragraph 1,—
(i) In case of such class of companies, as may be prescribed and whose
financial statements comply with the accounting standards prescribed for such
class of companies under section 133 the useful life of an asset shall not
normally be different from the useful life and the residual value shall not be
different from that as indicated in Part C, provided that if such a company
uses a useful life or residual value which is different from the useful life or
residual value indicated therein, it shall disclose the justification for the same.
.
(ii) In respect of other companies the useful life of an asset shall not be
longer than the useful life and the residual value shall not be higher than that
prescribed in Part C.
(iii) For intangible assets, the provisions of the Accounting Standards
mentioned under sub-para (i) or (ii), as applicable, shall apply.
PART ‘B’
4. The useful life or residual value of any specific asset, as notified for
accounting purposes by a Regulatory Authority constituted under an Act of
Parliament or by the Central Government shall be applied in calculating the
depreciation to be provided for such asset irrespective of the requirements of this
Schedule.
G. 64/2013/DTP.
450
PART ‘C’
5. Subject to Parts A and B above, the following are the useful lives of
various tangible assets:
Nature of assets
UsefuI Life
I. Buildings [NESD]
(a) Buildings (other than factory buildings)
60 Years
RCC Frame Structure
(b) Buildings (other than factory buildings)
30 Years
other than RCC Frame Structure
(c) Factory buildings
do.
(d) Fences, wells, tube wells
5 Years
(e) Others (including temporary structure, etc.)
3 Years
II. Bridges, culverts, bunders, etc. [NESD]
30 Years
III. Roads [NESD]
(a) Carpeted roads
(i) Carpeted Roads-RCC
10 years
(ii) Carpeted Roads-other than RCC
5 years
(b) Non-carpeted roads
3 Years
IV. Plant and Machinery
(i) General rate applicable to plant and machinery
not covered under special plant and machinery
(a) Plant and Machinery other than continuous
15 years
process plant not covered under specific
industries
(b) continuous process plant for which no
special rate has been prescribed under
8 Years
(ii)
below [NESD]
451
(ii) Special Plant and Machinery
(a) Plant and Machinery related to production
and exhibition of Motion Picture Films
1.
Cinematograph films-Machinery used in the
13 Years
production and exhibition of cinematograph
films, recording and reproducing equipments,
developing machines, printing machines,
editing machines,synchronizers and studio
lights except bulbs.
2. Projecting equipment for exhibition of films
do.
(b) Plant and Machinery used in glass manufacturing
1.
Plant and Machinery except direct fire glass
melting furnaces—Recuperative and regenera-
tive glass melting furnaces
13 Years
2. Plant and Machinery except direct fire glass
melting furnaces—Moulds [NESD]
8 Years
3. Float Glass Melting Furnaces [NESD]
10 Years
(c) Plant and Machinery used in mines and quarries—
Portable underground machinery and earth moving
machinery used in open cast mining [NESD]
8 Years
(d) Plant and Machinery used in Telecommunications
[NESD]
1. Towers
I8 Years
2. Telecom transceivers, switching centres,
and other network equipment
13 Years
3. Telecom—Ducts, Cables and optical fibre
18 Years
4. Satellites
do.
452
(e) Plant and Machinery used in exploration,
production and refining oil and gas [NESD]
1.
Refineries
25 Years
2.
Oil and gas assets (including wells),
processing plant and facilities
do.
3.
Petrochemical Plant
do.
4.
Storage tanks and related equipment
do.
5.
Pipelines
30 Years
6.
Drilling Rig
do.
7.
Field operations (above ground) Portable
boilers, drilling tools, well-head tanks, etc.
8 Years
8.
Loggers
do.
(f) Plant and Machinery used in generation,
transmission and distribution of power [NESD]
1.
Thermal/ Gas/ Combined Cycle Power
Generation Plant
40 Years
2.
Hydro Power Generation Plant
do.
3.
Nuclear Power Generation Plant
do.
4.
Transmission lines, cables and other network
assets
do.
5.
Wind Power Generation Plant
22 Years
6.
Electric Distribution Plant
35 Years
7.
Gas Storage and Distribution Plant
30 Years
8.
Water Distribution Plant including pipelines
do.
(g) Plant and Machinery used in manufacture of steel
1.
Sinter Plant
20 Years .
2.
Blast Furnace
do.
3.
Coke ovens
do.
4.
Rolling mill in steel plant
do.
5.
Basic oxygen Furnace Converter
25 Years
453
(h) Plant and Machinery used in manufacture of non-ferrous metals
1. Metal pot line [NESD]
40 Years
2. Bauxite crushing and grinding section
[NESD]
do.
3. Digester Section [NESD]
do.
4. Turbine [NESD]
do.
5. Equipments for Calcination [NESD]
do.
6. Copper Smelter [NESD]
do.
7. Roll Grinde
40 Years
8. Soaking Pit
30 Years
9. Annealing Furnace
do.
10. Rolling Mills
do.
11. Equipments for Scalping, Slitting, etc.
[NESD]
do.
12. Surface Miner, Ripper Dozer, etc.,
used in mines
25 Years
13. Copper refining plant [NESD]
do.
(i) Plant and Machinery used in medical and surgical
operations [NESD]
1. Electrical Machinery, X-ray and electrotherapeutic
apparatus and accessories thereto, medical,
diagnostic equipments, namely, Cat-scan,
Ultrasound Machines, ECG Monitors, etc.
13 Years
2. Other Equipments
15 Yeart#
(j) Plant and Machinery used in manufacture of
pharmaceuticals and chemicals [NESD]
1. Reactors
20 Years
2. Distillation Columns
do.
3. Drying equipments/Centrifuges and Decanters
do.
4. Vessel/storage tanks
do.
454
(k) Plant and Machinery used in civil construction
1.
Concreting, Crushing, Piling Equipments and
Road Making Equipments
12 Years
2. Heavy Lift Equipments—
Cranes with capacity of more than 100 tons
20 Years
Cranes with capacity of less than 100 tons
15 Years
3. Transmission line, Tunneling Equipments
[NESD]
10 Years
4. Earth-moving equipments
9 Years
5. Others including Material Handling/Pipeline/
Welding Equipments [NESD]
12 Years
(l) Plant and Machinery used in salt works [NESD]
15 Years
V. Furniture and fittings [NESD]
(i) General furniture and fittings
10 Years
(ii) Furniture and fittings used in hotels, restaurants
and boarding houses, schools, colleges and other
educational institutions, libraries; welfare centres;
meeting halls, cinema houses; theatres and circuses;
and furniture and fittings let out on hire for use on
the occasion of marriages and similar functions.
8 Years
VI. Motor Vehicles [NESD]
1. Motor cycles, scooters and other mopeds
10 Years
2. Motor buses, motor lorries, motor cars and
motor taxies used in a business of running
them on hire
6 Years
3. Motor buses, motor lorries and motor cars
other than those used in a business of running
them on hire
8 Years
4. Motor tractors, harvesting combines and heavy
vehicles
do.
5. Electrically operated vehicles including battery
powered or fuel cell powered vehicles
8 Years
455
VII. Ships [NESD]
1. Ocean-going ships
(i)
Bulk Carriers and liner vessels
25 Years
(ii)
Crude tankers, product carriers and easy chemical
carriers with or without conventional tank coatings.
20 Years
(iii) Chemicals and Acid Carriers:
(a)
With Stainless steel tanks
25 Years
(b)
With other tanks
20 Years
(iv)
Liquified gas carriers
30 Years
(v)
Conventional large passenger vessels which are used
for cruisepurpose also
do.
(vi)
Coastal service ships of all categories
do.
(vii) Offshore supply and support vessels
20 Years
(viii) Catamarans and other high speed passenger for
ships or boat
do.
(ix)
Drill ships
25 Years
(x)
Hovercrafts
15 Years
(xi)
Fishing vessels with wooden hull
10 Years
(xii) Dredgers, tugs, barges, survey launches and other
similar ships used mainly for dredging purposes
14 Years
2.
Vessels ordinarily operating on inland waters—
(i)
Speed boats
13 Years
(ii)
Other vessels
28 Years
VIII. Aircrafts or Helicopters [NESD]
20 Years
IX. Railways sidings, locomotives, rolling stocks, tramways
and railways used by concerns, excluding railway concerns
15 Years
[NESD]
X. Ropeway structures [NESD]
15 Years
XI. Office equipment [NESD]
5 Years
456
XII. Computers and data processing units [NESD]
(i)
Servers and networks
6 Years
(ii)
End user devices, such as, desktops, laptops, etc.
3 Years
XIII. Laboratory equipment [NESD]
(i)
General laboratory equipment
10 Years
(ii)
Laboratory equipments used in educational
institutions
5 Years
XIV. Electrical Installations and Equipment [NESD]
10 Years
XV. Hydraulic works, pipelines and sluices [NESD]
15 Years
Notes.—
1. “Factory buildings” does not include offices, godowns, staff quarters.
2. Where, during any financial year, any addition has been made to any
asset, or where any asset has been sold, discarded, demolished or destroyed, the
depreciation on such assets shall be calculated on a pro rata basis from the date
of such addition or, as the case may be, up to the date on which such asset has
been sold, discarded, demolished or destroyed.
3. The following information shall also be disclosed in the accounts,
namely:—
(i) depreciation methods used; and
(ii) the useful lives of the assets for computing depreciation; if they
are different from the life specified in the Schedule.
4. Useful life specified in Part C of the Schedule is for whole of the
asset. Where cost of a part of the asset is significant to total cost of the asset and
useful life of that part is different from the useful life of the remaining asset,
useful life of that significant part shall be determined separately.
5. Depreciable amount is the cost of an asset, or other amount substituted
for cost, less its residual value. Ordinarily, the residual value of an asset is often
insignificant but it should generally be not more than 5% of the original cost of
the asset.
457
6. The useful lives of assets working on shift basis have been specified in
the Schedule based on their single shift working. Except for assets in respect of
which no extra shift depreciation is permitted (indicated by NESD in Part C
above), if an asset is used for any time during the year for double shift, the
depreciation will increase by 50% for that period and in case of the triple shift the
depreciation shall be calculated on the basis of 100% for that period.
7. From the date this Schedule comes into effect, the carrying amount of
the asset as on that date—
(a)
shall be depreciatedover the remaining useful life of the asset
as per this Schedule;
(b)
after retaining the residual value, shall be recognised in the
opening balance of retained earnings where the remaining useful
life of an asset is nil.
8. “Continuous process plant” means a plant which is required and
designed to operate for twenty-four hours a day.
SCHEDULE III
(See section 129)
GENERAL INSTRUCTIONS FOR PREPARATION FF BALANCE SHEET AND STATEMENT
OF PROFIT FND LOSS OF F COMPANY
GENERAL INSTRUCTIONS
1. Where compliance with the requirements of the Act including Accounting
Standards as applicable to the companies require any change in treatment or
disclosure including addition, amendment, substitution or deletion in the head or
sub-head or any changes, inter se, in the financial statements or statements
forming part thereof, the same shall be made and the requirements of this
Schedule shall stand modified accordingly.
2. The disclosure requirements specified in this Schedule are in addition to
and not in substitution of the disclosure requirements specified in the Accounting
Standards prescribed under the Companies Act, 2013. Additional disclosures
specified in the Accounting Standards shall be made in the notes to accounts or by
way of additional statement unless required to be disclosed on the face of the
Financial Statements. Similarly, all other disclosures as required by the Companies
Act shall be made in the notes to accounts in addition to the requirements set out
in this Schedule.
G. 64/2013/DTP.
458
3. (i) Notes to accounts shall contain information in addition to that presented
in the Financial Statements and shall provide where required (a) narrative
descriptions or disaggregations of items recognised in those statements; and (b)
information about items that do not qualify for recognition in those statements.
(ii) Each item on the face of the Balance Sheet and Statement of Profit and
Loss shall be cross-referenced to any related information in the notes to accounts.
In preparing the Financial Statements including the notes to accounts, a balance
shall be maintained between providing excessive detail that may not assist users of
financial statements and not providing important information as a result of too
much aggregation.
4. (i) Depending upon the turnover of the company, the figures appearing in
the Financial Statements may be rounded off as given below:—
Turnover
Rounding off
(a)
less than one hundred crore rupees
To the nearest hundreds, thousands,
lakhs or millions, or decimals
thereof.
(b)
one hundred crore rupees or more
To the nearest lakhs, millions or
crores, or decimals thereof.
(ii)
Once a unit of measurement is used, it shall be used uniformly in the
Financial Statements.
5. Except in the case of the first Financial Statements laid before the
Company (after its incorporation) the corresponding amounts (comparatives) for
the immediately preceding reporting period for all items shown in the Financial
Statements including notes shall also be given.
6. For the purpose of this Schedule, the terms used herein shall be as per the
applicable Accounting Standards.
Note:—This part of Schedule sets out the minimum requirements for
disclosure on the face of the Balance Sheet, and the Statement of
Profit and Loss (hereinafter referred to as “Financial Statements” for
the purpose of this Schedule) and Notes. Line items, sub-line items
and sub-totals shall be presented as an addition or substitution on the
face of the Financial Statements when such presentation is relevant to
an understanding of the company’s financial position or performance
or to cater to industry/sector-specific disclosure requirements or when
required for compliance with the amendments to the Companies Act
or under the Accounting Standards,
459
PART I—BALANCE SHEET
Name of the Company.........................
Balance Sheet as at........
(Rupees in.............)
Figures as at
Figures as at
the end of
the end of the
Particulars
Note
current
previous
No.
reporting
reporting
period
period
1
2
3
4
I.
EQUITY AND LIABILITIES
(1)
Shareholders’ funds
(a)
Share capital
(b)
Reserves and surplus
(c)
Money received against
share warrants
(2)
Share application money pending
allotment
(3)
Non-current liabilities
(a)
Long-term borrowings
(b)
Deferred tax liabilities (Net)
(c)
Other Long term liabilities
(d)
Long-term provisions
(4)
Current liabilities
(a)
Short-term borrowings
(b)
Trade payables
(c)
Other current liabilities
(d)
Short-term provisions
TOTAL
460
II.
ASSETS
Non-current assets
(I) (a) Fixed assets
(i)
Tangible assets
(ii)
Intangible assets
(iii)
Capital work-in-progress
(iv)
Intangible assets under development
(b)
Non-current investments
(c)
Deferred tax assets (net)
(d)
Long-term loans and advances
(e)
Other non-current assets
(2) Current assets
(a)
Current investments
(b)
inventories
(c)
Trade receivables
(d)
Cash and cash equivalents
(e)
Short-term loans and advances
(f)
Other current assets
TOTAL
See accompanying notes to the Financial Statements.
Notes:
GENERAL INSTRUCTIONS FOR PREPARATION OF BALANCE SHEET
1.
An asset shall be classified as current when it satisfies any of the
following criteria:—
(a)
it is expected to be realised in, or is intended for sale or consumption
in, the company’s normal operating cycle;
(b) it is held primarily for the purpose of being traded;
(c) it is expected to be realised within twelve months after the reporting
date; or
461
(d)
it is cash or cash equivalent unless it is restricted from being
exchanged or used to settle a liability for at least twelve months after the reporting
date.
All other assets shall be classified as non-current.
2.
An operating cycle is the time between the acquisition of assets for
processing and their realisation in cash or cash equivalents. Where the normal
operating cycle cannot be identified, it is assumed to have a duration of twelve
months.
3. A liability shall be classified as current when it satisfies any of the
following criteria:—
(a)
it is expected to be settled in the company’s normal
operating cycle;
(b)
it is held primarily for the purpose of being traded;
(c)
it is due to be settled within twelve months after the reporting
date; or
(d) the company does not have an unconditional right to defer settlement
of the liability for at least twelve months after the reporting date.
Terms of a
liability that could, at the option of the counterparty,
result in its settlement by
the issue of equity instruments do not
affect its classification.
All other liabilities shall be classified as non-current.
4.
A receivable shall be classified as a “trade receivable” if it is in respect
of the amount due on account of goods sold or services rendered in the normal
course of business.
5.
A payable shall be classified as a “trade payable” if it is In respect of
the amount due on account of goods purchased or services received in the normal
course of business.
6.
A company shall disclose the following in the notes to accounts.
462
A. Share Capital
For each class of share capital (different classes of preference shares to be
treated separately):
(a)
the number and amount of shares authorised;
(b)
the number of shares issued, subscribed and fully paid, and subscribed
but not fully paid;
(c)
par value per share;
(d)
a reconciliation of the number of shares outstanding at the beginning
and at the end of the reporting period;
(e)
the rights, preferences and restrictions attaching to each class of shares
including restrictions on the distribution of dividends and the repayment
of capital;
(f)
shares in respect of each class in the company held by its holding
company or its ultimate holding company including shares held by or
by subsidiaries or associates of the holding company or the ultimate
holding company in aggregate;
(g)
shares in the company held by each shareholder holding more than
5 per cent. shares specifying the number of shares held;
(h)
shares reserved for issue under options and contracts/commitments for
the sale of shares/disinvestment, including the terms and amounts;
(i)
for the period of five years immediately preceding the date as at which
the Balance Sheet is prepared:
(A)
Aggregate number and class of shares allotted as fully paid-up
pursuant to contract(s) without payment being received in cash.
(B)
Aggregate number and class of shares allotted as fully paid-up by
way of bonus shares.
(C)
Aggregate number and class of shares bought back.
(j)
terms of any securities convertible into equity/preference shares issued
along with the earliest date of conversion in descending order starting
from the farthest such date;
(k)
calls unpaid (showing aggregate value of calls unpaid by directors and
officers);
(l)
forfeited shares (amount originally paid-up).
463
B. Reserves and Surplus
(i)
Reserves and Surplus shall be classified as:
(a)
Capital Reserves;
(b)
Capital Redemption Reserve;
(c)
Securities Premium Reserve;
(d)
Debenture Redemption Reserve;
(e)
Revaluation Reserve;
(f)
Share Options Outstanding Account;
(g)
Other Reserves—(specify the nature and purpose of each
reserve and the amount in respect thereof);
(h)
Surplus i.e., balance in Statement of Profit and Loss disclosing
allocations and appropriations such as dividend, bonus shares and transfer
to/from reserves, etc.;
(Additions and deductions since last balance sheet to be shown under
each of the specified heads);
(ii) A reserve specifically represented by earmarked investments shall be
termed as a “fund”.
(iii) Debit balance of statement of profit and loss shall be shown as a
negative figure under, the head “Surplus”. Similarly, the balance of “Reserves and
Surplus”, after adjusting negative balance of surplus, if any, shall be shown under
the head “Reserves and Surplus” even if the resulting figure is in the negative.
C.
Long-Term Borrowings
(i) Long-term borrowings shall be classified as:
(a)
Bonds/debentures;
(b)
Term loans:
(A) from banks.
(B) from other parties.
(c)
Deferred payment liabilities;
(d)
Deposits;
(e)
Loans and advances from related parties;
(f)
Long term maturities of finance lease obligations;
(g)
Other loans and advances (specify nature).
464
(ii)
Borrowings shall further be sub-classified as secured and unsecured.
Nature of security shall be specified separately in each case.
(iii)
Where loans have been guaranteed by directors or others, the aggregate
amount of such loans under each head shall be disclosed.
(iv) Bonds/debentures (along with the rate of interest and particulars of
redemption or conversion, as the case may be) shall be stated in descending order
of maturity or conversion, starting from farthest redemption or conversion date, as
the case may be. Where bonds/debentures are redeemable by instalments, the date
of maturity for this purpose must be reckoned as the date on which the first
instalment becomes due.
(v) Particulars of any redeemed bonds/debentures which the company has
power to reissue shall be disclosed.
(vi) Terms of repayment of term loans and other loans shall be stated.
(vii) Period and amount of continuing default as on the balance sheet date in
repayment of loans and interest, shall be specified separately in each case.
D. Other Long-term Liabilities
Other Long-term Liabilities shall be classified as:
(a)
Trade payables;
(b)
Others.
E. Long-term provisions
The amounts shall be classified as:
(a)
Provision for employee benefits;
(b)
Others (specify nature).
F.
Short-term borrowings
(i)
Short-term borrowings shall be classified as:
(a)
Loans repayable on demand;
(A)
from banks.
(B)
from other parties.
(b)
Loans and advances from related parties;
(c)
Deposits;
(d)
Other loans and advances (specify nature).
465
(ii)
Borrowings shall further be sub-classified as secured and unsecured.
Nature of security shall be specified separately in each case.
(iii)
Where loans have been guaranteed by directors or others, the
aggregate amount of such loans under each head shalI be disclosed.
(iv)
Period and amount of default as on the balance sheet date in
repayment of loans and interest, shall be specified separately in each case.
G.
Other current liabilities
The amounts shalI be classified as:
(a)
Current maturities of long-term debt;
(b)
Current maturities of finance lease obligations;
(c)
Interest accrued but not due on borrowings;
(d)
Interest accrued and due on borrowings;
(e)
Income received in advance;
(f)
Unpaid dividends;
(g) Application money received for allotment of securities and due for
refund and interest accrued thereon. Share application money includes
advances towards allotment of share capital. The terms and conditions
including the number of shares proposed to be issued, the amount of
premium, if any, and the period before which shares shall be allotted shall
be disclosed. It shall also be disclosed whether the company has sufficient
authorised capital to cover the share capital amount resulting from
allotment of shares out of such share application money. Further, the
period for which the share application money has been pending beyond
the period for allotment as mentioned in the document inviting application
for shares along with the reason for such share application money being
pending shall be disclosed. Share application money not exceeding the
issued capital and to the extent not refundable shalI be shown under the
head Equity and share application money to the extent refundable, i. e., the
amount in excess of subscription or in case the requirements of minimum
subscription are not met, shall be separately shown under “Other current
liabilities”;
466
(h)
Unpaid matured deposits and interest accrued thereon;
(i)
Unpaid matured debentures and interest accrued thereon;
(j)
Other payables (specify nature).
H.
Short-term provisions
The amounts shalI be classified as:
(a)
Provision for employee benefits.
(b)
Others (specify nature).
I. Tangible assets
(i)
Classification shall be given as:
(a)
Land;
(b)
Buildings;
(c)
Plant and Equipment;
(d)
Furniture and Fixtures;
(e)
Vehicles;
(f)
Office equipment;
(g)
Others (specify nature).
(ii)
Assets under lease shall be separately specified under each class of
asset.
(iii)
A reconciliation of the gross and net carrying amounts of each class of
assets at the beginning and end of the reporting period showing additions,
disposals, acquisitions through business combinations and other adjustments and
the related depreciation and impairment losses/reversals shall be disclosed
separately.
(iv) Where sums have been written-off on a reduction of capital or
revaluation of assets or where sums have been added on revaluation of assets,
every balance sheet subsequent to date of such write-off, or addition shall show
the reduced or increased figures as applicable and shall by way of a note also
show the amount of the reduction or increase as applicable together with the date
thereof for the first five years subsequent to the date of such reduction or increase.
467
J.
Intangible assets
(i)
Classification shall be given as:
(a)
Goodwill;
(b)
Brands/trademarks;
(c)
Computer software;
(d)
Mastheads and publishing titles;
(e ) Mining rights;
(f)
Copyrights, and patents and other intellectual property rights,
services and operating rights;
(g)
Recipes, formulae, models, designs and prototypes;
(h)
Licences and franchise;
(i)
Others (specify nature).
(ii)
A reconciliation of the gross and net carrying amounts of each class of
assets at the beginning and end of the reporting period showing additions, disposal,
acquisitions through business combinations and other adjustments and the related
amortization and impairment losses/reversals shall be disclosed separately.
(iii)
Where sums have been written-off on a reduction of capital or
revaluation of assets or where sums have been added on revaluation of assets,
every balance sheet subsequent to date of such write-off, or addition shall show
the reduced or increased figures as applicable and shall by way of a note also
show the amount of the reduction or increase as applicable together with the date
thereof for the first five years subsequent to the date of such reduction or increase.
K. Non-current investments
(i)
Non-current investments shall be classified as trade investments and
other investments and further classified as:
(a)
Investment property;
(b)
Investments in Equity Instruments;
(c)
Investments in preference shares;
(d)
Investments in Government or trust securities;
(e)
Investments in debentures or bonds;
468
(f)
Investments in Mutual Funds;
(g)
Investments in partnership firms;
(h)
Other non-current investments (specify nature).
Under each classification, details shall be given of names of the bodies
corporate indicating separately whether such bodies are (i) subsidiaries,
(ii) associates, (iii) joint ventures, or (iv) controlled special purpose entities in
whom investments have been made and the nature and extent of the investment so
made in each such body corporate (showing separately investments which are
partly-paid). In regard to investments in the capital of partnership firms, the names
of the firms (with the names of all their partners, total capital and the shares of
each partner) shall be given.
(ii)
Investments carried at other than at cost should be separately stated
specifying the basis for valuation thereof;
(iii)
The following shall also be disclosed:
(a)
Aggregate amount of quoted investments and market value
thereof;
(b)
Aggregate amount of unquoted investments;
(c)
Aggregate provision for diminution in value of investments.
L. Long-term loans and advances
(i) Long-term loans and advances shall be classified as:
(a) Capital Advances;
(b) Security Deposits;
(c) Loans and advances to related parties (giving details thereof);
(d) Other loans and advances (specify nature).
(ii) The above shall also be separately sub-classified as:
(a) Secured, considered good;
(b) Unsecured, considered good;
(c) Doubtful.
469
(iii)
Allowance for bad and doubtful loans and advances shall be disclosed under
the relevant heads separately.
(iv)
Loans and advances due by directors or other officers of the company or any of
them either severally or jointly with any other persons or amounts due by firms or private
companies respectively in which any director is a partner or a director or a member should
be separately stated.
M. Other non-current assets
Other non-current assets shall be classified as:
(i)
Long-term Trade Receivables (including trade receivables on deferred
credit terms);
(ii)
Others (specify nature);
(iii) Long term Trade Receivables, shall be sub-classified as:
(A) (a) Secured, considered good;
(B) Unsecured, considered good;
(C) Doubtful.
(b) Allowance for bad and doubtful debts shall be
disclosed under the relevant heads separately.
(c) Debts due by directors or other officers ofthe company
orany of them either severally or jointly with any other person or
debts due by firms or private companies respectively in which any
director is a partner or a director or a member should be separately
stated.
N.
Current Investments
(i)
Current investments shall be classified as:
(a) Investments in Equity Instruments;
(b) Investment in Preference Shares;
(c) Investments in Government or trust securities;
(d) Investments in debentures or bonds;
(e) Investments in Mutual Funds;
(f) Investments in partnership firms
(g) Other investments (specify nature).
470
Under each classification, details shall be given of names of the bodies corporate
[indicating separately whether such bodies are: (i) subsidiaries,
(ii) associates, (iii) joint ventures, or (iv) controlled special purpose entities] in
whom investments have been made and the nature and extent of the investment so
made in each such body corporate (showing separately investments which are
partly paid). In regard to investments in the capital of partnership firms, the names
of the firms (with the names of all their partners, total capital and the shares of
each partner) shall be given.
(ii)
The following shall also be disclosed:
(a)
The basis of valuation of individual investments;
(b)
Aggregate amount of quoted investments and market value
thereof;
(c)
Aggregate amount of unquoted investments;
(d)
Aggregate provision made for diminution in value of
investments.
O.
Inventories
(i)
Inventories shall be classified as:
(a)
Raw materials;
(b)
Work-in-progress;
(c)
Finished goods;
(d)
Stock-in-trade (in respect of goods acquired for trading);
(e)
Stores and spares;
(f)
Loose tools;
(g)
Others (specify nature).
(ii) Goods-in-transit shall be disclosed under the relevant sub-head
of inventories.
(iii) Mode of valuation shall be stated.
P.
Trade Receivables
(i)
Aggregate amount of Trade Receivables outstanding for a period
exceeding six months from the date they are due for payment should be separately
stated.
(ii)
Trade receivables shall be sub-classified as:
471
(a) Secured, considered good;
(b) Unsecured, considered good;
(c) Doubtful.
(iii)
Allowance for bad and doubtful debts shall be disclosed under the
relevant heads separately.
(iv)
Debts due by directors or other officers of the company or any of
them either severally or jointly with any other person or debts due by firms or
private companies respectively in which any director is a partner or a director or
a member should be separately stated.
Q.
Cash and cash equivalents
(i)
Cash and cash equivalents shall be classified as:
(a) Balances with banks;
(b) Cheques, drafts on hand;
(c) Cash on hand;
(d) Others (specify nature).
(ii)
Earmarked balances with banks (for example, for unpaid dividend)
shall be separately stated.
(iii)
Balances with banks to the extent held as margin money or
security against the borrowings, guarantees, other commitments shall be disclosed
separately.
(iv)
Repatriation restrictions, if any, in respect of cash and bank balances
shall be separately stated.
(v) Bank deposits with more than twelve months maturity shall be disclosed
separately.
R.
Short-term loans and advances
(i)
Short-term loans and advances shall be classified as:
(a)
Loans and advances to related parties (giving details
therereof);
(b)
Others (specify nature).
(ii) The above shall also be sub-classified as:
(a)
Secured, considered good;
(b)
Unsecured, considered good;
(c)
Doubtful.
472
(iii) Allowance for bad and doubtful loans and advances shall be
disclosed under the relevant heads separately.
(iv) Loans and advances due by directors or other officers of the
company or any of them either severally or jointly with any other person or
amounts due by firms or private companies respectively in which any
director is a partner or a director or a member shall be separately stated.
S. Other current assets (specify nature)
This is an all-inclusive heading, which incorporates current assets that do not
fit into any other asset categories.
T.
Contingent liabilities and commitments (to the extent not provided
for)
(i)
Contingent liabilities shall be classified as:
(a) Claims against the company not acknowledged as debt;
(b) Guarantees;
(c) Other money for which the company is contingently liable.
(ii)
Commitments shall be classified as:
(a) Estimated amount of contracts remaining to be executed on
capital account and not provided for;
(b) Uncalled liability on shares and other investments partly
paid;
(c) Other commitments (specify nature).
U. The amount of dividends proposed to be distributed to equity and
preference shareholders for the period and the related amount per share shall be
disclosed separately. Arrears of fixed cumulative dividends on preference shares
shall also be disclosed separately.
V. Where in respect of an issue of securities made for a specific purpose, the
whole or part of the amount has not been used for the specific purpose at the
balance sheet date, there shall be indicated by way of note how such unutilised
amounts have been used or invested.
W. If, in the opinion of the Board, any of the assets other than fixed assets
and non-current investments do not have a value on realisation in the ordinary
course of business at least equal to the amount at which they are stated, the fact
that the Board is of that opinion, shall be stated.
473
PART II—STATEMENT OF PROFIT AND LOSS
Name of the Company.....................................
Profit and loss statement for the year ended...........
(Rupees in...............)
Particulars
Note
Figures as at the
Figures as at the
No.
end of current
end of the previous
reporting period
reporting period
1
2
3
4
I.
Revenue from operations
xxx
xxx
II.
Other income
xxx
xxx
III. Total Revenue (I + II)
xxx
xxx
IV. Expenses:
Cost of materials consumed
Purchases of Stock-in-Trade
Changes in inventories of
finished goods
xxx
xxx
work-in-progress and
xxx
xxx
Stock-in-Trade
xxx
xxx
Employee benefits expense
xxx
xxx
Finance costs
Depreciation and amortisation
expense
Other expenses
Total expenses
xxx
xxx
V.
Profit before exceptional and
xxx
xxx
extraordinary items and tax
(III-IV)
474
VI.
Exceptional items
xxx
xxx
VII.
Profit before extraordinary
xxx
xxx
items and tax (V-VI)
VIII. Extraordinary items
xxx
xxx
IX.
Profit before tax (VII-VIII)
xxx
xxx
X
Tax expense:
(1) Current tax
xxx
xxx
(2) Deferred tax
xxx
xxx
XI.
Profit (Loss) for the period
xxx
xxx
from continuing operations
(VII-VIII)
XII.
Profit/(1oss) from discontinuing
xxx
xxx
operations
XIII. Tax expense of discontinuing
xxx
xxx
operations
XIV. Profit/(1oss) from Discontinuing
xxx
xxx
operations (after tax) (XII-XIII)
XV.
Profit (Loss) for the period
xxx
xxx
(XI + XIV)
XVI. Earnings per equity share:
(1) Basic
xxx
xxx
(2) Diluted
xxx
xxx
See accompanying notes to the financial statements.
1
2
3
4
475
GENERAL INSTRUCTIONS FOR PREPARATION OF
STATEMENT OF PROFIT AND LOSS
1.
The provisions of this Part shall apply to the income and expenditure
account referred to in sub-clause (ii) of clause (40) of section 2 in like manner as
they apply to a statement of profit and loss.
2.
(A) In respect of a company other than a finance company revenue from
operations shall disclose separately in the notes revenue from—
(a) Sale of products;
(b) Sale of services;
(c) Other operating revenues;
Less:
(d) Excise duty.
(B) In respect of a finance company, revenue from operations shall
include revenue from—
(a) Interest; and
(b) Other financial services.
Revenue under each of the above heads shall be disclosed separately by way
of notes to accounts to the extent applicable.
3. Finance Costs
Finance costs shall be classified as:
(a) Interest expense;
(b) Other borrowing costs;
(c) Applicable net gain/loss on foreign currency transactions
and translation.
4. Other income
Other income shall be classified as:
(a) Interest Income (in case of a company other than a finance
company);
(b) Dividend Income;
476
(c) Net gain/loss on sale of investments;
(d) Other non-operating income (net of expenses directly
attributable to such income).
5.
Additional Information
A Company shall disclose by way of notes additional information regarding
aggregate expenditure and income on the following items:—
(i) (a) Employee Benefits Expense [showing separately (i) salaries and
wages, (ii) contribution to provident and other funds, (iii) expense on
Employee Stock Option Scheme (ESOP) and Employee Stock Purchase Plan
(ESPP), (iv) staff welfare expenses].
(b)
Depreciation and amortisation expense;
(c)
Any item of income or expenditure which exceeds one per cent. of
the revenue from operations or ` l,00,000, whichever is higher;
(d)
Interest Income;
(e)
Interest expense;
(f)
Dividend income;
(g)
Net gain/loss on sale of investments;
(h)
Adjustments to the carrying amount of investments;
(i)
Net gain or loss on foreign currency transaction and translation
(other than considered as finance cost);
(j)
Payments to the auditor as (a) auditor; (b) for taxation matters; (c)
for company law matters; (d) for management services; (e) for other services;
and (f) for reimbursement of expenses;
(k)
In case of Companies covered under section 135, amount of
expenditure incurred on corporate social responsibility activities;
(l)
Details of items of exceptional and extraordinary nature;
(m) Prior period items;
(ii) (a) In the case of manufacturing companies,—
(1)
Raw materials under broad heads.
(2)
goods purchased under broad heads.
477
(b) In the case of trading companies, purchases in respect of goods traded
in by the company under broad heads.
(c)
In the case of companies rendering or supplying services, gross
income derived from services rendered or supplied under broad heads.
(d)
In the case of a company, which falls under more than one of the
categories mentioned in (a), (b) and (c) above, it shall be sufficient
compliance with the requirements herein if purchases, sales and consumption
of raw material and the gross income from services rendered is shown under
broad heads.
(e)
In the case of other companies, gross income derived under broad
heads.
(iii)
In the case of all concerns having works in progress, works-in
progress under broad heads.
(iv) (a) The aggregate, if material, of any amounts set aside or proposed
to be set aside, to reserve, but not including provisions made to meet any
specific liability, contingency or commitment known to exist at the date as to
which the balance sheet is made up.
(b) The aggregate, if material, of any amounts withdrawn from such
reserves.
(v) (a) The aggregate, if material, of the amounts set aside to provisions
made for meeting specific liabilities, contingencies or commitments.
(b) The aggregate, if material, of the amounts withdrawn from such
provisions, as no longer required.
(vi) Expenditure incurred on each of the following items, separately for
each item:—
(a) Consumption of stores and spare parts;
(b) Power and fuel;
(c) Rent;
(d) Repairs to buildings;
(e) Repairs to machinery;
(f) Insurance;
(g) Rates and taxes, excluding, taxes on income;
(h) Miscellaneous expenses,
478
(vii) (a)
Dividends from subsidiary companies.
(b) Provisions for losses of subsidiary companies.
(viii) The profit and loss account shall also contain by way of a note the
following information, namely:—
(a)
Value of imports calculated on C.I.F basis by the company during
the financial year in respect of—
I. Raw materials;
II. Components and spare parts;
III. Capital goods;
(b) Expenditure in foreign currency during the financial year on
account of royalty, know-how, professional and consultation fees, interest,
and other matters;
(c) Total value if all imported raw materials, spare parts and
components consumed during the financial year and the total value of all
indigenous raw materials, spare parts and components similarly consumed
and the percentage of each to the total consumption;
(d) The amount remitted during the year in foreign currencies on
account of dividends with a specific mention of the total number of non
resident shareholders, the total number of shares held by them on which the
dividends were due and the year to which the dividends related;
(e) Earnings in foreign exchange classified under the following heads,
namely:—
I.
Export of goods calculated on F.O.B. basis;
II.
Royalty, know-how, professional and consultation fees;
III. Interest and dividend;
IV.
Other income, indicating the nature thereof.
Note:—Broad heads shall be decided taking into account the concept of
materiality and presentation of true and fair view of financial statements.
479
GENERAL INSTRUCTIONS FOR THE PREPARATION
OF CONSOLIDATED FINANCIAL STATEMENTS
1.
Where a company is required to prepare Consolidated Financial
Statements, i.e., consolidated balance sheet and consolidated statement of profit
and loss, the company shall mutatis mutandis follow the requirements of this
Schedule as applicable to a company in the preparation of balance sheet and
statement of profit and loss. In addition, the consolidated financial statements shall
disclose the information as per the requirements specified in the applicable
Accounting Standards including the following:
(i)
Profit or loss attributable to “minority interest” and to owners of
the parent in the statement of profit and loss shall be presented as allocation
for the period.
(ii) “Minority interests” in the balance sheet within equity shall be
presented separately from the equity of the owners of the parent.
2.
In Consolidated Financial Statements, the following shall be disclosed by
way of additional information:
Name of the
Net Assets, i.e.,
Share in profit
entity in the
total assets minus total liabilities
or loss
As % of
Amount
As % of
Amount
consolidated
consolidated
net assets
profit or loss
1
2
3
4
5
Parent
Subsidiaries
Indian
1.
2.
3.
.
.
480
Foreign
1.
2.
3.
.
Minority Interests
in all subsidiaries
Associates
(Investment
as per the
equity method)
Indian
1.
2.
3.
.
.
Foreign
1.
2.
3.
.
.
Joint Ventures
(as per pro-
portionate
consolidation/
1
2
3
4
5
481
investment
as per the
equity method)
Indian
1.
2.
3.
.
.
Foreign
1.
2.
3.
.
.
TOTAL
3.
All Subsidiaries, associates and joint ventures (whether Indian or
foreign) will be covered under consolidated financial statements.
4.
An entity shall disclose the list of subsidiaries or associates or joint
ventures which have not been consolidated in the consolidated financial statements
along with the reasons of not consolidating.
1
2
3
4
5
482
SCHEDULE IV
[See section 149(8)]
CODE FOR INDEPENDENT DIRECTORS
The Code is a guide to professional conduct for independent directors.
Adherence to these standards by independent directors and fulfilment of their
responsibilities in a professional and faithful manner will promote confidence of
the investment community, particularly minority shareholders, regulators and
companies in the institution of independent directors.
I. Guidelines of professional conduct:
An independent director shall:
(1)
uphold ethical standards of integrity and probity;
(2)
act objectively and constructively while exercising his duties;
(3)
exercise his responsibilities in a bona fide manner in the interest
of the company;
(4)
devote sufficient time and attention to his professional obligations
for informed and balanced decision making;
(5)
not allow any extraneous considerations that will vitiate his
exercise of objective independent judgment in the paramount
interest of the company as a whole, while concurring in or
dissenting from the co1lective judgment of the Board in its
decision making;
(6)
not abuse his position to the detriment of the company or its
shareholders or for the purpose of gaining direct or indirect
personal advantage or advantage for any associated person;
(7) refrain from any action that would lead to loss of his
independence;
(8)
where circumstances arise which make an independent director
lose his independence, the independent director must immediately
inform the Board accordingly;
(9)
assist the company in implementing the best corporate
governance practices.
483
II. Role and functions:
The independent directors sha1l:
(1)
help in bringing an independent judgment to bear on the Board’s
deliberations especially on issues of strategy, performance, risk
management, resources, key appointments and standards of
conduct ;
(2)
bring an objective view in the evaluation of the performance of
board and management ;
(3)
scrutinise the performance of management in meeting agreed
goals and objectives and monitor the reporting of performance ;
(4)
satisfy themselves on the integrity of financial information and
that financial controls and the systems of risk management are
robust and defensible ;
(5)
safeguard the interests of a1l stakeholders, particularly the
minority shareholders ;
(6)
balance the conflicting interest of the stakeholders ;
(7)
determine appropriate levels of remuneration of executive
directors, key managerial personnel and senior management and
have a prime role in appointing and where necessary recommend
removal of executive directors, key managerial personnel and
senior management ;
(8)
moderate and arbitrate in the interest of the company as a whole,
in situations of conflict between management and shareholder’s
interest.
III. Duties:
The independent directors shall—
(1)
undertake appropriate induction and regularly update and refresh
their skills, knowledge and familiarity with the company;
(2)
seek appropriate clarification or amplification of information and,
where necessary, take and follow appropriate professional advice
and opinion of outside experts at the expense of the company;
484
(3)
strive to attend all meetings of the Board of Directors and of the
Board committees of which he is a member;
(4)
participate constructively and actively in the committees of the
Board in which they are chairpersons or members;
(5)
strive to attend the general meetings of the company;
(6)
where they have concerns about the running of the company or a
proposed action, ensure that these are addressed by the Board
and, to the extent that they are not resolved, insist that their
concerns are recorded in the minutes of the Board meeting;
(7)
keep themselves well informed about the company and the
external environment in which it operates;
(8)
not to unfairly obstruct the functioning of an otherwise proper
Board or committee of the Board;
(9)
pay sufficient attention and ensure that adequate deliberations are
held before approving related party transactions and assure
themselves that the same are in the interest of the company;
(10) ascertain and ensure that the company has an adequate and
functional vigil mechanism and to ensure that the interests of a
person who uses such mechanism are not prejudicially affected
on account of such use;
(11)
report concerns about unethical behaviour, actual or suspected
fraud or violation of the company’s code of conduct or ethics
policy;
(12) acting within his authority, assist in protecting the legitimate
interests of the company, shareholders and its employees;
(13) not disclose confidential information, including commercial
secrets, technologies, advertising and sales promotion plans,
unpublished price sensitive information, unless such disclosure is
expressly approved by the Board or required by law.
485
IV.
Manner of appointment:
(1)
Appointment process of independent directors shall be
independent of the company management; while selecting
independent directors the Board shall ensure that there is
appropriate balance of skills, experience and knowledge in the
Board so as to enable the Board to discharge its functions and
duties effectively.
(2)
The appointment of independent director(s) of the company shall
be approved at the meeting of the shareholders.
(3)
The explanatory statement attached to the notice of the meeting
for approving the appointment of independent director shall
include a statement that in the opinion of the Board, the
independent director proposed to be appointed fulfils the
conditions specified in the Act and the rules made thereunder and
that the proposed director is independent of the management.
(4)
The appointment of independent directors shall be formalised
through a letter of appointment, which shall set out:
(a) the term of appointment;
(b) the expectation of the Board from the appointed director; the
Board-level committee(s) in which the director is expected to
serve and its tasks;
(c)
the fiduciary duties that come with such an appointment
along with accompanying liabilities;
(d) provision for Directors and Officers (D and O) insurance, if
any;
(e) the Code of Business Ethics that the company expects its
directors and employees to follow;
(f) the list of actions that a director should not do while
functioning as such in the company; and
(g) the remuneration, mentioning periodic fees, reimbursement of
expenses for participation in the Boards and other meetings
and profit related commission, if any.
486
(5) The terms and conditions of appointment of independent directors
shall be open for inspection at the registered office of the
company by any member during normal business hours.
(6)
The terms and conditions of appointment of independent
directors shall also be posted on the company’s website.
V.
Re-appointment:
The re-appointment of independent director shall be on the basis of
report of performance evaluation.
VI. Resignation or removal:
(1)
The resignation or removal of an independent director shall be in
the same manner as is provided in sections 168 and 169
of the Act.
(2)
An independent director who resigns or is removed from the
Board of the company shall be replaced by a new independent
director within a period of not more than one hundred and eighty
days from the date of such resignation or removal, as the
case may be.
(3) Where the company fulfils the requirement of independent directors
in its Board even without filling the vacancy created by such
resignation or removal, as the case may be, the requirement of
replacement by a new independent director shall not apply.
VII.
Separate meetings:
(1)
The independent directors of the company shall hold at least one
meeting in a year, without the attendance of non-independent
directors and members of management; .
(2)
All the independent directors of the company shall strive to be
present at such meeting;
487
(3)
The meeting shall:
(a)
review the performance of non-independent directors and the
Board as a whole;
(b) review the performance of the Chairperson of the company,
taking into account the views of .executive directors and non
executive directors;
(c) assess the quality. quantity and timeliness of flow of
information between the company management and the Board
that isnecessary for the Board to effectively and reasonably
perform their duties.
VIII.
Evaluation mechanism:
(1)
The performance evaluation of independent directors shall be done
by the entire Board of Directors, excluding the director being
evaluated.
(2)
On the basis of the report of performance evaluation, it shall be
determined whether to extend or continue the term of appointment
of the independent director.
SCHEDULE V
(See sections 196 and 197)
PART I
CONDITIONS TO BE FULFILLED FOR THE APPOINTMENT OF A
MANAGING OR WHOLE-TIME DIRECTOR OR A MANAGER WITHOUT
THE APPROVAL OF THE CENTRAL GOVERNMENT
APPOINTMENTS
No person shall be eligible for appointment as a managing or whole-time
director or a manager (hereinafter referred to as managerial person) of a company
unless he satisfies the following conditions, namely:—
(a)
he had not been sentenced to imprisonment for any period, or to
a fine exceeding one thousand rupees, for the conviction of an offence under
any of the following Acts, namely:—
488
(i)
the Indian Stamp Act, 1899 (2 of 1899);
(ii)
the Central Excise Act, 1944 (1 of 1944);
(iii)
the Industries (Development and Regulation) Act, 1951
(65 of 1951);
(iv)
the Prevention of Food Adulteration Act, 1954 (37 of 1954);
(v)
the Essential Commodities Act, 1955 (10 of 1955);
(vi)
the Companies Act, 2013;
(vii)
the Securities Contracts (Regulation) Act, 1956 (42 of 1956);
(viii)
the Wealth-tax Act, 1957 (27 of 1957);
(ix)
the Income-tax Act, 1961 (43 of 1961);
(x)
the Customs Act, 1962 (52 of 1962);
(xi) the Competition Act, 2002 (12 of 2003);
(xii) the Foreign Exchange Management Act, 1999 (42 of 1999);
(xiii) the Sick Industrial Companies (Special Provisions) Act, 1985
(1 of 1986);
(xiv)
the Securities and Exchange Board of India Act, 1992 (15 of
1992);
(xv)
the Foreign Trade (Development and Regulation) Act, 1922
(22 of 1922);
(xvi)
the Prevention of Money-Laundering Act, 2002 (15 of 2003);
(b)
he had not been detained for any period under the Conservation of
Foreign Exchange and Prevention of Smuggling Activities Act, 1974
(52 of 1974):
Provided that where the Central Government has given its approval to
the appointment of a person convicted or detained under sub-paragraph (a)
or sub-paragraph (b), as the case may be, no further approval of the Central
Government shall be necessary for the subsequent appointment of that
person if he had not been so convicted or detained subsequent to such
approval.
489
(c) he has completed the age of twenty-one years and has not attained
the age of seventy years:
Provided that where he has attained the age of seventy years; and where
his appointment is approved by a special resolution passed by the company
in general meeting, no further approval of the Central Government shall be
necessary for such appointment;
(d) where he is a managerial person in more than one company, he draws
remuneration from one or more companies subject to the ceiling provided in
section V of Part II;
(e) he is resident of India.
Explanation I.—For the purpose of this Schedule, resident in India includes
a person who has been staying in India for a continuous period of not less
than twelve months immediately preceding the date of his appointment as a
managerial person and who has come to stay in India,—
(i) for taking up employment in India; or
(ii) for carrying on a business or vacation in India.
Explanation II.—This condition shall not apply to the companies in Special
Economic Zones as notified by Department of Commerce from time to time:
Provided that a person, being a non-resident in India shall enter India only
after obtaining a proper Employment Visa from the concerned Indian mission
abroad. For this purpose, such person shall be required to furnish, along with the
visa application form, profile of the company, the principal employer and terms
and conditions of such person’s appointment.
PART II
REMUNERATION
Section I.—Remuneration payable by companies having profits:
Subject to the provisions of section 197, a company having profits in a
financial year may pay remuneration to a managerial person or persons not
exceeding the limits specified in such section.
Section II.—Remuneration payable by companies having no profit or
inadequate profit without Central Government approval:
490
Where in any financial year during the currency of tenure of a managerial
person, a company has no profits or its profits are inadequate, it may, without
Central Government approval pay remuneration to the managerial person not
exceeding the higher of the limits under (A) and (B) given below:—
(A):
(1)
(2)
Where the effective capital is
Limit of yearly remuneration
payable shall not exceed (Rupees)
(i)
Negative or less than 5 crores
30 lakhs
(ii)
5 crores and above but less
42 lakhs
than 100 crores
(iii) 100 crores and above but less
60 lakhs
than 250 crores
(iv) 250 crores and above
60 lakhs plus 0.01% of the effective
capital in excess of ` 250 crores:
Provided that the above limits shall be doubled if the resolution passed by
the shareholders is a special resolution.
Explanation.—It is hereby clarified that for a period less than one year, the
limits shall be pro-rated.
(B)
In the case of a managerial person who was not a security holder
holding securities of the company of nominal value of rupees five lakh or more or
an employee or a director of the company or not related to any director or
promoter at any time during the two years prior to his appointment as a
managerial person, - 2.5% of the current relevant profit:
Provided that if the resolution passed by the shareholders is a special
resolution, this limit shall be doubled:
Provided further that the limits specified under this section shall apply, if—
(i)
payment of remuneration is approved by a resolution passed by the
Board and, in the case of a company covered under sub-section (1) of
section 178 also by the Nomination and Remuneration Committee;
491
(ii) the company has not made any default in repayment of any of its debts
(including public deposits) or debentures or interest payable there on
for a continous period of thirty days in the preceding financial year
before the date of appointment of such managerial person;
(iii) a special resolution has been passed at the general meeting of the
company for payment of remuneration for a period not exceeding three
years;
(iv) a statement along with a notice calling the general meeting referred to
in clause (iii) is given to the share nolders containing the following
information, namely:—
I.
General Information:
(1)
Nature of industry
(2)
Date or expected date of commencement of commercial
production
(3)
In case of new companies, expected date of commencement of
activities as per project approved by financial institution
appearing in the prospectus
(4)
Financial performance based on given indicators
(5)
Foreign investments or collaborations, if any.
II.
Information about the appointee:
(1)
Background details
(2)
Past remuneration
(3)
Recognition or awards
(4)
Job profile and his suitability
(5)
Remuneration proposed
(6)
Comparative remuneration profile with respect to industry, size
of the company, profile of the position and person (in case of
expatriates the relevant details would be with respect to the
country of his origin)
(7)
Pecuniary relationship directly or indirectly with the company, or
relationship with the managerial personnel, if any.
492
III. Other information:
(1)
Reasons of loss or inadequate profits
(2)
Steps taken or proposed to be taken for improvement
(3)
Expected increase in productivity and profits in measurable
terms.
IV. Disclosures:
The following disclosures shall be mentioned in the Board of
Director’s report under the heading “Corporate Governance”, if any,
attached to the financial statement:—
(i)
all elements of remuneration package such as salary, benefits,
bonuses, stock options, pension, etc., of all the directors;
(ii)
details of fixed component and performance linked incentives
along with the performance criteria;
(iii) service contracts, notice period, severance fees;
(iv) stock option details, if any, and whether the same has been issued at
a discount as well as the period over which accrued and over which exercisable.
Section 11I.—Remuneration payable by companies having no profit or
inadequate profit without Central Government approval in certain special
circumstances:
In the following circumstances a company may, without the Central
Government approval, pay remuneration to a managerial person in excess of the
amounts provided in Section II above:—
(a) where the remuneration in excess of the limits specified in Section 1
or II is paid by any other company and that other company is either a
foreign company or has got the approval of its shareholders in general
meeting to make such payment, and treats this amount as managerial
remuneration for the purpose of section 197 and the total managerial
remuneration payable by such other company to its managerial persons
including such amount or amounts is within permissible limits under
section 197.
493
(b) where the company—
(i) is a newly incorporated company, for a period of seven years
from the date of its incorporation, or
(ii) is a sick company, for whom a scheme of revival or rehabilitation
has been ordered by the Board for Industrial and Financial
Reconstruction or National Company Law Tribunal, for a period
of five years from the date of sanction of scheme of revival,
it may pay remuneration up to two times the amount permissible
under Section II.
(c)
where remuneration of a managerial person exceeds the limits in
Section II but the remuneration has been fixed by the Board for
Industrial and Financial Reconstruction or the National Company Law
Tribunal:
Provided that the limits under this Section shall be applicable subject to
meeting all the conditions specified under Section II and the following additional
conditions:—
(i) except as provided in para (a) of this Section, the managerial
person is not receiving remuneration from any other company ;
(ii) the auditor or Company Secretary of the company or where the
company has not appointed a Secretary, a Secretary in whole-time
practice, certifies that all secured creditors and term lenders have
stated in writing that they have no objection for the appointment
of the managerial person as well as the quantum of remuneration
and such certificate is filed along with the return as prescribed
under sub-section (4) of section 196.
(iii) the auditor or Company Secretary or where the company has not
appointed a secretary, a secretary in whole-time practice certifies
that there is no default on payments to any creditors, and all dues
to deposit holders are being settled on time.
494
(d)
a company in a Special Economic Zone as notified by Department of
Commerce from time to time which has not raised any money by
public issue of shares or debentures in India, and has not made any
default in India in repayment of any of its debts (including public
deposits) or debentures or interest payable thereon for a continuous
period of thirty days in any financial year, may pay remuneration up
to Rs. 2,40,00,000 per annum.
Section IV.—Perquisites not included in managerial remuneration:
1. A managerial person shall be eligible for the following perquisites which
shall not be included in the computation of the ceiling on remuneration specified
in Section II and Section III:—
(a) contribution to provident fund, superannuation fund or annuity fund
to the extent these either singly or put together are not taxable
under the Income-tax Act, 1961 (43 of l961);
(b) gratuity payable at a rate not exceeding half a month’s salary for
each completed year of service; and
(c) encashment of leave at the end of the tenure.
2. In addition to the perquisites specified in paragraph 1 of this section, an
expatriate managerial person (including a non-resident Indian) shall be eligible to
the following perquisites which shall not be included in the computation of the
ceiling on remuneration specified in Section II or Section III—
(a) Children’s education allowance: In case of children studying in or
outside India, an allowance limited to a maximum of Rs. 12,000
per month per child or actual expenses incurred, whichever is less.
Such allowance is admissible up to a maximum of two children.
(b) Holiday passage for children studying outside India or family
staying abroad: Return holiday passage once in a year by
economy class or once in two years by first class to children and
to the members of the family from the place of their study or stay
abroad to India if they are not residing in India, with the
managerial person.
495
(c)
Leave travel concession: Return passage for self and family in
accordance with the rules specified by the company where it is
proposed that the leave be spent in home country instead of
anywhere in India.
Explanation I.—For the purposes of Section II of this Part, “effective
capital” means the aggregate of the paid-up share capital (excluding share
application money or advances against shares); amount, if any, for the time being
standing to the credit of share premium account; reserves and surplus (excluding
revaluation reserve); long-term loans and deposits repayable after one year
(excluding working capital loans, over drafts, interest due on loans unless funded,
bank guarantee etc., and other short-term arrangements) as reduced by the
aggregate of any investments (except in case of investment by an investment
company whose principal business is acquisition of shares, stock, debentures or
other securities), accumulated losses and preliminary expenses not written off.
Explanation II.—(a) Where the appointment of the managerial person
is made in the year in which company has been incorporated, the effective capital
shall be calculated as on the date of such appointment;
(b) In any other case the effective capital shall be calculated as on the
last date of the financial year preceding the financial year in which the
appointment of the managerial person is made.
Explanation III—For the purposes of this Schedule, “family” means
the spouse, dependent children and dependent parents of the managerial person.
Explanation IV.—The Nomination and Remuneration Committee while
approving the remuneration under Section II or Section III, shall—
(a) take into account, financial position of the company, trend in the
industry, appointee’s qualification, experience, past performance, past
remunerations etc.;
(b) be in a position to bring about objectivity in determining the
remuneration package while striking a balance between the interest of the
company and the shareholders.
496
Explanation V.—For the purposes of this Schedule, “negative effective
capital” means the effective capital which is calculated in accordance with the
provisions contained in Explanation I of this Part is less than zero.
Explanation VI.—For the purposes of this Schedule:—
(A) “current relevant profit” means the profit as calculated under
section 198 but without deducting the excess of expenditure over income
referred to in sub-section 4 (1) thereof in respect of those years during
which the managerial person was not an employee, director or shareholder
of the company or its holding or subsidiary companies.
(B) “Remuneration” means remuneration as defined in clause (78) of
section 2 and includes reimbursement of any direct taxes to the managerial
person.
Section V. —Remuneration payable to a managerial person in two
companies:
Subject to the provisions of sections I to IV, a managerial person shall draw
remuneration from one or both companies, provided that the total remuneration
drawn from the companies does not exceed the higher maximum limit admissible
from anyone of the companies of which he is a managerial person.
PART III
Provisions applicable to Parts I and II of this Schedule
I. The appointment and remuneration referred to in Part I and Part II of
this Schedule shall be subject to approval by a resolution of the shareholders in
general meeting.
2. The auditor or the Secretary of the company or where the company is not
required to appointed a Secretary, a Secretary in whole-time practice shall certify
that the requirement of this Schedule have been complied with and such
certificate shall be incorporated in the return filed with the Registrar under
sub-section (4) of section 196.
497
PART IV
The Central Government may, by notification, exempt any class or classes
of companies from any of the requirements contained in this Schedule.
SCHEDULE VI
(See sections 55 and 186)
The term “infrastructural projects” or “infrastructural facilities” includes the
following projects or activities:—
(1)
Transportation (including inter modal transportation), includes the
following:—
(a) roads, national highways, state highways, major district
roads, other district roads and village roads, including toll roads,
bridges, highways, road transport providers and other road-relate
services;
(b) rail system, rail transport providers, metro rail roads and
other railway related services;
(c) ports (including minor ports and harbours), inland waterways,
coastal shipping including shipping lines and other port related
services;
(d) aviation, including airports, heliports, airlines and other
airport related services;
(e) logistics services.
(2) Agriculture, including the following, namely:—
(a) infrastructure related to storage facilities;
(b) construction relating to projects involving agro-processing and
supply of inputs to agriculture;
(c) construction for preservation and storage of processed agro
products, perishable goods such as fruits, vegetables and flowers including
testing facilities for quality.
498
(3)
Water management, including the following, namely:—
(a) water supply or distribution;
(b) irrigation;
(c) water treatment.
(4)
Telecommunication, including the following, namely:—
(a) basic or cellular, including radio paging;
(b) domestic satellite service (i.e., satellite owned and operated by
an Indian company for providing telecommunication service);
(c) network of trunking, broadband network and internet services.
(5) Industrial, commercial and social development and maintenance,
including the following, namely:—
(a) real estate development, including an industrial park or special
economic zone;
(b) tourism, including hotels, convention centres and entertainment
centres;
(c) public markets and buildings, trade fair, convention, exhibition,
cultural centres, sports and recreation infrastructure, public gardens and
parks;
(d) construction of educational institutions and hospitals;
(e) other urban development, including solid waste management
systems, sanitation and sewerage systems.
(6)
Power, including the following:—
(a) generation of power through thermal, hydro, nuclear, fossil fuel,
wind and other renewable sources;
(b) transmission, distribution or trading of power by laying a network
of new transmission or distribution lines.
499
(7)
Petroleum and natural gas, including the following:—
(a)
exploration and production;
(b) import terminals;
(c)
liquefaction and re-gasification;
(d) storage terminals;
(e) transmission networks and distribution networks including city gas
infrastructure.
(8) Housing, including the following:—
(a) urban and rural housing including public/mass housing, slum
rehabilitation, etc;
(b) other allied activities such as drainage, lighting, laying of roads,
sanitation and facilities.
(9) Other miscellaneous facilities/services, including the following:—
(a)
mining and related activities;
(b)
technology related infrastructure;
(c)
manufacturing of components and materials or any other utilities
or facilities required by the infrastructure sector like energy saving devices
and metering devices;
(d)
environment related infrastructure;
(e)
disaster management services;
(f)
preservation of monuments and icons;
(g)
emergency services (including medical, police, fire and rescue).
(10)
such other facility service as may be prescribed.
500
SCHEDULE VII
(See sections 135)
Activities which may be included by companies in their Corporate Social
Responsibility Policies
Activities relating to:—
(i)
cradicating extreme hunger and poverty;
(ii)
promotion of education;
(iii) Promoting gender equality and empowering women;
(iv) reducing child moratlity and improving maternal health;
(v)
combating human immunodeficiency virus, acquired immune
deficiency syndrome, malaria and other diseases;
(vi) ensuring environmental sustainability;
(vii) employment enhancing vocational skills;
(viii) social business projects;
(ix) contribution to the Prime Minister’s National Relief Fund or any
other fund set up by the Central Government or the State Governments for
socio-economic development and relief and funds for the welfare of the
Scheduled Castes, the Scheduled Tribes, other backward classes, minorities
and women; and
(x)
such other matters as may be prescribed.