Corporate Law Notes by CA CS Nilamkumar Bhandari

CA CS Nilamkumar Bhandari www.lawlogic.
in Expert Professional Academy,Pune 1
THE COMPANIES ACT 2013
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CA CS Nilamkumar Bhandari www.lawlogic.in Expert Professional Academy,Pune 2
CHAPTER 1: PRELIMINARY & INCORPORATION OF COMPANY

1. Origin of Companies Act, 2013 :
J.J. Irani Committee in 2004[ 2005]
[Strong recommendations to update the Companies Act, 1956]
2008
Companies Amendment Bill 2008,2009,2011
2012 Finally Companies Amendment Bill : Passed in Loksabha 18th Dec. 2012
2013
1) 29th August 2013 – President Signed the Bill
2) 30th August 2013 – The Act was notified in Official Gazette of India
2. Need for Companies Act, 2013 :
Due to change in the National and International For further accelerating the growth of
Economic Environment & expansion of our economy.
3. Aims and objectives of Companies Act, 2013 :
(1) (2) (3) (4)

Improve Simplify the regulations Strengthen the Legislate the role of
Corporate [From Companies Act, interest of Minority whistle blowers.
Governance 1956 650 sections & 29 investors
schedules e.g. Wipro – Deleting
[i.e. SEBI & MCA] to the clause of 100%
dividend on face
Companies Act 2013
value from articles.
470 Sections & 7
Schedules.]
4. Applicability of Companies Act :
Every Banking Autonomous Insurance Electricity Any Body

Company Companies Bodies Companies Companies Corporate
registered [Special Act of governed by
under this Parliament] any other Act,
Where Where Where
law [or] ICAI, ICSI, but notified
Banking Insurance Electricity
under any ICMA, RBI, by C.G. in
Regulation Regulation Regulation
previous law. official
Act is silent. SEBI, ITC, Act is silent. Act is silent.
Gazette.
IRDA
Ex. Foreign
Company
5. Company Characteristics
I. Separate legal entity II. Perpetual succession
-Artificial person by law Continuous existence
Members may come and members may go but
Separate – legal – entity
company continues forever
Independent – lawful - enterprise
[Salomon V/s. Salomon Ltd.]

Leather mfg. goods, Salomon - sole proprietor
Solomon Ltd. Balance Sheet
Assets Liabilities
Himself 1 Wife 4 Sons 1 Daughter Secured 10,000 6,050 pounds

Debentures Pounds
(Salomon)
Unsecured 8000
creditors pounds
1 Share each
House of lords gave a landmark judgement saying that once a company is registered under law, it has a
separate distinct entity /status. Therefore even though Salomon himself holds virtually almost the entire
share capital, Salomon Ltd. has a separate legal status and is independent in the eyes of law.
III. Transferability of Shares
Public Company Private Company
Free transferability of shares Restriction on transfer of shares
IV. Separate Property :

1) No shareholder has right on the assets of Company.
2) Shareholders right is limited to the extent of capital contribution made by him.
V. Common Seal :
 Official Signature of Company.
 Use of Common seal is optional
Note : Nowadays every contract / document/ record entered on behalf of company shall be valid and be
binding on the company even if common seal is not affixed provided if signed by :
Two directors of Company OR 1 Director & 1 Company Secretary if any.
VI. Capacity to sue and be sued :
VII. Limited Liability :
Limited by Shares Limited by Guarantee Limited by Guarantee.

and Shares :
1. Shareholder’s Liability is Limited to [i.e. pure guarantee company]
the unpaid amount on shares. 1. Shareholders liability
1. Members liability is limited to the
2. Such unpaid amount can be called is dual.
extent of guarantee given.
anytime during the existence of 2. It is limited to the
company or even after liquidation. extent of unpaid 2. Members liability can be called
3. E.g.Alllisted Companies. amount of shares as only after liquidation.
well as to the extent
4. Every shareholder is a member of 3. e.g. Clubs, Charitable Institutions,
of guarantee given.
company by default. Society.
5. Profit motive
4. Every member is not a shareholder.
5. No Profit motive
6. LIFTING OF THE “CORPORATE VEIL”

It means ignoring the separate legal entity concept.
2. The advantages of incorporation can be enjoyed by only these who can make an honest use of the
Company.
3.However where the legal entity of a corporate body is misused for fraudulent and dishonest purposes, the
individuals concerned will not be allowed to take shelter behind the corporate entity of the company
4. In this doctrine, the Company and its members are taken as single persons, not different from each other.
5.Thus, whenever an unlawful business is carried on by the company ,the company will lose its corporate
status and the persons behind the company will be held personally liable for all the debts and liabilities of the
company.
Circumstances in which court may lift the Corporate Veil :

1) For protection of Revenue of Government [to prevent tax evasion]
2) For preventing fraud and improper behavior e.g. Gilford Motors Company V/s. Horne
Employee
Horne Gilford Motors Co.
Formed New Company Solicit Clients

Since the new company solicited clients of Gilford Motors with whom Horne had entered into agreement.
Court on knowing that new company was formed after Horne left the Gilford Motors & Co. corporate veil was
lifted and new company was restrained [Stopped] from doing so.
e.g. Lipman V/s. Jones
Land Buyer
Lipman 1 Cr. Jones
In this case the court held that new company was formed by Lipman to escape a suit for specific performance
by Jonnes.
The court asked the company to transfer the land to Jonnes.
Another offer for 2 Cr. Company
Lipman His friend
In this given case the court dismissed the application of company and said that any payments made during war
period will be treated as trading with alien enemy.
3) Determination of character of a company whether it is enemy:

All Directors – German Citizens
Continental tyre and Rubber Co. Debtors
Incorporated in UK
Fetched in Court
4) Where the company is a sham
i.e. Company is formed just for name sake & has no business motive.
5) Company avoiding legal obligation

Refer point no. 7
6) Company acting as agent or trustee of the shareholders:

Facts – An American company produced a film in India actually in the name of British company wherein 90% of
the share capital was held by the chairman of the American company which financed the production of the
film.
Judgement – The contention of the sensor board of films refusing to register the film on the ground that
British company has acted merely as an agent of British company was correct. (F.G.Films Ltd., In re.)
90% share
Agent of US based company

UK
USA INDIA
7)Avoidance of welfare legislation :

Facts – A subsidiary company was formed wholly by the holding company with no assets of its own except
those transferred to it by the holding company, with no business or income of its own except receiving
dividend from shares transferred to it by the holding company.
Judgment – Court held that the new company was formed as a device to reduce the profits of the holding
company and thereby reduce the bonus to workmen. ( Workmen of Associated Rubber Industry Ltd. v.
Associated Rubber Industry Ltd. ).
8)Protecting public policy: The Courts invariably lift the corporate veil to prevent transactions contrary to
public policy.
9)In quasi-criminal cases: To look behind the legal person and punish the real persons who have violated the
law.
7. DEFINITIONS
Holding Company Sec. 2(46) Finance
Company which exercises control over another company. H Ltd. S Ltd.
BOD Control
5 directors
Subsidiary Company Sec. 2 (87)
6 directors
Company on whom Control is exercised
Control
Holding > 50% of total Holding > 50% of total voting Subsidiary of a subsidiary is a
composition of BOD of other power directly / indirectly deemed subsidiary.
Company Total voting power Holding Subsidiary
i.e. having a power to appoint or Salman Ltd. Katrina Ltd.
remove majority or all directors. (+)
ESC Convertible PSC
Deemed 65%
subsidiary Ranbir Ltd.
Subsidiary
Total voting power

Equity Share Capital (+) Convertible Preference Share Capital
MCA [Ministry of Corporate Affairs]

Has notified that shares held in fiduciary capacity shall not be counted for determining holding subsidiary
relationship.
Directly Indirectly Directly & Indirectly Both
Subsidiary (S3) (S3)
S Ltd S Ltd. S Ltd.
30% voting 25% voting
power power 25% 20%
60% voting
10%
A Ltd. B Ltd. A Ltd. B Ltd.
(S1) (S1)
(S2) (S2)
H Ltd
Holding H Ltd. H Ltd.
Associate Company
Significant Influence And Includes
Holding >= 20% of the Holding >= 20% of total Joint Venture Company
composition of BOD voting power directly
/indirectly
Power to appoint or remove
A joint arrangement
20% of total directors ESC + CPSC = TVP
whereby the parties that
have joint control of the
arrangement have rights
to net assets of the
arrangement.
Thus every subsidiary company is an associate company but every associate company is not a
subsidiary company.
Notes:
1. Every company can have maximum 2 layers of subsidiaries.(only for Indian Companies)
Exceptions –
a. Wholly owned subsidiaries shall not be taken into account while computing the no. of layers.
b. A company incorporated outside with subsidiaries beyond 2 layers is allowed.
c. Banking company / non-banking financial company / insurance company / Government
company.
2. Any shares held in fiduciary capacity shall not be counted for the purpose of determining of
subsidiary /Associate relationship.
Financial Statements [Section 2(4)]

In relation to any company : OPC, Small Company and dormant company and
1) B/S at the end of F.Y. private company (recognized as a start up)
2) P&L / Income & Expenditure A/c. for It need not prepare Cash Flow Statement only.
F.Y.
3) Notes to Accounts
4) Statement of changes in Equity [if
applicable]
5) Cash Flow Statement for the F.Y.
 Start up: A private company incorporated under CA 2013 or CA 1956 and recognized as startup
in accordance with notification issued by Central Government.
Financial Year
In relation to any company/body corporate it means :
31st March every year & In case of year of incorporation on / after

– 1st Jan of year
The period ending on 31st march of next
year.
i.e. minimum 3 mths and max. 15 mths.
Note : If holding/subsidiary company is incorporated outside India, it can have different F.Y.
provided special approval from NCLT [National Company Law Tribunal] is obtained.
 Now, even in case of associate company of a company incorporated outside India, it can have a
different financial year provided specific approval from tribunal is obtained.
 In case of specified IFSC Private / Public company which is a subsidiary of a foreign company,
the financial year may be same as that of the holding company but tribunal approval is not
required.
Free Reserves Section 2 (43) :

Reserves which are available as per latest Audited Balance Sheet for distribution as dividend.
However :
1) Unrealised gains [investments]
2) Notional gain / Revaluation of Assets Shall not be
3) Any change in the carrying Amount of asset or liability recognized treated as “free
in equity. reserve”
4) Surplus in P & L Account on measurement of asset / liability
at fair value.
Government company :
A company in which atleast 51% of paid up share capital is held by CG / SG / Both and it includes
a company which is a subsidiary company of such Govt. company.
Key Managerial Personnel Section 2 (51)

In relation to a company means
The CEO Company Whole Chief Such other officer not more Such other
or MD or Secretary who is time Financial than I level below the officer as may
Manager not in practice director Officer directors who is in whole be prescribed
but in time employment by the Central
employment designated as KMP by the Govt.
board.
MCA
Ministry of
corporate
affairs
Duty of KMP :
1) Successful Running of the company.
2) KMP not to hold office in more than one company except in its subsidiary at same time.
3) Guide the boards to achieve their defined objectives
4) Follow good corporate governance practices.
5) Looked upon by the regulators for non-compliances
6) KMP are included in related parties of Company.
Net Worth :
Particulars Amount
Rs.
1) Paid up share capital Xx
2) Free Reserves (Reserves created out the profits + P&L Credit Balance) Xx
3) Securities Premium A/c.
Total [1+2+3] Xx
Less: Xx
1) Accumulated Losses [xx]
2) Deferred Expenditure [xx]
3) Misc. expenses not written off [xx]
4) P & L Debit Balance
[xx]
Net Worth Xxx
Note : Revaluation Reserve, depreciation reserve and amalgamation reserves shall not be included
in reserves.
 Total of all assets – liabilities other than capital / reserves = Net Worth
OPC Section 2(62)

1) Company which has only one person as a member.
2) OPC is considered as Private Company.
3) Only a natural person, who is a citizen and resident in India is eligible to incorporate OPC. (NRI)
4) There are many relaxations granted to OPC.
a) It is not required to hold AGM. (No need to file annual returns)
b) Relaxation for holding board meeting [i.e. to hold board meeting only if there is more than one
director]
c) Signing of annual return.
d) Exemption from preparation of cash flow statement.
Private Company :
1) Restricts the rights to transfer its shares.
2) Limits the no. of members Min – 2, Max. – 200
3) Prohibits any invitation to the public to subscribe for any securities (shares and debentures) of
the company.
4) Joint holders are treated as single members
5) Employees and ex-employees are excluded [i.e. they are not counter as members]
6) The limit of 200 is applicable only to members and not for debenture holders.
7) Name of company should end with words Pvt. Ltd.
8) Shall have at least 2 directors and max. 15 directors.
Public Company :
1) A company which is not private company is a public company.
2) It should have paid up capital, Min – No limit, Max. – No Limit.
3) It should have min. 7 members, Max. – Unlimited.
4) It should have at least 3 directors, max. – 15 directors.
5) Name of company should end with words Ltd. / Public Limited.
6) A Private Company which is a subsidiary of Public company is also a public company.
Section 2(69) Defines Promoter as any Person :

Who‟ s name is mentioned Who controls the On whose advice / instruction the BOD
in the prospectus / the affairs of company is accustomed to act
annual return Directly / indirectly Except a person in professional capacity
OR OR e.g. Auditor, CA, Solicitor
Legal position of Promoters :
a) Fiduciary position [relationship of trust and confidence]
b) Truthfullness and disclosure of all facts and profits earned
c) Not to earn secret profit
d) Disclose personal interest.
e) If he earns secret profit without disclosing the facts, the he should return back the profits.
Note : On contravention of any one of the legal duties by the promoter, the contract is voidable at
the option of company.
Small Company Section 2(85)

It means a company other than a public company, having
Paid up share capital < 50 lakh AND Turnover of which as per immediately
(But can be increased upto Rs.10 crores) preceding financial year <2 Crore.
(But can be increased upto Rs.100 crores)
Provided that nothing in this clause should apply to

Public Holding Subsidiary CompanyCompany
Company Company Company Registered u/s.
governed by a
8 Special Act of
Parliament.
1) Merger or amalgamation b/w 2 or more small companies has been simplified without the
requirement of court process.
2) No need to prepare cash flow statement.
Formation of company
Stage – 1 : Promotion of Company.
The person who generates an idea and takes the necessary steps for registration of company is
known as Promoter and the process is known as Promotion of Company.
Stage – 2 : Formation of Company :
Atleast 7 persons in case of Public Company, 2 persons in case of private company, I person in case
of OPC Can come together for lawful purpose and subscribe their name to MOA & Comply with the
requirements of this Act i.ro.Registration.
Stage – 3 : Reservation of name : Apply to the ROC within whose jurisdiction ROC of the company
is proposed to be situated in form RUN [ Reserve Unique Name ]for name availability along with
fees, Two names .ROC to reply within reasonable period.
(a) Name approved is valid for twenty days from the date of approval or 60 days from date
of approval in case of an application for reservation of name or for change of its
name by an existing company, respectively
(b) If name is Reserved by furnishing wrong particulars :
Company has not been Company has been Incorporated

Incorporated
Registrar shall cancel the Registrar shall after giving reasonable OBH a) direct for
application and levy penalty on the change in name within 3 months by passing Ordinary
applicant upto Rs. 1,00,000 Resolution or b) take action for striking off name of the
Company or c) make petition for winding up.
An application for reservation of name shall be made through the web service available at
www.mca.gov.in by using [form RUN](Reserve Unique Name) along with fee, which may
either be approved or rejected, as the case may be, by the Registrar, after allowing re--
submission of such application within fifteen days for rectification of the defects, if any
Section 3A: Reduction in number of members below the statutory limit
If at any time the no. of members of a company (private / public) is reduced below the statutory
limit. (2/7)
AND
The company carries on business > 6 months while the no. of members is so reduced:
a. Every member who is a member of company during the time that it so carries on business
after 6 months.
AND
Is aware of the fact that it is carrying on business with less than the statutory limit.
Shall be severally liable for the payment of the whole debts of the company contracted during
that time and may be severally sued therefore.
Stage – 4 : Drafting of MOA & AOA & stamping and authenticating the MOA & AOA :
i) As per Schedule – I,
ii) Signed by 7/2/1 members (if subscriber is illeterate, thumb impression duly executed).
iii) Subscriber to take atleast 1 share.
iv) One witness for each subscriber.
Stage – 5 : Prepare All other Documents like :
i) Power of Attorney (if required)

ii) Declaration by each subscriber to the Memorandum & the 1st directors – that they are not
convicted of any offence in promotion,formation or management of the company or of fraud or
misfeasance or any breach of duty during the last 5 years.
iii) Consent letter of the 1st directors along with the particulars of their interests in other firms or
Body Corporate
iv) Address for Correspondence till its Registered office is established.
v) Particulars of every subscriber, 1st directors – Name, Address, nationality, DIN, etc.
vi) Declaration by a CA/CS/CMA/ Advocate that all the requirements of the Act, Rules have been
duly compiled with.
Provided that in case pursuing of any objects of a company requires registration or
approval from sectoral regulators such as RBI, SEBI, registration or approval, as the
case may be, from such regulator shall be obtained by the company before pursuing
such objects and a declaration in this behalf shall be submitted at the stage of
incorporation of the company.
Stage – 6 : Issue of Certificate of Incorporation & CIN
The Registrar shall register all the documents & information in the Register and on being satisfied
issue a certificate of Incorporation in the prescribed form.
 The life of a Company starts from the date mentioned in the COI ( not from date of Issue of
COI) Jubilee Cotton Mills Ltd Case
 It starts to enjoy all the characteristics of a Company
 The COI issued is a conclusive evidence of registration of Company but its validity can be
challenged if the COI is obtained by Furnishing a misstatement about the particulars or any
information provided.
 However the issue of COI by the registrar does not legalise the illegal object of a company
The registrar shall also a lot a corporate identity Number (CIN) which shall be included in the
companies certificate of Incorporation.
Stage – 7 : Maintain & Preserve documents at Registered office
The Company shall maintain & preserve at its registered office copies of all documents &
information until it is dissolved under this Act.
Note :
1) Furnishing a misstatement about the particulars or any information provided.
Company has not been Company has been Incorporated
Incorporated
Any person who furnishes The tribunal may on an application to it and on being satisfied
any misstatement that it is necessary to do so :
intentionally is liable for i) Pass Such orders as it thinks fit for the regulation of the
management of the company, including changes in the
fraud u/s. 447. MOA & AOA in public interest OR the interest of the
Company ,its members & creditors or,
ii) Direct that the liability of members shall be unlimited, or
iii) Direct removal of name of the company from ROC, or.
iv) Pass order for winding up of the company.
Reasonable opportunity of being heard (OBH) shall be given
by the tribunal to the company before passing any order
Law Relating to OPC.

(1) Memorandum of (2) Who can form OPC (3) Who cannot form OPC ?
OPC
-Shall indicate name of -Only a Natural person & -A person who has already
the nominee on behalf of -Indian citizen & formed a OPC or is a
the one person. nominee in a OPC
-Resident in India (stayed
-Prior written consent of in India for atleast 182 -Minor cannot form
the nominee shall be days in immediately
obtained. Or Cannot be a nominee also.
preceding FY)
-Nominee may withdraw Shall be eligible to be However if a nominee forms an OPC
his consent or Member of member / nominee. then the nominee shall meet the
OPC may anytime change eligibility criteria within 182 days. i.e.
nominee. he has to decide whether to continue
as a nominee or the the member of new
-Any such change in the OPC.
nominee shall not be
deemed as ―alteration of
MOA‖.
(4) No OPC shall be (5) However a OPC can be converted into (6) Contravention /
incorporated as Private Company/Public Company Provisions
-Sec.-8 Company. Compulsory Voluntarily The OPC/the officer

-Non-banking financial When the paid- If the OPC‟ s paid up share of such OPC shall be
Investment company up share capital capital > 50 Lakhs and punished with fine
> 50 lakhs average turnover during upto
OR relevant period > 2 Cr it Rs. 5000 &
Turnover > 2 shall cease to be entitled
to continue as OPC If contravention
Crores
& continues further fine
(i.e. average of Rs. 500 for each
annual turnover within 6 months of the day after such
during relevant date on which its PUSC > contravention
period) 50 lakhs or the last day of
the relevant period during continues.
which its Average Annual
Turnover > Rs 2 Crores ,
as the case may be, into
either private or public
company.
When OPC is
incorporated it can
voluntarily convert itself
into a private or public
company only when 2
years had expired from
the date of incorporation.
Section8 Company :Procedure for Registration

a) First the association should obtain license from ROC as not for profit organization.
b) The ROC shall grant license if following conditions are satisfied :
 Intention must be to provide science, arts, commerce, charity religions or social activity.
 Prohibits the payment of dividend to any member, but intends to apply its profits for the
promotion of its objects.
c) On being satisfied, the ROC shall grant license as not for profit Association.
d) However to register as a section 8 company it must comply with the following steps.
i) Make an application for the license as well as Registration to ROC [Registrar of
Companies]
ii) Annex all the documents required to register a company, with the application [i.e.
Memorandum of Association, Articles of Association, list of first directors, Affidavit etc.]
iii) The ROC after verifying the Correctness and accuracy of the application and documents
on being satisfied will register the association as a section 8 company and grant
certificate of incorporation [COI]
iv) On obtaining the COI, the Sec. 8 company may or may not use the name Pvt. Ltd. / Ltd.
at the end of its name (optional)
Revocation of License :
The ROC may on contravention of any conditions subject to which license was granted or
fraudulent conduct of affairs or violation of the object or when affairs of the section 8 company are
prejudicial in the public interest, it may revoke the license.
However, before revocation a reasonable OBH (opportunity of being heard) shall be granted and
thereafter the ROC may by order.
In the public interest order it to be amalgamated with Wind-up the Company.
another Sec. 8 Company with similar objects OR
On Revocation of It ceases to enjoy all the benefits / privileges of section 8 company. However, it
can continue the same business activity now as a pvt. / public company.
Punishment / Penalty :
On the Company Director and every officer in default
Fine- Minimum 10 lakhs Imprisonment upto 3 years OR
Maximum 1 crore Fine : Minimum Rs. 25,000
Maximum Rs. 25,00,000 OR
Both
Note :
-Sec. 8 Company can convert itself into any other company by passing a Special Resolution in
General Meeting voluntarily
-A partnership firm can become a member of Sec. 8 Company. However on dissolution its
membership will come to end. (Partnership cannot be a member but Section 8 Company is an
exception to it.
Motion – Any matter before being presented in meeting is known as motion
Resolution [After approval of matter in meeting]

Ordinary > 50% of the valid votes are cast in Special > 75% of valid votes are cast in
favour favour.
Valid Votes means :

1) Shareholders who have voting rights only to be counted.
2) Shareholders who abstain (do not vote) at all from voting are to be excluded.
3) Shareholders whose votes are cancelled are also excluded. Shareholders who vote double /
triple times.
Effect of registration
I. The life of a Company starts from the date mentioned in the COI ( not from date of Issue of
COI) Jubilee Cotton Mills Ltd Case
II. It starts to enjoy all the characteristics of a Company
III. The COI issued is a conclusive evidence of registration of Company but its validity can be
challenged if the COI is obtained by Furnishing a misstatement about the particulars or any
information provided.
IV. However the issue of COI by the registrar does not legalise the illegal object of a company
Rule.38. Simplified Proforma for Incorporating Company Electronically (SPICe)-

(1) Purpose : simplifyingthefilingofformsforincorporationofacompany,
(2) Applicability : witheffectfrom1stOct,2016.
(3) Procedure:
a) The application for
 allotment of Director Identification Number (DIN) upto 3 Directors in case of proposed
directors not having approved DIN.
 Reservation of a name ,[ only one name shall be proposed in the form ]
 Incorporation of company and
 Appointment of Directors of the proposed company
Shall be filed in Integrated Form No. INC-32, for One Person Company, Private company, Public
Company and producer company,
With the Registrar within whose jurisdiction the registered office of the company is proposed to
be situated, alongwith the fee of Rs 2000/- in addition to the registration fee.
b) Prepare Memorandum of Association as per templates in Form INC-33 and may opt for
templates of Articles of Association in Form INC – 34 duly signed by the promoter or the
applicant and witness.
[Section 8 Company : Prepare Memorandum of Association as per templates in Form INC-13 and
may opt for templates of Articles of Association in Form INC - 31 ]
c) The proposed company may also furnish verification of its registered office within 30 days
from the date of its incorporation.
d) Where the Registrar, on examining e-formINC-32 shall give intimation to the applicant to
remove the defects and re-submit thee-form within fifteen days from the date of such intimation
given by the Registrar.
 After there submission of the document, if the registrar still finds that the document is
defective or incomplete in any respect, he shall give one more opportunity off if teen days
to remove such defects or deficiencies.
Provided that the total period for re-submission of documents shall not exceed a total period of
30days.
e) The Certificate of Incorporation shall be issued by the Registrar in FormNo.INC-11.‖
Memorandum of Association
1.Name Clause 2.Objects clause 3.Registered Office clause /
Name must not be identical, similar All lawful objects Situational clause / domicile clause
or resemble the name of an existing Only the name of the state in which
company Registered office is situated.
4.Liability 5. Capital Clause 6. Association / subscription clause
Shareholders/Members liability is 1) Authorized Details of promoter of the company
limited capital :
2) No. of shares  Name
issued  Occupation
3) Face Value
 Address
Share
Note : Whenever there is a change in objects and name of the company does not match objects,
company must within 6 months from the change of objects, alter its name to suit its objects.
Note 1:
 The name of a company shall note be prohibited by the Central Government as per the ―The
Names & Emblems Act‖
 In case of Private Co. name must end with words Private Ltd.
Public Co.- Public Ltd
OPC- Pvt ltd (OPC)
Section 8 company – Clause not applicable
Note 2:
Every subscriber to the memorandum (promoter) who signs the MOA shall have 1 witness each and
the promoter must give a declaration to buy alteast 1 share.
Note 3:
Section 8 has been allowed to use the phrase ―Electoral Trust‖ for registration of co. in its name as
per the ―Electoral Trust Scheme 2013‖
DOCTRINE OF ULTRA VIRES means
The main structure that must be followed by any person while entering into contract with a
company is as follows :
-Companies Act, 2013 : Compliance of all Provisions of the Act
- Memorandum of Association
- Articles of Association
Note :
Any Act / Agreement entered by any outsider with the company beyond the Companies
Act/MOA/AOA shall be ultra vires and not binding on the company.
The doctrine of ‗ultra vires„ was first enunciated by the House of Lords in a classic case, Ashbury
Railway Carriage and Iron Co. Ltd. v. Riche.
The company entered into a contract with M/S. Riche, a firm of railway contractors to finance the
construction of a railway line in Belgium. On subsequent repudiation of this contract by the
company on the ground of its being ‗ultra vires;, Riche brought a case for damages on the
ground of breach of contract, as according to him the words ―general contractors‖ in the objects
clause gave power to the company to enter into such a contract and therefore, it was within the
powers of the company. More so, because the contract was ratified by majority of shareholders.
The House of Lords held that the contract was ‗ultra vires„ the company and, therefore, null
and void. The term ―general contractor‖ was interpreted to indicate as the making generally of
such contracts as are connected with the business of mechanical engineers. Further, the Court
held that the company cannot make an―ultra vires‖ act to be valid, even if every shareholder of the
company assents to it.
TYPES OF ULTRA VIRES ACT:
Act ultra vires the Act ultravVires the Act ultra-vires the Act ultra- vires the
AOA but intra-vires powers of BOD but MOA Companies Act.
intra-vires the MOA /
the MOA/Companies Companies Act
Act.
(1) Such act is not void & inoperative. (1) Such acts are void-ab-initio.
(2) The shareholders can subsequently ratify (2) Always binding on the directors/ officers.
such act in General Meeting by passing special (3) Even if all shareholders ratify such act it
resolution. is still outside the powers of company &
(3) If not ratified then the act becomes binding hence never binding on company.
on the directors/officers themselves i.e. to the
extent of loss suffered by the company.
Articles of association [Section 5]

1) It defines the internal rules and regulations.
2) It may contain entrenchment provisions : [i.e. to protect something], for which alteration is
possible only if the additional restrictions given in the articles are duly complied with.
3) Entrenchment Provisions shall only be made : (to protect something)
New Company Existing private company Existing public company
From the formation of Only if all members give Special Resolution is

Company their consent passed.
4) Every company adding entrenchment provisions in its AOA must give notice to ROC in the
prescribed form and manner.
5) The model AOA are given in Table F, G, H, I, J of Companies Act, 2013.
6) Except, company Ltd. by shares which can adopt Table F. Every other company is required
to prepared its own AOA referring to the model articles.
Table F Co. limited by shares
Table G Co. limited by guarantee having share capital
Table H Co. limited by guarantee Models of AOA
Table I Unlimited co. having share capital
Table J Unlimited co. not having share capital
Example of entrenchment
If PQR Ltd. Subscribed by investing in XYZ Ltd., a private company 10% of shares and thereafter
XYZ Pvt. Ltd. Approaches a bank for a loan, the Bank officials after reading the AOA would ask XYZ
Pvt. Ltd. To get the consent of its minority investor – PQR Ltd.
This is entrenchment provision which protects interest of minority investors and gives them power
to participate in the decision making process of the company.
Limitations Regarding Alteration of Articles :

1) AOA must not contravene any statute , including Companies Act and Memorandum of
Association.
2) Articles cannot be altered which is a fraud on the minority investors i.e. shareholders
3) Articles must only be altered in the bonafide interest of company as a whole.
4) Articles must not contain clause which provides for expulsion of a member ,since once a
member, always a member
DOCTRINE OF INDOOR MANAGEMENT :

i) Persons dealing with the company in good faith have a right to assume that the
internal requirements prescribed in Public documents have been observed.
ii) Persons are not bound to enquire into regularity of internal proceedings.
Exceptions :
i. Knowledge of irregularity: A person knowing fully well that the directors do not have the
authority to make the transaction but still enters into it, cannot seek protection under the rule of
indoor management
ii.Negligence on part of an outsider :Where an officer of a company does something which shall
not ordinarily be within his powers, the person dealing with him must make proper enquiries and
satisfy himself as to the officer„s authority.If he fails to make an enquiry, he is estopped from relying
on the Rule.
iii.Forgery Where the secretary of a company forged signatures of two of the directors required
under the articles on a share certificate and issued certificate without authority, the
applicants were refused registration as members of the company. The certificate was held to be
nullity and the holder of the certificate was not allowed to take advantage of the doctrine of indoor
management
[Rouben v. Great Fingal Consolidated]
Loan
Apply for shares
Company Mr. X Bank
CS forged MD Sign Share certificate CS

MD
Pledges Outsider
iv.Acts outside scope of apparent authority. (ultra vires act)
IF DOCTRINE OF CONSTRUCTIVE NOTICE IS A NEGATIVE DOCTRINE, THEN THE DOCTRINE OF

INDOORMANAGEMENT IS A SILVER LINING (A RAY OF HOPE).IT IS A SLENDER SLIVER LINING OF
A RATHER DENSE CLOUD.
The rule was first laid down in ―The royal British bank v Turquand‖
- The directors of a banking company were authorised by the articles to borrow on bonds
such sums of money as should from time to time, by resolution of the company in general meeting,
be authorised to borrow.
- The directors gave a bond to Turquand without the authority of any such resolution.
- It was held that Turquand could sue the company on the strength of the bond, as he was entitled
to assume that the necessary resolution had been passed.
- Lord Hatherly observed – Outsiders are bound to know the external position of the
company, but are not bound to know its indoor management.
Whenever AOA are registered with the ROC it has the following effect : Binding effect
a) Members are bound to company for the clauses / rules given in AOA
b) Company is also bound to the members for the rules given in AOA.
c) Members are bound to other members [interse : in between them] * in exceptional cases
only.
d) Company not bound to outsiders for the clauses / rules given in AOA.
Outsider means a person who is not a member of the company even if he is a director/
solicitor.
Hence no outsider acquires any enforceable right by the clause of articles.
CASE STUDIES :
For clause a above.In Boreland's Trustee v. Steel Brother and Co. Ltd., the articles of a
company contained a clause that on the bankruptcy of a member his shares would be sold to other
persons at a price fixed by the directors.
Boreland, a shareholder, was adjudicated bankrupt. His trustee in bankruptcy claimed that he was
not bound by these provisions and should be at liberty to sell the shares at their true value.
It was held that the trustee was bound by the articles as the shares were purchased by Boreland in
terms of the articles of the company.
For clause d above. In Eley v. Positive Life Insurance Co., the articles provided that Eley should
act as a solicitor for life to the company and should not be removed from office except for
misconduct.
Eley acted as a solicitor to the company and also became a member of the company. The company,
however, discontinued his services, whereupon he sued the company for damages for breach of
contract. It was held that he had no cause of action because the articles did not constitute any
contract between the company and himself as solicitor. His action was dismissed.
Alteration of MOA
1) Name Clause :
A) Voluntary Change :
a. Pass Special Resolution.
b. Obtain approval of the ROC in writing.
c. The ROC shall not allow the company to change its name if it has
defaulted in filing annual returns / financial statements / documents with ROC.
OR
It has defaulted in repayment of matured deposits / debentures / interest.
d. The company shall file with the registrar copy of special Resolution within 30 days in Form No.
MGT 14.
e. File with the Registrar copy of Central Government Approval within 15 days.
f. The registrar shall on being satisfied issue a fresh certificate of Incorporation in the new name
and the change in name shall be effective thereafter.
B) Additions / deletions of the words Private : No Approval needed

a. Pass Special Resolution.
b. The Company shall file with registrar copy of Special Resolution within 30 days in Form No. MGT
14.
C) Compulsory Name Change
a. The Central Government(RD) is empowered to give direction to the company to rectify its name (if
name is identical / resembles (similar) to the name of a company in existence or it is identical or
resembling to registered trademark.
b. On receiving notice from Central Government(RD), Company shall within 3 months (or 6 Months
in case of application by Registered Trade mark holder) as the case may be, pass an ordinary
Resolution for name change.
c. Company shall give notice of the name change and order of Central Government within 15 days
from the date of such change to the Registrar.
d. The registrar shall thereafter carryout necessary changes in the certificate of incorporation and
memorandum & issue a fresh COI.
Default :
Company – Rs. 1,000 per day of default.
Officer in default – Fine Rs. 5,000 to Rs. 1,00,000.
2) Registered Office Clause :

Except Maharashtra and Tamil Nadu, all other states have 1 ROC each
(Maharashtra : Pune & Mumbai, Tamil Nadu : Chennai & Coimbatore).
A) Shifting of registered office from one premises to another premises in the same city /
town/village
a. Pass a Board Resolution.
b. File copy of Board Resolution with the Registrar
c. Give notice with proof of change of situation of registered office to the registrar within 15 days of
shifting.
B) Shifting of Registered Office from one city / town/village to another city/town/village

I) With the same jurisdiction of ROC :
a. Pass a Board Resolution.
b. Pass a Special Resolution.
c. File the copy of Special Resolution within 30 days with ROC in Form No. MGT 14.
d. File copy of Board Resolution with the Registrar
e. Give notice with proof of change of situation of registered office to the registrar within 15 days of
shifting.
II) With different jurisdiction of ROC :
(a)Pass a Board Resolution
(b)Pass a Special Resolution
(c) Send Notice to chief secretary of the state that employees interest is not adversely affected
consequent to the proposed shifting
(d) File the copy of Special Resolution within 30 days with ROC in Form No. MGT 14.
(e) Apply for confirmation of regional Director along with required declarations by KMP or any 2
directors that company has not defaulted in payment of its workmen dues and has either the
consent of its creditors or has made provision for their payment.
(f) File the confirmation of Regional Director with registrar within 60 days from the date of such
confirmation.
(g) Give notice with proof of change of situation of registered office to the registrar within 15 days of
shifting.
C) Shifting of Registered Office from one state to another state :

a. Pass Special Resolution of the shareholders in General Meeting.
b. File the copy of Special Resolution with ROC within 30 days in Form No. MGT 14.
c. Give Newspaper advt atleast 30 days before making application to CG approval .
d. Sending individual notice to obtain NOC of each debenture holder and creditor
e. Obtain previous approval of Central Government [ CG delegated to Regional Director ]:
i) Make application in Form INC 23 with all prescribed documents.
ii) The Central Government shall dispose of the Application within 60 days
iii) The Central Government before passing the order, will satisfy itself that :
 Consent of creditors, debenture holders & other persons obtained.
 Sufficient provision has been made for the due discharge of all its debts and
 obligations.
 Adequate security is provided for such discharge.
f. Certified copy of Central Government order shall be filed with registrar of both the States within
30 days of receiving the CG order.
g. The registrar of new state shall issue fresh certificate of incorporation.
3) Alteration of Object Clause :

a. Pass a Board Resolution
b. Pass Special Resolution through postal ballot.
c. The details of such resolution shall also be published in the newspapers circulating at the Place
where registered office of the company is situated. (One in English and one in Vernacular language)
& also be placed on the website of the company, if any, indicating the Justification for such change.
d. The dissenting shareholders shall be given an opportunity to exit as per the SEBI regulations.
e. File the copy of Special Resolution with ROC within 30 days in Form No. MGT 14.
f. The registrar shall Register the alteration with respect to objects of the company and
Issue a fresh certificate of incorporation within 30 days thereafter.
4) Alteration of Liability Clause
 In general, liability clause of a company cannot be altered.

 However, Section 18 permits a company of any class registered under this Act to convert itself in
some other class of company by altering its memorandum and articles of association.
 By using these provisions, if an unlimited company gets converted into a limited company or
vice-versa, the liability of the members will be changed and thereby leading to alteration of
liability clause of memorandum.
Section 14 : Alteration of Articles :
i) All matters as to which the Memorandum is silent can be dealt with by the alteration of Article.
ii) Steps for alteration :
- Pass a special Resolution.
- File the copy of special Resolution along with the printed copy of altered articles within 30 days
with the registrar in Form MGT 14
- The alteration made shall be valid once the registrar registers the same.
Note :
1) Every copy of the Articles shall contain the alteration made, else penalty of Rs. 1,000 for
every copy of Articles issued without such alteration shall be levied on the company & every officer
in default of the Company.
Registered Office Of Company
1) A company must be have within 30 days of the Certificate of incorporation its own Registered
office and details of it must be filed with ROC within 30 days of incorporation.
2) The company shall paint or affix its name and registered office address on the outside of every
office or place of business and also mention the details on all documents, letterheads, notices
and also have its name engraved in legible characters on its seal, if any Company shall
paint or affix or print along with its name, the former name or names so changed during the last
2 years.
3) In case of One person company, the word ―OPC‖ shall be mentioned.
4) If the registrar has reasonable course to believe that the company is not carrying on any business
or operations, he may cause a physical verification of registered office & if any default is found
then it may initiate action for the removal of the company from the books of ROC.
5) In case of specified IFSC companies notice of the registered office & its details must be filed
within 60 days of incorporation.
Commencement of Business [Sec 10]

1] Once a company is incorporated (company limited by shares) it shall not commence any business
or exercise any borrowing power unless
A declaration is filed by director within a period of 180 days from the date
of incorporation with the ROC in the prescribed form & manner that
a) Every subscriber to the memorandum has paid the value of the shares agreed to be
taken by him on the date of making such declaration
AND
b) The company has filed with ROC a verification of its registered office within 30 days
from the date of incorporation.
Along with the declaration, a certificate from CA / CS / CMA shall be filed which
state that they have duly verified.
The company must also attach any approval or registration letter obtained by it
from any regulator i.e. RBI, SEBI
2] Contravention of Sec 10 –
Officer in Default Company
Rs. 10000 for each Fine – Rs. 50000

day of default subject
to max. Rs. 1 lakh
CONVERSION OF PRIVATE COMPANY TO PUBLIC COMPANY:

Steps:
i) Pass Special Resolution of the shareholders in General Meeting and delete from its Articles the
statutory restrictions applicable to private company.
ii) File the copy of Special Resolution in form MGT 14 with ROC within 30 days.
iii)Comply with all other requirements :
- Name change ―Pvt. Ltd.‖ To ―Ltd.‖
- Minimum no. of members, directors,
- Other procedural compliances
iv) Roc on being satisfied that all compliances & formalities are made issue fresh certificate of
Incorporation.
CONVERSION OF PUBLIC COMPANY TO PRIVATE COMPANY:

Steps:
i) Pass a Special Resolution of shareholders in General Meeting and alter its articles so as to
include the statutory Restrictions applicable for a Private Company :
 Restricts the right to transfer of shares.
 Limited the no. members, Minimum – 2, maximum – 200, except OPC.
 It prohibits any invitation to public to subscribe for any securities of the company.
ii) Obtain approval of the tribunal[Now CG ] for the conversion.
iii) File the copy of Special Resolution in form MGT 14 with ROC within 30 days.
iv) File the Copy of tribunal [Now CG ] approval with ROC within 30 days of approval
v) Thereafter change the name of the company from ―Ltd.‖ To ―Pvt. Ltd.‖.
vi) Obtain a fresh certificate of incorporation from ROC & after this COI the conversion will become
effective.
Note : 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
Section 19 : A subsidiary company shall not held shares in its holding company. Any transfer /
allotment of shares by a holding company to its subsidiary shall be void (Sec. 19).
Exceptions:
a) The subsidiary company can hold such shares as a legal representative of a deceased member.
b) The subsidiary company can hold shares as a trustee on behalf of the trust.
c) Where the subsidiary company was already holding shares before it became a subsidiary.
However, as per the Act, Subsidiary company shall have right to vote at a meeting of Holding
company only in respect of clause a or clause b above.
Note :
If the holding company is a company limited by guarantee or unlimited company not having share
capital, the reference to be taken shall be the interest of its members in the above situation.
Section 20 : Service of Documents

On Company On Registrar or Members
1) Document served to Company or 1) Documents served on Registrar or any member by
officer sending by various means.
of the company, at the registered office Exception :documents may be served only
of company. on members who holds shares of more than
2) If securities are held with depository, Rs 1000 in face value or more than 1% of
depository shall serve the records of the total paid up share capital of the nidhi
beneficial ownership on company by Company whichever is less.
means of electronic or other mode. 2) If company is sending document by ordinary post
to all members & if member wants the document
by registered Post he shall pay the necessary extra
expenses in advance as decided in AGM
Note :
1) The above documents can be send by the below mentioned ways :
 By post
 By Registered post
 By Courier Service
 By Speed Post
 By Hand delivery
 By means of such electronic or other mode as may be prescribed.
2) Electronic transmission means, communication that creates record that is capable of
retention, recovery and review and which may thereafter be rendered into tangible form.
It may be made by :
 Fax or electronic mail OR
 Posting of an electronic message board or network OR
 Other means of electronic communication.
3) In case of delivery by post, such services shall be deemed to have been effected:
i) In case of a notice of meeting: On Completion of 48 hours after the letter is posted.
ii) In any other case: At the time when the letter is delivered in ordinary course.
Section 21: Document / Proceeding requiring Authentication by a Company or contracts

made by or on behalf of a company may be signed by :
i) KMP (key managerial Personnel)
ii) Any other officer or employee of company authorised by the Board in this behalf.
Note – In case of specified IFSC public company & IFSC private company, for the word ―an officer‖
read as ―an officer or any other person‖.
Section 22: Execution of bills of exchange, etc.
(1) A bill of exchange, hundi or promissory note/NI on behalf of a company if made on behalf of
or on account of the company by any person acting under its authority, express or implied.
(2) Company by writing under its common seal, if any, authorise any person either generally or
in respect of any specified matters.
(3) In case a company does not have a common seal the above authorization shall be made by 2
directors or by a director & CS, wherever the company appointed a CS.
Note: It can be observed from above that a company may or may not have a common seal. If
company decides to have a common seal then it has to affix the same for specified matters,
execution of deeds on behalf of the company.
CA CS Nilamkumar Bhandari www.lawlogic.in Expert Professional Academy, Pune 1
CHAPTER 2: PROSPECTUS AND ALLOTMENT OF SECURITIES

Chapter III of Companies Act, 2013
Part I Part II
Prospectus Allotment of Securities
Sec. 23 to 38 Sec. 39 to 42
Section 2(70): Defines Prospectus as
Any document Issued to the public For the subscription of any

i.e. any notice, circular, i.e. General offer securities
Advertisement in writing (Shares, debentures, deposits)
Note: Prospectus includes Read herring prospectus Section 32 and shelf prospectus Section 31.
Section 23 :Issue of Securities

`
Public company Private company

1) Public offer 1) Rights issue
2) Rights issue 2) Bonus issue
3) Bonus issue 3) Private placement
4) Private placement
Matters to be stated in prospectus (Section 26)

i) Every Prospectus –
a) Must be dated & signed by BOD / Authorised person.
b) Registered with ROC before issue to the public.
c) Must be issued to public within 90 days of registration else fresh registration after 90 days.
d) Must contain true & fair view on the financial position / information of the company and its
nature of business.
Note –
1) Contravention of any provisions of true & fair view , the prospectus is considered to have a
misstatement.
2) Definition of Expert – Expert includes an Engineer, a Valuer, CA, CS, CMA & any other
person who has the power or authority to issue a certificate as per any law in force.
Section 29: Public offer of Securities to be in Demat Form:

`
Every company making public offer. In case of other companies.
Such class or classes of public companies as Such companies may issue securities in
prescribed. physical form in dematerialized form.
To issue the securities only in Demat Form.
Section 30: Advertisement of Prospectus
Advertisement of any prospectus of a company is to be publish & it shall specify all the contents of
MOA.
Prospectus
Section 33 Section 31 Section 32

Abridged prospectus(in Brief) ―Time‖ Red herring prospectus
Definition (Section 2(i)) Shelf prospectus ―awareness‖
1) A memorandum containing 1) Only such class or classes of
1) A prospectus which does not
all the salient features of a company as specified by
prospectus as specified by SEBI can issue shelf include complete particulars
SEBI. prospectus of the quantum of price of
2) Form no. 2A 2) Once issued the shelf securities offered is a RHP.
3) When is a company not prospectus is valid for a 2) It is issued prior to the issue
required to issue abridged period of one year from the of prospectus.
prospectus? date of issue 3) It shall be filed with the
 Rights issue 3) Every subsequent issue
registrar at least 3 days prior
 Bonus issue within the period of 1 year,
must contain „information to the opening of Issue.
 Securities not offered to
public – private offer, memorandum‟ 4) Any variation between the
ESOP‘s a) Any change in the RHP and the prospectus
 Underwriter agreement financial position between shall be highlighted as
4) A copy of prospectus shall be the previous issue and variations in the prospectus.
furnished to every person subsequent issue 5) On closing of the offer, a
who makes request to b) Any new charges created
final prospectus shall be
company before closing of (i.e. any new loan obtain
against the loan) filed with the registrar & the
issue otherwise penalty upto
Rs.50,000 for each default. SEBI which shall contain the
Prospectus for subsequent
 Application issue = shelf prospectus (+) following details :
 Abridged prospectus Information memorandum i) Total Capital raised (by
c)Any other information as debt/share capital)
specified by SEBI. ii) Closing price of the
Eg. Banks and Financial securities.
information iii)Any other details not
included in the red
herring prospectus.
If advance payment is received for allotment of securities then company shall give information
memorandum for such applicant and if he withdraws his application then amount shall be
refunded within 15 days
Section – 25: Deemed Prospectus / Prospectus by Implication / offer for sale.

1) Any document by which the offer for sale to the public is made shall be deemed to be prospectus
issued by the company itself.
2) All the provisions, rules and contents of prospectus and liability for misstatement shall apply
(mutatis mutandis = with suitable modifications).
3) Any person making an offer for sale to public on behalf of company must :
a) Make the offer within 6 months of the agreement OR
b) At the date when offer was made, company had not received the whole consideration to be
received.
4) Effect of Section 26: Section 26 as applied by section 25 shall have effect as if –
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 amt of the consideration received by the company
b) The time & 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.
Section – 26: Matters to be stated in prospectus:

(1) Every prospectus of a public company shall comply with the contents of prospectus stated in
Companies Act, 2013 provisions and schedule thereunder.
(2) Any prospectus issued shall not include a statement made by expert if such expert
(a) Is a person who is engaged or interested in the formation or promotion or management of the
company.
(b) has not given his written consent to the issue of prospectus
(c) has withdrawn such consent before the delivery of copy of prospectus to the registrar for
registration.
(d) statement of written consent is not included in the prospectus.
(3) No expert shall be liable for misstatement in prospectus unless his own report is inaccurate.
Section – 27: Variations in terms of Contract or Objects in Prospectus:
(1) A company shall not at any time vary the terms of contract referred in the terms of prospectus or
object for which prospectus was issued except by way of special resolution.
(2) Notice of Resolution shall also be published in newspapers (1 English, 1 vernacular) in the city
where registered office of Company is situated indicating clearly the justification for such
variation and the notice shall also be published on its website, if any.
(3) Exit route shall be offered by the company to all the dissenting (not agreeing) shareholders for the
variations as per the exit price and conditions specified by SEBI.
(4) Any money / amount raised through prospectus shall not also be used by the company for
buying, trading or dealing in equity shares of any other listed company.
Section – 28: Offer of Shares by Certain Members

(1) Members whose shares are proposed to be offer to public shall collectively authorise to public
to take all actions in respect of offer of sale for and on their behalf.
(2) Any document by which the offer of sale is made shall be deemed to be a prospectus issued
by the company.
Sec 40 :Conditions for allotment of shares by listed public companies
1) All three conditions of Section 39

2) Obtain listing permission from any of the recognized stock exchange (NSE / BSE)
3) Keep the money received in separate Account in a scheduled bank and shall not withdrawn until
allotment is complete.
Notes:
1. If application is made to more than one stock exchange then listing permission shall be
obtained from both the stock exchanges. Else allotment shall be void.
2. Money kept in separate account in a schedule bank can be used only for refund of
application money or adjustment of allotment money.
3. Contravention of Section 40. It will be considered as void & voidable.
a. Company: Fine minimum 5 lakh, maximum 50 lakh
b. Officer in default: Imprisonment upto 1 year OR fine minimum 5,000, maximum 3,00,000
or both.
Sec 40(2) : Underwriting Commission
1) The underwriting contract is a Guarantee Contract in which a company may pay

commission to the underwriter or any person in connection with subscription to its
securities.
2) Conditions :
a) Underwriting contract must be authorized by the AOA.
b) Commission may be paid out of –
Proceeds of share capital, out of Profits or out of Securities Premium Account.
c) In case of equity shares – Maximum 5% of issue price or Authorised by AOA,
whichever is less.
d) Commission can be paid in cash / in kind.
e) The prospectus shall disclose all the details of underwriting agreement.
Note – Once the underwriting contract is entered, the commission shall be paid when the entire
capital is raised irrespective of whether the shares are offered to public or not.
Section 39 (Applicable to all Companies)

No company shall make allotment of securities unless within 30 days from the date of issue:
1) Of prospectus / letter of offer
2) Minimum subscription is received and
3) Minimum application money is received
Rules
1) By proper authority
2) Within reasonable time If not complied allotment
3) Through surrender of letter of allotment becomes invalid.
4) Absolute and unconditional
If the above 3 conditions are

`
Satisfied Not satisfied

Company shall file a return of allotment with Company shall refund / repay the application
the ROC in the prescribed form and manner money within 15 days of the close of issue
without interest
However for any default to repay within 15 days

`
Company shall be fined Directors of the company shall be jointly and

1) Rs.1,000 for each day of default severally liable to pay interest @ 15% p.a.
thereafter OR
2) Maximum Rs.1,00,000
Whichever is less
Note: Any person who applies for the shares and who has been allotted shares without complying
the above three conditions can rescind the contract and claim back his money as the contract is
voidable at his option.
Liabilities for Misstatement in Prospectus
Civil liability (Sec. 35)

`
Company shall be liable AND All the other person / promoter / director /
officer / expert shall also be liable
Company shall compensate to every person who suffered the loss / damages
Provided:
1) The loss is actual loss
2) The person claiming has claimed it within a reasonable time
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3) Before doing any inconsistent Act OR 4. Before winding up of company

e.g. Accept dividend, attends and votes at (liquidation)
general meeting
Whichever is earlier
Note: 1.If it is proved that misstatement was fraudulent (i.e. intention to deceive) then the liability
of above persons is unlimited and they shall be criminally liable under section 34 for fraud as
follows.
Note 2: For any misstatement in prospectus, only that person can make the company and its
officers liable who has purchased the shares directly from the company. A subsequent purchaser of
shares in open market has no remedy against company. (Peek vs. Gurney)
Criminal Liability (Section 34)

`
Imprisonment Fine
Min. 6 months Min. the amount of fraud
Max. 10 years Max. – 3 times of amt. of fraud
Fraud of Public Interest
Minimum Imprisonment – 3 years
Note 2: Circumstances when a director / promoter / officer is not liable for misstatement.
Civil liability
1) He withdrew his consent before the issue of prospectus and it was issued without his
authority.
2) He gave a reasonable public notice after the issue of prospectus that it was issued without
his knowledge or consent. OR
3) If he proves that he relied upon the statement of an expert and he had a reasonable to
ground to believe the person making the statement for was competent to make it.
Criminal liability
a. He proves that the misstatement was immaterial OR
b. He proves that he had reasonable grounds to believe that the statement was true OR the
omission was necessary.
Above circumstances will mutatis / mutandies be applicable in case of promoters / officers /
expert.
Misstatement means –
Omission of any OR Providing untrue /false

Material information information
Section 36 – Punishment for fraudulently inducing persons to inverts money
Any person who knowingly / unknowingly make any statement which induces the another person –
1) for acquiring securities of a company OR
2) to provide credit facility to the company.
a. Then such person shall be liable for fraud under section 447.
Section 37 – Action by Affected Persons

Any suit under section 34 / 35 / 36 may be filed by any person or group of or AOP of the same
class who are affected by any misstatement in prospectus.
Section 38 – Punishment for Personation for Acquisition of Securities

When a person applies or any person assist him in applying in a fictitious name for making multiple
applications or inducing the company directly or indirectly to allot securities, such person shall be
liable for fraud u/s 447.
And the court shall order to seize any gain & sale proceeds & dispose off the securities obtained &
the money from the seizure & disposal shall be credited to the Investor Education & Protection
Fund.
Section 447 – Punishment For Fraud

Amount involved in fraud
Atleast Rs.10 lakh Less than 10 lakhs

OR OR
1% of the Turnover 1% of the Turnover
of company Whichever is lower
(+)
Whichever is lower Does not involve public interest
Imprisonment – Min. 6 months Imprisonment ≤ 5 years

& Max 10 years OR
(In Public interest Min. 3 Fine ≤ Rs. 50 lakh
months)
OR
&
Both
Fine : min. – amount of fraud &
max. – 3 times of the amt
involved in fraud
Private Placements: [Section 42]

Offer of Securities through issue of Private Placement offer letter & fulfillment of conditions as follows
Company
To selected group of Persons who have been identified by the board
Maximum 50 at one time or such higher no. of persons as prescribed (i.e. 200 in a financial year)
[Shares issued to Qualified Institutional buyer‘s & Employees (ESOPS) shall not be included in the
limit]
When does company opt for Private Placement?
i) When Company is in urgency/in need of urgent requirements of funds.

ii) Company does not want to make offer of securities to its existing shareholders.
Procedure :
i) Company shall make the offer of securities or invitation to subscribe securities only after
obtaining approval of the shareholders by a special resolution.
ii) Maximum 200 persons shall be offered or invited in a financial year.
(QIB and ESOP‘s issued to Employees will not be included in the above limit.)
iii) All the money is payable towards subscription of securities shall be through cheque / DD only.
iv) Company shall allot its securities within 60 days from the date of receipt of application money.
In case of default, company shall refund the entire application money within the next 15 days
without the interest and after 15 days it shall be liable to pay interest @ 12% p.a. from the expiry
of 60 days (i.e. retrospective)
v) Money received shall be kept in a separate bank a/c. in a Scheduled Bank, until allotment is
complete.
vi) A complete information about the offer shall be filed with the registrar within 30 days of the
circulation of offer letter.
vii) Finally after allotment of securities a return of allotment giving all the details of the security
holders shall be filed with the registrar.
Contravention:
Company and its officers in default shall be liable :
Penalty upto the amount involved in offer/ To refund all the money received within 30 days of
invitation the order of penalty.
OR
Rs. 2 crores, Whichever is lesser.
Note :
1) No minimum investment size in the private placement should be Rs. 20,000/- of the face
value.
2) Any offer to more than 200 persons shall be deemed to be the public offer & to that
Companies Act, SEBI Act and Securities Contract Regulation Act, provisions shall be
applicable.
3) No public advertisement shall be made in any form by the Company for such an offer.
4) No fresh offer or invitation shall be made unless the existing offer or invitation has been
completed or withdrawn or abandoned by the company.
CHAPTER 3: SHARE CAPITAL AND DEBENTURES
Authorised/ Nominal/ Registered Share Capital
Issued Capital Unissued Capital
Subscribed Capital Unsubscribed Capital
Called up Capital Uncalled Capital
By passing special resolution
Paid-up Capital Unpaid Capital (+)
Tribunal permission
Forfeiture Converted to
Reserve Capital
Reissue i.e. money that can be called
Only on liquidation.
Share Vs Stock
Share Stock
1) A share is the share capital of company & 1) A bundle/bunch of shares taken together.
includes Stock.
2) Shares can be partly paid up or fully paid 2) Stocks can be only fully paid up
up.
3) Shares have dividend & voting rights 3) No such rights
4) Shares are to be issued in the absolute & 4) Stocks can be issued in fraction
unconditional form
5) Shares have face value 5) They do not have any face value
6) Shares can be issued to any person who 6) Stocks are issued only to employees or
agree in writing to become a shareholder. directors.
7) Shareholder is usually a member 7) Unless stocks are exercised, the person is
not a shareholder or members.
TYPES OF SHARES
`
Equity shares Preference share

1) Usually they have voting rights and 1) They have preference in respect to payment of
dividend right. dividend and repayment of capital.
2) However in case of a public company 2) Usually they do not have any voting rights except as
equity shares with differential rights follows :
(dividend / voting / other rights) can a) Cumulative preference shares – dividend remains
be issued as per prescribed rules of unpaid for continuous 2 financial years
central government. b) Non-Cumulative preference shares – either for
continuous 2 financial year or any 3 out of the
last 6 financial years.
Eg.
2013 2014 2015 2016 2017 2018 2019
     
Voting
Right
They will get voting rights only when –
i) Business is ceased
ii) Internal reconstruction
iii)Company goes into liquidation
iv) Non payment of dividend
Rule 4 - Equity shares with differential rights.—

(1) No company limited by shares shall issue equity shares with differential rights as to dividend,
voting or otherwise, unless it complies with the following conditions, namely:—
(i) AOA authorises the issue of shares with differential rights;
(ii) Authorized by an ordinary resolution [ Listed Company – Ordinary Resolution must be
approved by the shareholders through postal ballot
(iii) the shares with differential rights shall not exceed twenty-six percent of the total post-issue
paid up equity share capital including equity shares with differential rights issued at any
point of time;
(iv) Consistent track record of distributable profits for the last three years;
(v) No default in filing financial statements and annual returns for three financial years
immediately preceding the financial year in which it is decided to issue such shares;
(vi) No subsisting default in the payment of a declared dividend to its shareholders or
repayment of its matured deposits or redemption of its preference shares or debentures that
have become due for redemption or payment of interest on such deposits or debentures or
payment of dividend;
(vii) the company has not defaulted in payment of the dividend on preference shares or
repayment of any term loan from a public financial institution or State level financial
institution or scheduled Bank that has become repayable or interest payable thereon or
dues with respect to statutory payments relating to its employees to any authority or default
in crediting the amount in Investor Education and Protection Fund to the Central
Government;
[Provided that a company may issue equity shares with differential rights upon expiry of five
years from the end of the financial year in which such default was made good.]
(viii) the company has not been penalized by Court or Tribunal during the last three years of any
offence under any of the Acts, under which such company is being regulated.
(2) The company shall not convert its existing equity share capital with voting rights into equity
share capital carrying differential voting rights and vice–versa.
(3) The holders of the equity shares with differential rights shall enjoy all other rights such as
bonus shares, rights shares etc., which the holders of equity shares are entitled to, subject to
the differential rights with which such shares have been issued.
(4) Where a company issues equity shares with differential rights, the Register of Members
maintained under section 88 shall contain all the relevant particulars of the shares so issued
along with details of the shareholders.
Share certificate
When the company issues the document of title specifying the number of shares, title of the person
to such shares, under the common seal, if any, of the company or signed by two directors or by a
director and the Company Secretary, wherever the company has appointed a Company Secretary
mentioning the face value of such shares. It shall be prima facie evidence known as shares
certificate.
Format –
Name of Company
R.O. address
1) Face value of equity share
2) Name of the person
3) Number of shares
4) Common seal
Implication of share certificate : The Company shall be bound as follows-

`
Estoppel as to title Estoppel as to payment

Once the certificate is issued by the company When company issues shares as fully paid up,
then the company is stopped from denying the later it can‘t say that they were not fully paid up.
validity of the shares certificate
Notes:
1) A duplicate share certificate may be issued, if such certificate is proved to have been lost or if
destroyed or defaced or mutilated or torn and surrendered to the company.
2) The officer in default shall be liable for fraud under section 447.
3) Penalty for impersonation by a shareholder-
(Acting fraudulently as a share holder of someone else‘s shares)
Imprisonment – minimum: 1 year , Maximum: 3 years
&
Fine– minimum: Rs. 1 lakhs, Maximum: Rs. 5.00.000
4) If a company with intent to defraud issues a duplicate share certificate then the company shall
be punishable with fine
Minimum Maximum
5 times of Rs. 10 Crores

face value OR
10 times of face value
Whichever is Higher
Voting Rights [Section 47]

1) Company limited by shares – voting rights shall be in proportion to paid up equity share
capital of the company.
2) Company limited by guarantee – voting rights shall be one person one vote.
Note :
In case a private company by its MOA or AOA provides some other rules for voting rights then
the provisions of Sec 47 shall not apply provided the private company has not committed any
default in filing financial statements u/s 137 or annual returns u/s 92.
Specified IFSC public company – Sec 47 not applicable if MOA & AOA provide some other rule.
In case of Nidhi company the voting rights of a single member shall be maximum 5% irrespective
of the share capital / deposit given by him.
Variation of shareholders rights - Section 48

Following both conditions must be satisfied for any variation in the rights
(a) Variation must be authorised by the memorandum or articles

OR
It must be authorised by the terms and conditions of the class of shares issued.
(b) Special resolution to be passed in general meeting.
OR
Consent of 3/4th of the shareholders of that class must be obtained in writing.
Cancellation of variation
Shareholders who do not give consent to the above variation are known as dissentient
Procedure for cancellation:

(a) Application by at least 10 % paid up capital held by the dissentient shareholder shall be
made to the court (i.e. tribunal),Within 21 days from the date of passing of resolution.
(b) The court shall issue show cause notice to the company and there after it may either confirm
the variation or cancel it or modify it.
(c) Company shall forward the copy of courts order to the registrar within 30 days.
(d) The decisions of the court on such application shall be final and binding on all the parties.
CALLS AND INCIDENTAL MATTERS [SECTION 49 TO SECTION 51]

(1) Section 49 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.
(2) Section 50, if authorised by the articles, a company can keep advance subscription or call
money received in advance. However, there would be no voting right on that advance amount till
the amount is duly called for and adjusted.
(3) Section 51,The company could pay proportionate dividends in proportion to amount paid on
each share, if authorised by the articles
In other words, advance payment will never lead to increased voting rights but delayed payment
of call money could be the reason of decreased voting rights.
Application of premiums received on issue of shares [Section 52]
The securities premium A/c balance can be utilised by the company for –
(1) Fully paid bonus shares
(2) Writing off preliminary expenses
(3) Writing off issue expenses
(4) Underwriting commission paid on any issue
(5) For discount allowed on any issue – for ESOPS/ sweat equity
(6) -For premium payable on redemption of any redeemable preference shares
(7) Buy back of shares
Prohibition on issue of shares at discount [Section 53]
(1) Except issue of sweat equity shares at discount
(2) No company shall issue share at a discount
AND
If issued it shall be void
AND
The company and its officers in default shall be liable for following punishment
Company Officer in default

Fine – minimum amount raised through Fine – minimum amount raised through
issue of shares at discount Issue of shares at discount
OR OR
Rs. 5 lakhs Rs. 5 lakhs
Whichever is less Whichever is less
Company shall also be liable to refund entire money received with interest @ 12% p.a. from the
date of issue of such share.
(2A) Notwithstanding anything contained in sub-sections (1) and (2), a company may issue
shares at a discount to its creditors when its debt is converted into shares in pursuance of any
statutory resolution plan or debt restructuring scheme in accordance with any guidelines or
directions or regulations specified by the Reserve Bank of India
Issue of Sweat equity shares [Section 54]
Meaning : Section 2 (88)
When equity share are issued by company to its employees or directors at a discount or for a
consideration other than cash for providing –
(a) Know how or

(b) Intellectual property rights (IPR) (copy rights, patents etc) or
(c) Value additions by whatever name called
Employee means-
(a) a permanent employee of the company who has been working in India or outside India; or
(b) a director of the company, whether a whole time director or not; or
(c) an employee or a director as defined in sub-clauses (a) or (b) above of a subsidiary, in India
or outside India, or of a holding company of the company;
Conditions –
1) Pass a special resolution
2) The resolution must specify –
a) The number of shares
b) Current market price
c) Consideration to be received
d) Class or classes of directors / employees, to whom the shares are issued.
3) Listed company – SEBI guidelines, Unlisted company – CG rules
Preference shares - Issue and redemption [Section 55]
(1) No company Ltd. By shares shall issue irredeemable PS.

(2) Period for redemption – usually 20 years from the date of issue.
Exception – 30 years from the date of issue for infrastructural projects.
However, redemption of 10% shares shall begin from 21st year @ the option of PS.
(3) Source of redemption
(a) Principle out profits available for dividend
OR
Out of proceeds of fresh issue of shares made for purposes of such redemption.
(b) Premium on principle: out of profit available for dividend
OR
Out of securities premium
(4) PS to be redeemed shall be fully paid up.
(5) Transfer to CRR Account: When the PS are redeemed out of profits then a sum equal to nominal
amount of shares redeemed shall be transferred to CRR. Such CRR account can be used for
issuing fully paid bonus shares.
Note:
In case of unredeemed PS:

(1) When company is not in a position to redeem any PS or to pay dividend.
(2) It may issue unredeemed PS:
(a) With the consent of 3/4th in value of such PS.
And
(b) Approval of the tribunal is obtained.
Tribunal will give approval if company redeems forthwith all the PSH held by persons who do not
give consent to the further redeemable PS. (i.e. dissentient PSH)
When the PS are redeemed as given above any issue of further redeemable PS shall not be deemed
to be an increase or reduction in the share capital of company.
Transfer and transmission of securities or interest of a member in the company (Section 56)
`
Transfer Transmission
1) Voluntary conveyance of the rights and the 1) Taken place when share are transferred
duties of a members under the operation of law, either on the
death or lunacy or insolvency of registered
shareholders
2) Execution of instrument of transfer is 2) No execution of any instrument is required
required
3) No evidence of entitlement of transferee 3) Evidence showing the entitlement of
required by the company transferee is required by the company
Eg. Death – Death certificate,
Lunatic – Doctor certificate
Insolvency – Court order
4) Stamp duty payable on transfer 4) No stamp duty payable on transmission.
Procedure for Transfer of Securities:
Share certificate is
Fully Paid up Partly Paid up lost/ stolen from the Exception
transferee
1) Share certificate 1) Share certificate 1) Indemnity bond 1) Govt. bonds –
(+) Share transfer (+) Share transfer submitted to the transferee has to
form form company by the specify his name,
2) Duly stamped & 2) Duly stamped & transferee address &
executed by executed by 2) Evidence of occupation to the
transferor & transferor & payment made Govt. (+) the
transferee transferee certificate of bond /
3) Send to the 3) Send to the letter of allotment
company by company by of bond
transferee within transferor 2) Govt. company –
60 days of 4) Company send securities held by
purchase notice to nominee of Govt.
transferee for
objection, if any
within 14 days
5) If no objection
then company
shall transfer the
shares after 14
days
Section 58 – Refusal to register transfer and appeal against refusal

Private company limited by shares –
(a) It shall send notice of refusal to register the transfer / transmission within 30 days from the date
of application.
(b) The transferee may appeal to tribunal against the notice within 30 days of receipt OR if no
notice has been received from the private company within 30 days ,then, within 60 days from the
date of application
Public company –
(a)If the public company without any sufficient cause refuses to register the transfer of securities or
transmission within 30 days from the date of application
The transferee may –
`
Within 60 days of receiving notice of refusal If no notice has been received within 90 days
from the date of application
Appeal to the tribunal
a) The tribunal shall after giving reasonable opportunity of being heard to both the parties , by
order
Direct the company to register Dismiss the Direct rectification of the

the transfer / transmission appeal register and pay damages to the
within 10 days of the receipt of aggrieved party
order
Note : -
Any person who contravenes the tribunal order shall be punished with
Imprisonment – minimum 1 year & Fine –

Maximum 3 year Minimum 1 lakhs
Maximum 5 lakhs
Rectification of register of member [Section 59]

In case name of any person –
(a) Is entered in to the register of members without sufficient cause OR
(b) Is omitted from register of members OR
(c) If default is made OR
(d) Unnecessary delay takes place in entering name in the register.
The aggrieved person / any members of the company / the company itself
May appeal in the prescribed form to the tribunal for rectification of register
(in case of foreign members or debenture holder residing outside India – to a competent court
outside India).
 The order of tribunal shall be as per the provision of section 58 given above.
 The lawful holder of securities shall however have the right of transferring his securities to
any person during such period when the appeal is pending.
The person who acquires such securities shall be entitled to voting rights in respect of such
shares unless the voting rights have been suspended by order of tribunal.
 The tribunal may on receiving application from any person that transfer of securities is in
contravention of the provisions of Securities contract regulation Act 1956, SEBI Act 1992 or
Companies Act –
Direct the company or its depository to set right the contravention and rectify its register or
records.
 Penalty –
As per section 59 the company and its officer in default shall be punished as follows –

Fine – minimum Rs. 1 lakhs Imprisonment up to 1 year OR
Maximum Rs. 5 lakhs Fine minimum Rs. 1 lakhs
Maximum Rs. 3 lakhs OR
Both
Alteration of share capital [Section 61]
(1) (2) (3) (4) (5)

Increasing Consolidation of Conversion of Sub division of By cancelling the
authorised capital shares into ‗share into shares into unsubscribed
↓ larger stock and vice smaller portion of issued
denomination versa‘ denomination capital
e.g. 10 lac equity
share @ 10 each ↓ ↓ ↓ ↓
↓ e.g. Rs. 10 face Under ESOPS e.g. Rs. 100 face Diminution of
value share to issued and value share to share capital
Increased to
Rs. 100 face ESOPS Rs. 10 face
↓ value share exercised/lap value share
12.5 lac equity sed
share @ 10 each
Note: -
Procedure for Alteration of Capital [Section 61 (1) read with section 13 of the Companies Act,
2013]:
Under section 61 (1) a limited company having a share capital may, if authorized by its Articles,
alter its Memorandum in its general meeting as under :
(i) it may increase its authorized share capital by such amount as it thinks expedient;
(ii) it may consolidate and divide all or any of its share capital of a larger amount than its existing
shares
(iii) convert all or any of its paid up shares into stock and reconvert that stock into fully paid shares
of any denomination
(iv) sub-divide the whole or any part of its shares into shares of smaller amount than is fixed by the
Memorandum
(v) cancel those shares which,at the time of 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.
Further, under section 64 where a company alters its share capital in any of the above mentioned
ways, 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.
Section 13 provides for the procedure to be followed for alteration of the Memorandum, as
under :
(a) A special resolution must be passed to effect the alteration. For this purpose a Board Meeting
must be held to convene a general meeting of the members and all legal provisions in this behalf
followed including the circulation of a detailed explanatory note on the proposed change
alongwith the notice for the general meeting;
(b) The company must file with the Registrar the special resolution passed by the company to effect
an alteration in the capital clause of the Memorandum;
(c) No alteration to the Memorandum will have effect unless it has been registered with the
Registrar as above.
Further issue of share capital – Rights Issue; Preferential Allotment [Section 62]
A company can bring out a public issue for equity shares / preference shares with consent of
existing shareholders who have the pre emptive right to purchase the additional shares to be issued.
Such offer of shares to existing shareholders is called right issue.
A company having share capital if proposes to increase its subscribe capital by the issue of further
shares, such shares shall be offered to
When share are not offered to existing shareholders

Existing shareholder
To the employees under To any other person (private
scheme of ESOPs placement / preferential
allotment)
He can accept the offer BY SR & subject to By SR either for cash or for consideration
OR Complying with other than cash (i.e. at a price determined
ESOP guidelines by valuation report of a registered valuer
He can renounce the offer in
whole or in part to any subject to the compliance with the
other person In case of Private applicable provisions of Chapter III
company – Only and any other conditions as may be
Ordinary resolution prescribed)
-If he declines to accept or
renounce, the board of
directors shall after expiry
of the time dispose of the
shares in the most bonafide
interest of the company
(refer note i)
Note : -
1) In case of existing shareholders, the offer for rights issue shall be kept open for a minimum 15
days and maximum 30 days.
The notice shall be dispatched through registered post or speed post or through electronic
mode or courier or any other mode having proof of delivery to all the existing
shareholders at least three days before the opening of the issue.
Provided that, in case 90% of the members of a private company have given their
consent in writing or in electronic mode, the periods lesser than those specified in the
said sub-clause or sub-section shall apply.
The above mentioned exception shall be applicable to a private company which has not
committed a default in filing its financial statements under section 137 of the said Act or annual
return under section 92 of the said Act with the Registrar
The right to renounce his share shall be available to a shareholder only if the articles do not
prohibit such renunciation.
Notes (Continued):
2) Exception to section 62 –
a) In case convertible debentures or convertible loan have been raised and before the issue it has
been approved by a special resolution passed in general meeting.
b) Conversion of debenture / into shares by government
The government may if necessary in the public interest convert by order the debentures or loans
into shares and before such conversion it shall consider –
(i) Terms and conditions for conversion, shall be reasonable.
(ii) It has such rights even if the terms of issue of debenture / raising loan does not include a
term of conversion.
3) The government shall also consider the financial position, the rate of interest payable on
debentures / loans and such other matters as it may consider necessary before exercising the
conversion.
(i) If the terms of conversion are not acceptable to the company it may within 60 days of receiving
the government order appeal to the tribunal to pass necessary orders.
Issue of bonus shares [Section 63]

(1) Section 63 – says that a company may issue fully paid up bonus shares to its members, in any
manner what so ever out of –
(a) Its free reserves
(b) The securities premium A/c OR Sources
(c) The capital redemption reserve A/c
No bonus issue shall be made by capitalising reserves created by revaluation of assets.
(2) No company shall capitalise its profit or reserves for purpose of issuing fully paid up bonus
shares unless – Conditions:
(a) It is authorised by its articles
(b) On recommendation of the board & has been authorised in the general meeting of the
Company by ordinary resolution.
(c) Not defaulted in payment of interest or principal in respect of fixed deposits or debt
Securities issued by it.
(d) Not defaulted in respect of the payment of statutory dues of the employees
(e) Partly paid up shares are made fully paid up
(f) It complies with such conditions as may be prescribed (SEBI guidelines / central
government rules) The bonus shares shall not be issued in lieu of dividend.
Section 72: Nomination

1) Usually every shareholder must appoint a nominee on his behalf within 1 year from the date
of allotment.
2) In case of joint holders, they must together nominate.
3) If nominee is a minor, a lawful holder of securities is to be appointed who shall be entitled to

securities if the minor dies during his minority.
Notice to be given to Registrar for Alteration of Share Capital [Section 64]

A company shall give notice to the registrar for any alteration of share capital, in case of –
(a) Alteration of share capital as per section 61
(b) Order made by government of converting it loans or debentures into shares
(c) On redemption of any redeemable preference shares.
On contravention the company and any office in default of the company shall be punished with a fine
– Rs. 1,000 for each day of default OR Rs. 5 lakhs which ever is less (maximum 5 lakhs)
Forged Transfer
SC of A is stolen by B Manager working in

A B A‘s shop
Realowner of shares (Person procure registration
of company by forgery)
Company
C Innocent purchaser
1) Forgery is null & void & it has no legal effect.

2) In the above case, once forgery is proved by the real owner it will have the following
conssequences:-
a) Real owner can get his name placed back in registrar of member.
b) The innocent purchaser can recover all his damages from the company
c) Company can recover all damages paid to the innocent purchaser (+) its own expenses if
any from the person who procured registration by forgery.
Reduction of share capital [Section 66]

A company can reduce its share capital only when the following conditions are fulfilled:-
(i) The company has not defaulted in the repayment of any deposits or the interest payable thereon
(ii) The company shall pass a special resolution in general meeting.
(iii) The company shall also obtain confirmation from NCLT.
(iv) File copy of special resolution with registrar within 30 days
(v) Publish the confirmation of NCLT order in such manner as directed by NCLT
(vi) File copy of the order of the Tribunal with the Registrar within 30 days of the receipt of the copy
of the order and
(vii) Registrar shall register the same and issue a certificate to that effect
Share Capital of a company can be reduced in any of the following ways:-

(a) Extinguish or reduce the liability on any of its shares in respect of the share capital not paid
up or
(b) Cancel any paid up share capital which is lost or is unrepresented by available assets or
(c) Pay off any paid up share capital which is in excess of the wants of the company.
Notice by Tribunal (Section 66(2)): The tribunal shall give notice of every application made to it to
the Central Government, Registrar and to the SEBI and the creditors of the company.
The company shall take into consideration the representations made to it by that Government,
Registrar, the SEBI and the creditors within a period of 3 months from the date of receipt of the
notice.
If no representation has been received from the Central Government, Registrar, the SEBI or the
creditors within 3 months, it shall be presumed that they have no objection to the reduction.
Confirmation by Tribunal (Section 66(3)): If the Tribunal 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.
The Tribunal shall not sanction reduction of share capital unless the accounting treatment,
proposed by the company for such reduction is in conformity with the accounting standards and a
certificate to that effect by the company‘s auditor has been filed with the Tribunal.
 Distinguish between –
Reduction of share capital Diminution of share capital
Reduction means cancellation of subscribed Diminution means cancellation of issued
portion of share capital potion of share capital
Balance sheet & reduced is prepared after No change in balance sheet by diminution
reduction
Requires special resolution Affected by only an ordinary resolution
Needs confirmation of court Needs no confirmation of court
Dividend burden is reduced No change in dividend burden
Detailed procedure regarding notice to the Notice is to be given to the registrar within 30
registrar has been prescribed (section 103) No days from date of cancellation
time limit
Forfeiture Vs Surrender of shares:
Forfeiture of shares Surrender of Shares

1) It must be authorized by AOA. 1) It is an voluntary act exercised by lawful
shareholder.
2) Reasonable notice is must to the 2) Shareholder himself inform the company.
shareholder.
3) It must be exercised only in the bonafide 3) No such provision for surrender of share exist
interest of company as a whole. under Companies Act.
4) It is the act at the initiative of the company 4) It is the act at the initiative of shareholder/
member.
Note: Both forfeiture & surrender leads to termination of membership. However, the liability of
member continues for the period of 1 year for the unpaid amount from the date of cessation of
membership. [i.e. as B list contributories in case of winding up of company, provided such shares
are not reissued.]
Restriction on purchase by company or giving of loans by it for purchase of its shares

[Section 67]
1) A company limited by shares and a guarantee company having share capital shall not have power
to buy its own shares unless the consequent reduction of share capital is effected under the act.
In case of Nidhi Companies the provision shall not apply, when share are purchased by the
company from a member on his ceasing to be a depositor or borrower and it shall not be
considered as reduction of capital under section 66 of the Companies Act, 2013.
Or
2) No Public company shall give any financial assistance to any person for purchase of any shares in
the company or in its holding company.
3) Nothing in sub section ( 2 ) shall apply to :
(i) A Banking company which lends money in the ordinary course of its business
(ii) The provision by a company of money in accordance with any Scheme approved through
special resolution ,for the purchase of or subscription for , fully paid up shares in the
company or its holding company if the purchase of or subscription for the shares held by
trustees for benefit of employees or such shares held by the employee of the company.
(iii) Giving of loans by a company to its employees (other than its directors or key managerial
person) for an amount up to 6 months of their salary or wages for purchase / subscription of
shares in the company or its holding company.
(iv) Provided disclosure i.r.o voting rights not exercised directly by the employees i.r.o shares to
which the scheme relates shall be made in the board‘s report
4) Company shall have a right to redeem any preference shares issued by it .
5) On Contravention
Company – Fine: Min 1 lakhs; Max 25 lakhs
Officer in default of Company – Imprisonment up to 3 years & Fine: Min 1 lakhs; Max 25 lakhs
6) Section 67 Shall not apply to private companies-
i) In whose share capital no other body corporate has invested and money;
ii) If the borrowings of such company from banks/financial institutions/anybody
corporate is less than twice its paid up share capital/ 50 crore rupees, whichever is
lower; and
iii) Such company has no default in repayment of such borrowings subsisting at the time
of making transactions under this section.
Power of company to purchase its own securities [Section 68]

Purpose of buy back
(a) Increase shareholders value
(b) To serve as corporate defence mechanism
(c) To provide on exit route to existing shareholders
(d) To return surplus cash to the shareholder out of reserves.
Sources of buy back

(a) Free reserves
(b) Securities premium A/c
(c) Proceeds of the issue of any shares (but not out of proceeds of same kind of shares)
(d) Other specified securities – ESOP
Methods of buy back

(a) From existing shareholders on proportionate bases
(b) From open market (i.e. stock market)
(c) From odd lots
(d) By purchasing shares of employees issued in ESOPs / sweat equity.
Conditions to be Complied Before Buy Back

1) Authorised by AOA
2) Up to 10 % of total paid up equity capital and free reserves – by board resolution
3) Beyond 10 % but up to 25 % of aggregate of paid up capital & free reserves- By special resolution
in General meeting
4) In respect of buy back of Equity shares in any financial year – 25 % of the total paid up equity
capital shall be the maximum buy back in that financial year.
5) The ratio of debt to equity offer buy back shall not exceed 2 : 1
6) All shares for buy back shall be fully paid up.
7) For listed companies – SEBI regulations must be complied with , for other companies – central
government rules
8) Buy back must be completed within 12 months from the date of passing of special resolution
9) No buy back shall be made within 1 year from the date of closure of the preceding offer of buy
back.
10) The board of director shall before making such buy back file with the registrar and SEBI (in case
of listed company) a declaration of solvency duly signed by at least 2 directors of which 1 shall
be the MD in the prescribed form and verified by an affidavit that –
‗The BOD has made full inquiry into the affairs of the company and are of the opinion that the
company is capable of meeting its liabilities and will not be rendered insolvent within a period of one
year from the date of declaration‘.
Conditions to be complied after buy back

1) Extinguishment of securities –
It shall extinguish and physically destroy the shares or securities so bought back within 7 days
of the last date of completion of buy back.
2) Cooling period –
It shall not make further issue of same land (including right shares) within a period of 6 months
except -
 By way of bonus issue
 As conversion of warrants
 Stock option schemes
 Sweat equity
 Conversion of preference shares or debentures into equity shares
3) Register of buy back – It shall maintain a register of the

 shares or securities so bought
 Consideration paid for the shares / securities so through (i.e. them).
 Date of cancellation of shares / securities
 Date of extinguishing and physically destroying the shares / securities.
 Other particular as may be prescribed.
4) Filing of buy back return –
File with the registrar and SEBI a return containing such particulars within 30 days of such
completion, as may be prescribed.
5) Penalty for default –
Company Officer of the company

Fine : minimum – Rs. Imprisonment: may extend to 3 yrs. OR
1.00.000 Fine : minimum – Rs. 1.00.000
Maximum – 3.00.000 Maximum – 3.00.000
OR
Both
Transfer of certain sums to Capital Redemption Reserve account [Section 69]

Where a company purchases its own shares out of free reserves or securities premium account a
sum equal to the nominal value of the share so purchased shall be transferred to the capital
redemption reserve A/c & details of such transfer shall be disclosed in the balance sheet.
It can be used in issuing fully paid bonus shares to members of the company.
Prohibition for buy-back in certain circumstances [Section 70]

1) The provisions says that no company shall directly or indirectly purchase its own shares or
other specified securities –
(a) Through any subsidiary company including its own subsidiary company
(b) Through any investment company OR
(c) If a default is made, in
 Repayment of deposits or interest payment thereon
 Redemption of debentures or preference shares.
 Payment of dividend to any shareholder.
 Repayment of any term loan or Interest payable thereon to any financial institutions
or banking company
But where the default is remedied and a period of 3yrs has lapsed after such default ceased to
subsist (exist), then such buy back is not prohibited.
2) No company shall directly or indirectly purchase its own shares in case such company has not
complied with provisions of
Section 92 – Annual return
Section 123 – Declaration of dividend
Section 127 – Punishment for failure to distribute dividends\
Section 129 – financial statement
Share Certificate Vs Share Warrant
Share Certificate Share Warrant

1) It is issued by both public & private 1) It is issued only by public companies.
companies.
2) Holder of share certificate has his name 2) Bearer of share warrant‘s name is strike off
entered in the register of members. from registrar of members.
3) Share certificate depicts the ownership in 3) Share warrant is a negotiable instrument i.e.
the shares of the company. itt can be transfer by endorsement & delivery.
4) Dividend is paid in cash. 4) Dividend coupons are attached.
5) Holder of share certificate has voting right & 5) Holder of warrant has no voting rights or any
all other rights as a shareholder. other right.
6) Shares can be transferred as per the 6) Holder can transfer it by mere delivery or by
provisions of Companies Act. endorsement & delivery.
7) Shares can be partly paid & share certificate 7) It is issued only against fully paid up shares.
can be issue even then.
8) No CG approval is needed for issue of SC. 8) It requires CG approval.
DEBENTURES [Sections 71]

i) Issue of debenture with an option to convert :
Shall be approved by Special Resolution passed at general meeting.
ii) No company shall issue any debentures carrying any voting rights.
iii) Secured debentures may be issued by a Company subject to such terms and conditions as
may be prescribed under the Companies (Share Capital and Debentures) Rules, 2014.
iv) Tenure : 10 years [Infrastructure Companies - 30 years , Companies permitted by a
Ministry or Department of the Central Government or by Reserve Bank of India or by
the National Housing Bank or by any other statutory authority to issue debentures
for a period exceeding ten years ]
v) Secured by the creation of a charge, on the properties or assets of sufficient value ;
vi) Appoint a debenture trustee before the issue of prospectus or letter of offer for
subscription of its debentures and not later than sixty days after the allotment of the
debentures,
vii) Execute a debenture trust deed to protect the interest of the debenture holders ; and
viii) The security for the debentures by way of a charge or mortgage shall be created in favour
of the debenture trustee on- any specific movable / immovable property of the company
(not being in the nature of pledge)
ix) Creation of debenture redemption Reserve (DRR) A/c. :
The Company shall create a DRR A/c out of the profits of the company available for payment of
dividend and the amount credited to such account shall not be utilized by the Company except
for the redemption of debentures.
Creation of Debenture Redemption A/c.
Public Financial
Institutions
For NBFC‘s & other Unlisted
regulated Listed Companies
financial institutions Companies.
by RBI & Banking
Companies.
No DRR is required Public Issue : DRR Public Issue : On Private
for debentures willbe 25% of the value 25% of the value of Placement :
issued to of debentures. debentures. DRR will be 25%
public as well as of the
privately placed debentures.
debentures
Privately placed Privately placed
Debentures : debentures :
No DRR is required. 25% of the value of
debentures.
 Notes :
1) Company to create the above DRR on or before 30th April in each year. It shall invest or
deposit atleast 15% of the amount of debentures maturing during the year ending on 31 st
March of the next year in any of the government approved securities (i.e. liquid securities).
2) In no case the amount invested shall fall below 15% of the amount of debentures maturing
during the year ending on 31st March of that year.
Limitation on the issue of prospectus / offer / invitation to publics. 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 trustee.
Debenture Trustee
1) Debenture trustee to protect the interest of debenture holders.

2) Liability of debenture trustee :
Shall be void in so far as it would have the effect of exempting a trustee thereof from or
indemnifying him against, any liability for breach of trust.
3) Exemption from the liability :
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
(a) To pay interest and redeem the debentures by the company in time.
(b) Filling of petition before the Tribunal by the debenture trustee :
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.
On failure to redeem the debentures / to pay interest on the debentures :

The tribunal may, on application of any or all of the debentureholders 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.
Default of officer as per the order of the Tribunal :

Every officer of the company who is in default shall be punishable with imprisonment for a term upto
3 years or fine min : 2 lacs max : 5 lacs or both.
Specific performance of the contract :

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.
Procedure to be prescribed by the Central Government :
a) For securing the issue of debentures.

b) The form of debentures trust deed,
c) Procedure for the debenture-holders to inspect the trust deed and to obtain copies thereof.
d) Quantum of debenture redemption reserve required to be created and such other matter.
Debentures with voting rights not permissible :
Debenture holders are not placed in a much more advantageous position than the holders of equity
shares and are not in a position to influence the policy of the company in a manner detrimental to
the interest of the general body of shareholders.
Distinguish between Debenture & Shares :
No. Debenture Share

i) Debentures constitute a loan Shares are part of the capital of a company.
ii) Debenture holders are creditors. Shareholders are the owners of the company.
iii) Debenture holders do not have Shareholders enjoys voting right.
any voting right.
iv) Interest on debenture is payable Dividends can be paid to shareholders only
even if there are no profits. out of the profits of the company.
v) Debenture generally have a charge Shares do not carry any such charge.
on the assets of the company.
vi) The rate of interest is fixed in the For equity shares the dividend may vary from
case of debentures. year to year.
vii) Fixed amount of interest on Shareholders cannot get any priority over
debentures gets priority over interest or tax.
dividend on shares.
‗Pari Passu‘: Pari Passu clause in a debenture means that all the debentures of that particular series
are to be paid rateably, if, therefore, security is insufficient to satisfy the whole debts secured
by the series of debentures, the amounts of debentures will abate proportionately.
[ If this clause is not included, the debentures will rank in priority for payment in accordance with
the date of issue, and if they are all issued on the same date they will be payable according to their
numerical order.]
A company, however, cannot issue a new series of debentures so as to rank ‗pari passu‘ with any
prior series unless the power to do so is expressly reserved and contained in the document of offer.
Appointment of Debenture Trustee: Under section 71 (5) of the Companies Act, 2013, 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.
The rules framed under the Companies Act for the issue of secured debentures provide that before
the appointment of debenture trustee or trustees, a written consent shall be obtained from such
debenture trustee or trustees proposed to be appointed and a statement to that effect shall
appear in the letter of offer issued for inviting the subscription of the debentures.
Further according to the rules, no person shall be appointed as a debenture trustee, if he-
(i) Beneficially holds shares in the company;
(ii) Is a promoter, director or key managerial personnel or any other officer or an employee of
the company or its holding, subsidiary or associate company;
(iii) Is beneficially entitled to moneys which are to be paid by the company otherwise than as
remuneration payable to the debenture trustee;( creditor)
(iv) Is indebted to the company, or its subsidiary or its holding or associate company or a subsidiary
of such holding company;(debtor)
(v) Has furnished any guarantee in respect of the principal debts secured by the debentures or
interest thereon;(guarantor)
(vi) Has any pecuniary relationship with the company 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;
(vii) is a relative of any promoter or any person who is in the employment of the company as a
director or key managerial personnel;
CHAPTER 4: ACCEPTANCE OF DEPOSITS BY COMPANIES

Deposit can be accepted from
Members Or Public
1) Private Company 1) Eligible Public Company

2) Public Company
3) Govt Company
Public Company Or Govt. Company
DEPOSIT INCLUDES
Any money by way of Deposits from Secured / Unsecured

Member Deposits
a) Deposit Or
b) Loan from Public
c) In any other form
Note: Deposit is accepted in time bound manner – minimum – 6 months

Maximum – 36 months
AMOUNTS NOT CONSIDERED AS DEPOSIT

(a) Grant received from CG/SG.
(b) Loan from any Bank /PFI
(c) Loan from any foreign , Govt. / World Bank / IMF.
(d) Issue of ―Commercial Paper‖ [Govt. Securities].
(e) Inter Corporate Deposit.
(f) Issue of shares – upto 60 days + 15 days – after 75days it will be considered as deposit.
(g) Deposit received by a Pvt. Company from its members [OR] relatives of directors, provided a
declaration is filed by these persons that the deposit is out of their own funds.
(h) Promoters contribute as unsecured loan.
(i) Employee security deposit
(j) Deposit accepted by Nidhi Company.
DEPOSITOR
Private Company Public Company Eligible Company Govt. Company
Member Member 1) Members OR 1) Members OR

2) Public 2) Public
ELIGIBLE COMPANY [Sec 76(1)]

Eligible company‖ means a public company as referred to in sub-section (1) of section 76, having
 a net worth of not less than one hundred crore rupees or

 a turnover of not less than five hundred crore rupees and
 which has obtained the prior consent of the company in general meeting by means of a
special resolution and
 also filed the said resolution with the Registrar of Companies before making any invitation to
the Public for acceptance of deposits:
However, an eligible company, which is accepting deposits upto Paid up share capital + Free
Reserves + Securities Premium account , may accept deposits by means of an ordinary resolution.
Eligible Company means A Company Having
Net worth Turnover Prior consent of File copy of special

≥ ≥ shareholders is resolution with
OR & obtained in general & ROC before
100 Crores 500 Crores
meeting by way of invitation to pubic
special resolution for acceptance of
deposits
However if acceptance of deposit ≤ [PUSC + FR + SP] then only ordinary resolutions is to be passed.
PROHIBITIVE PROVISIONS AND EXEMPTED COMPANIES

(1) No company shall invite, accept or renew deposits under this act from the public except in a
manner provided hereunder.
(2) Exception –
 Banking company
 Non banking financial company as per RBI
 A housing finance
 Any other company as CG may specify, after consultation with the RBI (nidhi company).
Note : That means the provisions of this chapter applicable only to non-banking , non-financial
company.
PROVISIONS REGARDING ACCEPTANCE OF DEPOSITS FROM MEMBERS
(1) Company shall pass a resolution of shareholders in general meeting [ordinary resolution]
(2) Company shall issue a letter of offer which shall be circulated amongst it‘s members. The letter
of offer must show. :
(a) Financial condition of company.
(b) Credit rating obtained
(c) Total no. of depositors
(d) Outstanding deposits as on date on issue.
(3) File a copy of the letter of offer with ROC within 30 days before the date of issue of circular.
(4) Deposit at least 20% of the deposit maturing during the next two financial year in a separate
Scheduled Bank Account ―Deposit Repayment Reserve‖ Account.
(5) Company shall obtain a certificate that the company has not committed any default any time in
repayment of deposits or interest thereon. If default is made then 5years must elapse from the
date default is made goods.
(6) Provide adequate security by providing charge on the property of the Company for the
repayment of deposit only in case of secured deposit.
Notes:
(1) If the paid up share capital (+) Securities Premium Account (+) free reserves < total deposit
issued (+) to be issued.
Then apart from passing resolution in GM only condition vi shall be fulfilled in case of Private
Company only.
(2) In case Public company wants to issue deposits to Public then the letter of offer( prospectus) in
(2) above is issued to public
(3) As per the new provision following class of private companies also condition 2 to 5 not
applicable
 Start company from 5 years from date of its incorporation.
 A private company which following 3 conditions:
 Clause (a): It is an associate or subsidiary company of any other company.
 Clause (b):Total borrowing ≤ 2 x paid up capital or Rs.50 crores.
Whichever is lower.
 Clause (c): No defaulted in the repayment of any borrowings existing at the time of
accepting any deposit.
In case company specified in note 1 and 3 the conditions shall not be applicable (provided
details of money accepted is filed with the registrar in prescribed manner.)
(4) Specified IFSC Public company accepting deposits from members can accept deposit upto 100%
of the aggregate of paid up share capital & free reserve & securities premium account provided
details of monies so accepted is filed with the registrar in prescribed manner.
(5) If a company fails to repay the deposit or any interest thereon, the depositor may apply to
tribunal & tribunal shall direct the company to pay any sum due/any loss/damage incurred as
result of such non-payment.
(6) The deposit repayment reserve account shall not be used for any purpose other than repayment
of deposit.
(7) Tenure for which deposit can be accepted:-
Normal Circumstances Emergency Situations
Minimum – 6 months Minimum – 3 months

Maximum – 6 months Provided the deposit accepted ≤
10% of [PUSC + FR + SP]
(8) Ceiling limit on maximum amount of deposit
Members Public
1) Private Company = 100% Eligible Company = 25%

2) Public Company = 35%
3) Eligible Company = 10%
Note: Govt. Company can accept 35% either from members or from public or both.
Start up private company & private company which fulfill the 3 conditions can accepts deposit from
members without any maximum limit.
(9) Appointment of trustee for depositors [Refer pg 26(6)]
(10) Ceiling on rate of interest & brokerage payable on deposit – RBI notified rate of interest /
brokerage.
(11) Nomination & Joint Depositors –

Deposits may be accepted in joint names not exceeding three. The depositor may nominate any
person at any time on his behalf.
(12) Register of deposits – Refer pg 30(16)
(13) Premature repayment of deposits –

Only after expiry of 6 months but before the actual date of maturity provided the rate of interest
payable shall be reduced by 1% than the actual rate
Example – Deposit made for 3 years, premature repayment after 2 years & 3 month/ 2years & 6
months rate of interest payable was 10% for 3 years.
In case of premature repayment 9% ROI shall be paid for 2 years or 3 years respectively
(14) Deposit receipt – to be issued within 21 days from the date of receipt of money.
(15) Return of deposit with registrar on or before 30th June of every year a duly audited return of
deposit in form DPT-3 shall be filed giving particulars as on 31st march of every year.
(16) Penal rate of interest – If company fails to repay deposit (Secured/Unsecured) it shall pay penal
rate of interest 18% p.a. for the overdue period.
PROVISIONS REGARDING ACCEPTANCE OF DEPOSITS FROM PUBLIC BY ELIGIBLE

COMPANIES
a) The public company must have :

(i) Net worth > 100 cr.
OR
(ii) Turnover > 500 cr.
b) The public company must comply the CG rules in consultation with R.B.I. as follows :
(i) To obtain credit rating from a recognized credit rating agency during the time of raising
public deposits and every year thereafter until the deposits are outstanding.
(ii) Provide a charge on its assets within 30 days of acceptance of deposits from public.
(iii) Additional conditions to be fulfilled with ―Mutatis Mutandis‖ as per Sec. 73 are :
(a) Ordinary Resolution – Pass in G.M.
(b) Issue a prospectus to public
(c) File the copy of prospectus with ROC, 30 days before the issue of prospectus.
(d) D.R.R. Account – 15% of the deposit maturing in next 2 financial years.
(e) Insurance
(f) Certificate – Not defaulted any time in repayment of deposit / Interest.
(g) Asset provided in security is of sufficient value.
PUNISHMENT FOR CONTRAVENTION OF SECTION 73 OR SECTION 76
Company Officer in Default
Min. Rs. 1 Cr / twice the Imprisonment ≤ 7 years

amount of deposit accepted &
whichever is lower
Fine – Min. Rs.25 Lakh
Max. Rs. 10 Cr
Max. Rs 2 Crores
&
Punishment for fraud u/s 447 if
contravention is made
intentionally.
CHAPTER 5: REGISTRATION OF CHARGE

Charges: ―Security given for repayment of Debt‖
Charge
Particulars Property Borrower Lendor E.g.

a) Mortgage Immovable property Possession Ownership Housing Loan
b) Pledge Movable property Ownership Possession Gold Loan
c) Hypothecation Movable Property Possession Ownership Vehicle Loan
d) Lien [to retain] Any Ownership Possession Servicing of Car.
Charges
`
Fixed Charge Floating Charge

It is a charge on specific, ascertained and It is a charge on present and future assets (no
existing asset specific asset)
Company can‘t deal with the assets except Company is free to use or deal with the assets
with the consent of charge holder the way it likes, until the charge becomes fixed
Registration of a fixed charges on movable Registration on all floating charge on all kind of
assets in not compulsory assets is compulsory by law
It is a legal charge i.e. having 1st right It is an equitable charge
It has always a priority over floating charge The priority of charge holder is shifting in
character
It remains active throughout the charge It remains dormant until it is crystallized
period
e.g. charge on land and building, plant and e.g. charge on stock in trade, book debts
machinery (debtors), etc.
Crystallizations of floating charge (i.e. conversion of floating charge into fixed charge)
`
(1) OR (2) OR (3) OR (4)

Failure of the Cessation of If a receiver is appointed by the If the company
company to pay business by debenture holders as per the is wound up
interest or redeem the company terms of issue of debentures
the debentures
secured
Registration of charge Sec 77
Particulars Procedure
Within 30 days Register the particular of the charge duly signed by the company and
from the date of charged holder (+)
creation of charge In a prescribed form (+)
On payment of prescribed fees
Within 60 days Company shall give a sufficient clause (+)
from the date of A declaration from the company signed by secretary / director (+)
creation of charge
Additional filling fees not exceeding 10 times the normal fees.
i.e. next 30 days)
Within additional Registrar may on an application, allow such registration after payment of
60 days after the advalorem fees.
expiry of next 30
days.
Consequences of If not registered within the additional 60 days, the company will be liable
non-registration for contravention of Sec 77 & has to face the consequences of non-
registration & also the punishment u/s 86.
Notes: -
(1) Declaration for belated filing should mention that the delay will not adversely affect right of any
other intervening (i.e. in between) creditors of the company.
(2) The registrar on being satisfied about the particulars, register the charge and issue the certificate
of registration in the name of charge holder.
(3) Consequences of non-registration
 The charge holder‘s right on the assets does not cease until the company is a going concern
or any other charge on the same assets is registered.
 However if the company goes into liquidation, the charge holder becomes unsecured creditor.
It means the liquidator or any other creditor of the company shall have a right on the assets.
 On liquidation also the companies‘ obligation for repayment of the money to the charge
holder continues.
(4) Some Charges as prescribed in consultation with RBI may not be registered.
(5) Procedure for extension in time limit for registration-
(i) Application in form CHG-1 to the registrar.
(ii) Sufficient cause for the delay, to be provided.
(iii) Additional fees / Advalorem fees to be paid.
(iv) Declaration from the CS or any director that the belated will not adversely affect rights of
any other creditors of the company.
Application for registration of charge by charge holder, when company who is primarily
responsible for registration of charge fails to do so within the prescribed period.
Notice of Registration of Charge on Modification of Charge i.e. Registration
(1) Acquisition of any property (2) Modifications in the terms

already subject to charge by & conditions OR
a company already (3) Modifications in the extent
registered. of any charge already registered.
Section 80 – Deemed notice of a charge already registered
Section 81 – Register of charge to be maintained by the registrar & shall be available for inspection
to any person on payment of prescribed fee.
Section 82 – Memorandum of satisfaction of charge to be filed with the registrar on payment or
satisfaction in full of any registered charge
Section 83 – Power of registrar to make entries of satisfaction & release in absence of intimation
from company [Suo Moto Power]
Section 84 – Intimation of appointment of receiver or manager by the charge holder to the company
& registrar within 30 days from the date of order or date of appointment.
Section 85 – Company‘s register of charges
1)
Register of all charges relating to – Instrument creating the charge –
a) Registration
b) Modification To be preserved & maintained
c) Satisfaction for 8 years from the date of
Satisfaction of charge.
To be preserved permanently
2) The register of charges shall be authenticated by the secretory or director or a duly

authorized office by the BOD.
3) Company shall keep the register of charges open for inspection during business hours.
To members / creditors To Others

of Company
On payment
Free of Cost of Fees
Section 86 – Punishment for contravention of any provision

Section 87 – Rectification in the register of charges – Extension in time limit allowed by CG.
Section 78 : Application for registration of charge
If company fails to register the charge within the period of 30 days, the person in whose favour
charge is created may himself apply with complete particulars for the registration of charge.
Registrar shall give fourteen days (14) notice to the company for objection if any.
Thereafter on being satisfied the registrar shall duly register the charge and issue the certificate of
registration in the name of charge holder.
Note: -
1) Any fees or additional fees paid by the charge holder to the registrar shall be recovered from
the company.
2) The registrar shall not allow such registration by the charge holder, if the company itself
registers the charge or shows sufficient cause why such charge should not be register.
Section 79 – Modification of charges
 Whenever there is any modification in the terms or conditions of a registered charge, the
charge shall be again registered with the registrar.
 Procedure for modification of charge – (same as procedure for registration of charge)
Section 80: Date of Notice of Charge

On registration of a charge as per section 77, any person acquiring any assets, undertaking or
property subsequent to such registration shall be deemed to have notice of the charge from the date
of registration.
Section 82 – company to report satisfaction of charge

`
[Sec 83]
Company intimates to the Company along with the The registrar on receiving evidence
registrar in the prescribed formcharge holder gives of any satisfaction of charge in
of the payment or satisfaction in
intimation to the registrar whole or in part
full of any registered charge in the prescribed from on
the payment or
He shall have suo motto power to
satisfaction in full of the
Within 30 days from the date of make entry in the registrar of
registered charge
satisfaction charges as per section 83.
within 30 days from the

Registrar shall give show cause
date of such payment or
notice of 14 days to the charge
satisfaction
holder, for the objection if any
(refer note i) (refer note i)
Notes: -
 The registrar on being satisfied shall order that, a memorandum of satisfaction shall be entered
in the register of charge with him and shall inform the company that it has done so.
 Extension upto 300 days from the date of satisfaction on payment of additional fees is allowed for
filing satisfaction of charge.
 Beyond 300 days – Sec. 87 provisions will apply.
Section 83 – Power of registrar to make entries of satisfaction

On receiving evidence (with respect to payment or satisfaction in whole or in part)
OR
Part of the property has been released from the charge
OR
Has ceased to form part of company‘s property (i.e. destroyed)
The registrar shall enter in his register a memorandum of satisfaction in whole or in part on his
own.
Note: Registrar shall inform the same to all the parties within 30 days of making entry and issue a
certificate of registration of satisfaction of charge.
Section 84 – intimation of appointment of receiver or manager

When any person obtains an order or has any power for appointment of receiver or
manager of the charged property.
He shall within 30 days from the date of order or the date of appointment
Give notice of such appointment to the company and the registrar (+) copy of the order or
instrument (+) pay prescribed fees to the registrar who shall register the same.
Note: On ceasing to hold such appointment, the receiver / manager shall himself give
notice to the company and registrar to that effect. The registrar shall register such notice.
Section 86 – Punishment for Contravention of any Provision of this chapter

`
Company Officer in default of company
Fine – minimum 1 lac Imprisonment up to 6 months

Maximum 10 lac OR
Fine – minimum 25.000
Maximum 1.00.000
Or
Both
When the contravention by a officer in default

Is done wilfully/ intentional
He shall be liable for fraud u/s 447.
Section 87 – Rectification by Central Government in Register of Charges
1) The central government on being satisfied that

`
On omission to give intimation of On omission or misstatement

payment or satisfaction of charge of any particular with respect
within the prescribed time to any charge
2) Was accidental OR
3) Due to inadvertence OR
4) On same other sufficient clause OR
5) It would not prejudice the creditors / shareholders of the company OR
6) It is just and equitable to grant relief on any other grounds. i.e. Principle of Equality
The CG , when it feels it is just and expedient to do so , may grant extension of time and also
condonation of delay, if any, for modification or satisfaction of the charge on payment of prescribed
fees.
Note: The CG shall on grant of extension require that the omission or misstatement shall be
rectified.
CHAPTER 6: MANAGEMENT AND ADMINISTRATION
Meetings
Class Meeting : BOD Meeting Creditors / Lendors meetings.
1) Annual General Meeting At least 4 Board Meeting in a Debenture Holders or financial

[AGM] – for all classes. Financial year with a time gap institutions or banks who are
2) Extra ordinary General of not more than 120 days. lenders.
Meeting [EGM] – for
Specific Class of
Shareholders / For all
Classes
To call a valid meeting – Requirements
Properly convened Properly constituted Properly Conducted
1) By a Proper authority a) Valid quorum 1) A valid lawful business to be

- BOD / Share holders/ b) Chairman discussed.
NCLT. c) Provisions of Companies 2) Proper minutes to be
2) By adequate and proper notice Act, 2013 and AOA shall be maintained of the meeting.
= ―21 clear‖ days before duly complied.
meeting.
Proper authority (+)
Proper notice.
To whom notice must be served?
(1) Every member of company (equity shareholder as well as preference shareholder)

(2) Every director of company
(3) Auditor of the company
(4) Legal representative of the deceased member.
(5) Official assignee of insolvent person.
Deliberate notice shall make meeting invalid.
Accidental omission to send notice shall not invalidate the person.
Length of Notice : 21 clear days notice to be sent

Exception – Sec 8 Company : 14 clear days
Following days shall be excluded while calculating 21 clear days. u/s. 101 & u/s 20
(a) Date of Sending notice

(b) Date of Meeting U/s. 20 Sec 101
(c) Date of sending notice
(d) Immediately next succeeding day. Sec 20
i.e. In all 3 days to be excluded as one day of „sending notice‟ is common under section 20.
Shortfall in Notice (Amendment)
Usually a general meeting may be called by giving atleast 21 days.
However, in case of shortfall of notice, it can be condoned:
AGM EGM
At least 95% of the total no. of member entitled 1. Company having share capital – majority in
to vote there at give consent in writing or no. of members (+) atleast 95% of paid up
electronic , then the shortfall is condoned and share capital of the members having right to
meeting valid. vote at the meeting.
2. Company not having share capital – at least
95% of total voting power. i.e. 95% of total
no.
Note: When any member is entitled to vote only on some resolutions at the meeting and not on the
other matters, such member shall be taken in account for the purposes of shortfall I.R.O. matters he
has voting right.
AGM – Ordinary Business
Adoption of Annual Declaration of Reappointment of Appointment of

Accounts (FS+AR+BOD Dividend Directors who retire, Auditor and fixing of
Report) by rotation. his remuneration
Items other than above four are extra – ordinary Business i.e. special business
Content of Notice
(1) Place, day, date and hour of the meeting and agenda to be transacted at such meeting.
(2) A statement setting all material facts concerning each item of special business to be transacted
at a general meeting called as explanatory statement.
Explanatory Statement
1) In case of special business, explanatory statement should be annexed (included) in the report
for the shareholders for taking decision.
2) A statement which contains all the material facts concerning each item [agenda] of Special
Business to be transacted at General Meeting is called an explanatory statement.
3) The explanatory statement shall contain following information / details :
1) Nature of concern / interest of any director / 2) All the details that enable a member to
manager / KMP and relatives of such person understand the scope and implication of the
in the Special Business item of business to be transacted.
3) Extent of shareholding interest of every 4) Time and place for inspection of documents
promoter, director, manager, KMP in the shall be specified
other Company, if the interest > 2% of the
paid up share capital of the other company.
Note: Non disclosure of information / insufficient disclosure in any statement:

All benefits which accrue to the aforesaid (above) persons directly / indirectly shall be held by them
in trust and on behalf of the company and they shall be liable to reimburse the entire benefit
received trust.
Default in compliance
Fine: Minimum Rs.50,000
OR
5 times the amount of benefit
Whichever is higher.
MEETINGS
SECTION 96–ANNUAL GENERAL MEETING (‗AGM‘)
(1) Who
Every Company (except OPC)
(2) Day
On any day except national holiday.
(3) Time
9.00 am to 6.00 pm. (i.e. business hours)
Meeting / AGM must be called during business hours, but may continue after business hours.
(4) Place
At the registered office of the company or at some places in city / town / village in which registered
office is situated.
Exceptions
1) Government company: Such other place within the city, town or village in which the
registered office of the company is situated or such other place as the CG may approve in this
behalf.
(The aforesaid exceptions, modifications and adaptations shall be applicable to a Government
company which has not committed a default in filing of its financial statements under section
137 of CA or annual return under section 92 of the said act with the registrar).
2) Section 8 company: Which has not committd a default in filing of its financial statements
under section 137 of CA or annual return under section 92).
3) Provided that annual general meeting of an unlisted company may be held at any place in
India if consent is given in writing or by electronic mode by all the members in advance.
Provided further that the time, date, place of each AGM are decided upon before hand by the
board of directors having regard to the directions, if any given in this regard by the company
in its GM.
Explanation: for the purpose of this sub section, ―National Holiday‖ means and includes a day
declared as National Holiday‖ by the CG.
4) The CG may exempt any other company from fulfilling the requirement of day, time and place.
Period of calling AGM:
First AGM Subsequent AGM

Within 9 months from the close of financial One meeting Gap between Within 6
year in each 2 AGM's months
01/01/2017 – Date of Incorporation calendar shall not from the
year AND exceed 15 close of
31/03/2018 – Closure of FY
months financial
31/12/2018 – AGM on or before AND year
1st AGM –
01/08/2018
No extension in time limit is granted by ROC for FY 2018-
19
If 1st AGM is duly held than no need to hold End =
AGM in the year of incorporation 31/03/2019
Last date of
CY
31/12/2019 31/10/2019 30/09/2019
Note on Subsequent AGM

i) On a sufficient cause, ROC may grant extension up
to 3 months.
ii) On extension, all above conditions need not be
fulfilled.
1) 31/12/2019 or
2) 31/01/2020 or
3) 31/12/2019
If due to extension granted by registrar, AGM held
in the next year, it will be assumed to be the AGM
of previous year and for the next year 1 more AGM
shall be held.
SECTION 97: POWER OF TRIBUNAL TO CALL ANNUAL GENERAL MEETING
Default in holding AGM
NCLT may -
Call or direct the calling of AGM Punish the company and its officer in default with
fine up to Rs. 1 lakh
AND
In case of continuing default Rs. 5000 for each
day of default
Note: -
When NCLT directs to call AGM then 1 member of the company present in person or proxy shall be
deemed to constitute a valid meeting.
SECTION 121: REPORT ON ANNUAL GENERAL MEETING
Applicability – Listed public companies in form no. MGT-15

When to file the report – within 30 days of conclusion of AGM
With whom to file the report – ROC
Penalty –
Rs. 1 lakh Fine – Min Rs. 25000

& &
On continuing failure Continuing failure –
Rs. 500 for each day of Rs. 500 for each day
default subject to max of default subject to
5 lakh max 1 lakh
SECTION 100: EXTRA-ORDINARY GENERAL MEETINGS
(1) Meaning : An meeting of the shareholders called between two AGM‟ s is called EGM.
Who may call EGM?
By board of directors By requisitions (member) By NCLT
By passing a board resolution 1) Company having share When it is impracticable to

in board meeting. capital - 1/10th of the paid hold EGM
up share capital by member
on the date of application.
2) Company not having share
capital– 1/10th of the total
voting power of members
The member who submit the request they set out the matters to the board of directors for which EGM
is to be called but are not bound to give the reasons.
Procedure for calling EGM :
(1) The BOD shall within 21 days from the date of receipt of request send notice.
(2) EGM must be held within 45 days of the date of deposit of request.
(3) Failure to call EGM :
Notice not sent within 21 days Meeting called after 45 days Notice does not contain all
matters requested
Requisitions shall proceed to call EGM on their own within 3 months from the date of deposit of
request.
Note : -
(1) Any reasonable expenses incurred by the members shall be reimbursed to them by the company
and the sum paid shall be deducted from any fees / remuneration payable to the directors.
(2) If it is impracticable for the members / directors to call EGM, then on their request the NCLT may
issue directions to call EGM. Even if one person, member or proxy is present in the meeting,
he shall constitute a valid meeting.
(3) EGM except in case of requisitions, can be called on any date, time and place in India.
Provided that an extraordinary general meeting of the company which is a wholly owned
subsidiary of a company incorporated outside India can be held at a place outside India.
In case of requisitions it shall be called at the registered office or city of registered office and on
any day except national holiday.
(4) No explanatory statement shall be annexed to the notice of EGM called by the requisitions
QUORUM FOR MEETINGS [SECTION 103]

Minimum no. of members having right to attend and vote required to be present in a meeting.
Public Company Private Company
1) Upto 1,000 members – 5 members 2 Members personally present.

personally present.
2) 1,000 – 5,000 members – 15 members
personally present.
3) Above – 5,000 members – 30 members
personally present.
Unless the articles provide for larger quorum, above provisions is mandatory.
Golden Rules for counting quorum.
1) Proxy is not counted.

2) Preference shareholders are not counted unless their rights are affected.
3) Member present in 2 capacities [Individual capacity [and] representative of a Trust [Trustee]]
4) Representation of a Company will be treated as personally present.
5) Representative of president of India / Governor will be counted as a member personally present.
Note: If all members are personally present, it is immaterial that quorum required is more than total
no. of members.
Time Limit for Quorum
Quorum shall be present within half, an hour from the time appointed to hold such meeting, if not.
Called by BOD Called by Requisitions.

1) Meeting will be adjourned to same day at It will be cancelled.
same time and place in the next week Or
2) Such other date, time and place as
prescribed by BOD.
At least 3 days prior notice to the members shall be served or by publishing notice in newspaper :
Note :
1) If in an adjourned meeting, quorum is not present within 30 min. then the members present
will constitute quorum. i.e. it constitute a valid quorum.
2) If no quorum is present i.e. no single person is present, then meeting will be cancelled.
CHAIRMAN OF MEETING [SECTION 104]
(i) Unless the articles, prescribe any person as chairman of shareholders meeting, members present
in the meeting may appoint chairman amongst themselves by show of hand.
(ii) Members not satisfied by the result of show of hand can demand poll provided they have
requisite majority to demand poll as follows :
Company Ltd. by Shares Company Ltd. by guarantee
1/10th of P.U.S.C. of the person present in 1/10th of total no. of person present.
meeting (members personally present or proxy)
OR
Rs. 500,000 of the P.U.S.C
Whichever is less.
(iii) Chairman‟ s decision on voting by show of hands is final and conclusive.

(iv) If there is equality of votes then the Chairman can exercise second casting vote.(Only if Articles
contain such provision)
However the casting vote must be exercised in the bonafide interest of company only.
If the chairman abuses his position and casting vote is not in the bonafide interest if proved the
chairman is punished.
Proxies [Section 105]
1) Any person can be appointed as proxy of a member having right to attend and vote at the
meeting.
2) Appointment of proxy is in writing, signed and duly stamped [Form ; MGT-11]
3) Proxy cannot vote on show of hands and cannot speak at the meeting.
4) A person can be proxy of max. 50 member holding in aggregate 10% of total SC of the company
carrying voting rights.
5) A member holding more than 10% of total share capital may appoint a single person as proxy.
In case of Sec.8 company only a member can be appointed as proxy.
6) Every notice calling a meeting must contain a statement of right to appoint proxy.
Else officer in default will be punished upto Rs. 5,000.
7) Proxy form to be lodged atleast 48 hours before the meeting. Articles can provide less than 48
hours but not more than 48 hours.
8) Any member entitled to vote shall have a right to inspects the proxy lodged, provided.
A notice in writing is given to company at least 3 days in advance of meeting.
Inspection – 24 hours before the time fixed for meeting and ends with the conclusion of meeting.
Notes:
1) Proxy can vote in Poll and not in show of hands.

2) Revocation of Proxy[withdrawal / removal/cancellation]
a) The new proxy from is lodged in time.
b) The members himself is present in the meeting. (as a precautionary step, proxy is appointed)
c) On death, lunacy or transfer of shares by the member and the company receives the intimation
of the same before the meeting.
3) No director of company shall solicit a proxy on contravention fine upto Rs. 1 lakh.
4) If proxy list is made available to a member on his request it does not amount to soliciting proxy.
5) If inspection of proxy form is refused to any member during business hours –
Company & its officer in default is punished with fine – upto Rs. 10,000 & Rs. 1000 for each day
of default.
RESTRICTION ON VOTING RIGHTS [SECTION – 106]

A company may by its articles provide that a members shall not exercise any voting rights in the
following cases –
(a) Calls in arrears
(b) Lien mark
Notes: -
(1) No company shall prohibit a member from exercising his voting rights on any other ground
except those given above.
(2) On a poll taken at a meeting, a member or proxy entitled to more than 1 vote need not use all the
votes in the same way.(i.e he may use his votes differently )
VOTING BY SHOW OF HANDS [SECTION 107]
(1) Unless the poll is demanded or the voting is carried out electronically, any matter in the general
meeting shall be decided on show of hands.
(2) Chairman‟ s declaration about passing of a resolution or otherwise and entry in the minutes book
shall be conclusive evidence of the facts of the resolution.
(3) Before or on the declaration of result on voting of show off hands a poll may be ordered –
(a) By the chairman suo motto (on his own)
(b) On a demand in the following cases :
Company having share capital Company not having share capital
At least 1/10th of the members present in At least 1/10th of the members present in
person or proxies person or by proxies.
OR
A person holding at least 5 lakhs of the paid
up share capital.
(4) Poll once demanded can be withdrawn any time.

(5) Except for any matter relating to appointment of chairman or adjournment of meeting, for any
other matter, the chairman shall conduct poll within 48 hours from its demand as follows :
(a) Appoint a scrutinizer.
(b) Give directions and issue regulations for the manner in which poll shall be taken.
(c) Scrutinizer will prepare its report and submit it to the chairman who shall declare the result.
VOTING THROUGH ELECTRONIC MEANS [SECTION 108]
(1) Electronic Voting system

(a) It means a secured system based process.
(b) Of display of electronic ballots, recording of votes and no. of votes polled in favour / against
in such manner that.
(c) The entire voting exercised by way of electronic means.
(d) Gets registered and counted in an electronic registrar in centralized server.
(e) With adequate cyber security.
Note: Remote e – voting is the facility of casting votes by member using an electronic voting
system, from a place other than place of general meeting.
(2) Applicability of Electronic Voting system

(a) Listed company atleast 1000 members.
(b) However when the member is a Nidhi company or an enterprise or institutional investor,
facility to vote by electronic means need not be provided.
(3) Procedure to provide facility to its members to exercise vote by electronic means
(a) Notice of meeting
(i) Notice shall be send to all the members, directors and auditors of the company.
(ii) To be posted on the website if any
(iii) Notice shall contain the details of the facility for voting by means of electronic mode.
(iv) Business to be transacted.
(v) Notice shall provide the time schedule, time period, details of login ID in case of remote e
voting.
(vi) Notice shall be advertised in one vernacular and one English newspaper giving all the
details of point 1 to 4.
(b) E-Voting (Refer table)
E – voting
Time for opening Option for Remote E-Voting End of remote e – voting
period
Atleast 3 days and maximum Members holding shares as on The facility to vote by electronic
till 5pm. On the date preceding cut-off date may opt for remote means shall be immediately
the date of general meeting. e-voting on demand blocked.
Scrutinizer
Appointment Functions Access to details Results
(1) Practicing CA / CS (1) Counting of votes Scrutinizer shall have Result declared along
/ CMA or within 3 days of the access to the remote e with the report of
(2) A person not in conclusion of – voting system and scrutinizer shall be
employment of the meeting before the start of GM placed on the
company (2) Prepare to find out members company‟ s website and
& consolidated who have caste their shall also be forwarded
scrutinizer‟ s report votes through remote e to the stock exchange
(3) A reputed person
who in the opinion (3) Maintain a register – voting. who shall place the
of BOD is manually / same on website.
competent to be electronically to
the scrutinizer maintain the assent
/ dissent
(4) Keep the register
and all other papers
in his safe.
Note 1: Role of Chairman:

The chairman shall allow voting for all those members who are present at the GM but have not
exercised remote e voting with the assistance of scrutinizer.
Note 2:
A resolution considered to be proposed through voting by electronic means cannot be withdrawn.
Voting by poll can be withdraw.

Note 3:
The resolution shall be deemed to be passed on the date of relevant general meeting.
DEMAND FOR POLL [SECTION 109]
POSTAL BALLOT [SECTION 110]
Applicability:
Applicability to all companies except one person company and other companies having members
exceeding 200.
Meaning and purpose:
Meaning – Postal ballot includes voting by shareholders by postal or electronic mode instead of
voting personally by presenting for transacting business in GM of company.
According to section a company –
 Shall in respect of such items of business as the central government may, by notification, declare
to be transacted only by means of postal ballot and,
 May in respect of any item of business, other than ordinary business and any business in
respect of which directors or auditors have right to be heard at any meeting, transact by means
of postal ballot, in such manner as may be prescribed, instead of transaction such business at a
general meeting.
 If a company is required to provide for electronic voting then any item of business required to be
transacted mandatorily by means of postal ballot , may be transacted at a general meeting
as well
Procedure to be followed for conducting business through postal ballot–
(1) Notice to all shareholders

(2) Publishing of an advertisement
(3) Notice also be placed on the website
(4) Appointment of scrutinizer
(5) Assent by the requisite majority resolution
(6) Postal ballot received to be kept under safe custody/(Time period for postal ballot = 30 days)
(7) Submission of report of the scrutinizer – The scrutinizer shall report as soon as possible after the
last date of receipt of postal ballots but not later than 7 days therof.
(8) Maintenance of register by scrutinizer
(9) Preservation of postal ballots – Shall be under the safe custody of the scrutinizer till the
chairman considers, approves and signs the minutes and thereafter, the scrutinizer shall return
the ballot papers.
(10) Reply from members.
(11) Declaration of result – The result shall be declared y placing it, along with the scrutinizer report
on the website of the company.
(12) Transaction of business though postal ballot –
(b) Alteration of object clause
(c) Alteration of AOA
(d) Change in place of registered office outside the local limits of city
(e) Change in objects as specified in the prospectus
(f) Issue of shares with differential rights
(g) Variation in the rights attached to a class of shares / debentures
(h) Buy back of shares by a company
(i) Sale of the whole / substantially the whole of an undertaking of a company
(j) Giving loan / extending guarantee or providing security
MINUTES (SECTION 118)

1) Definition :
A fair and correct summary of all the proceedings of any meetings.
2) Time limit to prepare minute book – within 30 days of the conclusion of meeting.
3) Signature / Authentication : Chairman must sign on each page and on last page sign (+) date.
a) In case of Board meeting by the Chairman of same BM [or] by chairman of next succeeding
B.M.
b) In case of General Meeting
By the Chairman within 30 days [as given above]
If chairman is unable to sign [or] Chairman dies.
Director duly authorized by BOD shall sign the minute Book.
In case of postal ballot, chairman of board must sign the minutes.
c) Chairman has absolute discretion [freedom] to exclude any matter which is :
(i) Irrelevant
(ii) Immaterial
(iii) Detrimental [OR]
(iv) Defamatory.
Notes:
(1) Inspection of minute book – to be made available within 7 days of request by a member.
(2) Failure / refusal to make minute book available for inspection.
NCLT may by order compel an immediate inspection of the minute book and also punish the
officer in default and the company for contravention.
(3) Tampering of minute book is criminal offence liable for imprisonment upto 2 hrs. & fine Min -
25,000, Max. – 100,000.
(4) Sec. 8 Company is exempted from above provisions u/s. 118 except as given below :If by AOA, it
is required to prepare minute book and circulate copy of minutes. The minutes must be
recorded within 30 days of conclusion of meeting.
INSPECTION OF MINUTE-BOOKS OF GENERAL MEETING [SECTION 119]
Section 88 – Register of members, etc.
Foreign Register – Section 88(4) read with Rule 7:
Section 89 – Declaration in respect of beneficial interest in any share-
1. A declaration is to be given to the company by any person who is a member (shareholder) but not
holding the beneficial interest in such shares. In form no. MGT 4 in duplicate within 30 days
from the date on which his name is entered in register of members of the company.
Failure to give any declaration – Fine upto Rs.50,000 and Rs.1,000 per day during which the
failure continues.
2. Every person holding and exempted from furnishing declaration or acquiring a beneficial interest
in the shares of a company not registered in his name, shall file a declaration in form no. MGT –
5 within 30 days after acquiring beneficial interest in shares of the company.
Failure to file declaration – Penalty as above.
3. The company which receives the declaration in shall make a note of such declaration in the
registrar of member and file a return in form no. MGT – 6 with the ROC within 30 days from the
date of receipt of declaration.
Failure by company to file the return – company and every officer in default shall be punished
with fine.
Minimum Rs.500 & Max Rs.1000 and
Rs.1,000 per day during which failure continues.
Note 1: When shares are gifted they become the property of the donee and declaration of beneficial
interest in such shares by a person to the company doesn‟ t apply. When there is a dispute as a title
as to shares then also declaration u/s 89 is not required.
Note 2: In case of unlisted public company and IFSC private company the return shall be filed
within 60 days instead of 30 days.
Note 3: In case of Govt. company Sec 89 shall not apply provided the Govt. company has not
defaulted in filing Financial statements u/s 137 or Annual return u/s 92.
Note 4: Nothing in this section shall be deemed to prejudice the obligation of a company to pay
dividend to its members under this act & the said obligation shall, on such payment, stand
discharged.
Section 90 – Register of Significant Beneficial Owners in a company

1. Every individual who alone or together with one or more persons including a trust and person
resident outside India if holds beneficial interest of atleast 25% in the form of shares or interest
in the company or right to exercise significant influence or control.
He shall may make a declaration within 30 days to the company specifying the nature of his
interest and other particulars. i.e. name, DOB, address, details of ownership.
2. Company shall maintain a register of interest declared by individual, keep the same open for
inspection to any member and file a return of significant beneficial owner with the ROC.
3. Company shall give notice to any person (whom the company knows or has the reasonable cause
to believe to be a significant beneficial owner.)
Such person shall give information within 30 days from the date of notice.
Failure to give information or information given is not satisfactory.
Company shall apply to the tribunal within 15 days and tribunal shall direct following
restrictions with regard to.
a. Transfer of interest
b. Suspension of all rights attached to the shares.
c. Such other matters as may be prescribed.
Within a period of 60 days from the date of receipt of application.
If no application is made by the company or any person aggrieved by the

tribunal order within 1 year from the date of order
The tribunal shall pass an order to transfer such shares without any
restriction to the IEPF
4. Default – Person who fails to make a declaration u/s 90 imprisonment upto 1 year or
fine – min Rs.1 lakh, max Rs.10 lakh Or both & Continuing failure Rs.1000 for every day of
default.
Company fails to maintain register Or file a return – fine min. Rs.1 lakh, max Rs. 10 lakh Or
both & continuing failure Rs.1000 for every day of default.
5. If a person willfully furnishes any false / incorrect information Or suppress any material
information of which he is aware – he shall be liable for fraud u/s 447.
6. Govt. Co. is exempted from Sec 90.
SECTION 91 – POWER TO CLOSE REGISTER OF MEMBERS OR DEBENTURE- HOLDERS OR

OTHER SECURITY HOLDERS:
ANNUAL RETURN [SECTION 92-94]
(1) By whom ? - Every company.

(2) Authenticated / signed – By a director & a C.S. [if no C.S. then by a C.S. in Practice]
(3) When the annual return to be filed with ROC
(b) Within 60 days from date on which AGM is held [OR]
(c) If AGM is not held, within 60 days from the last date on which AGM should have been held
(+)
Reasons for not holding AGM.
(4) Contravention of Section 92.
(a) Company : Fine Min . – 50,000, Max. – 500,000
(b) Officer in default : Imprisonment upto 6 months.
Fine Min – 50,000, Max. – 500,000 [OR] Both.
(5) Particulars to be filed in the annual return
(a) Registered office, principal business activity, particulars of its holding, subsidiary and
associate company.
(b) Shareholding pattern
(c) Indebtedness (debts of the company)
(d) List of members and debenture holders and changes if any since PFY.
(e) List of promoters, directors, KMP and changes there in since the PFY.
(f) Meeting of members or BOD and various committee – details.
(g) Remuneration of directors and KMP. (Refer note. 1)
(h) Penalty or punishment imposed on the company its directors / officers.
(i) Details in respect shares held by foreign institutional investors (FII)
(j) Such other disclosures and matters as may be prescribed.
Note 1: In case of small company – Aggregate amount of remuneration drawn by directors – provided
such small company has not committed a default in filing financial statements or annual returns
with the registrar. (Amendment)
Note 2: In case of OPC, small company and a private company (which is start up), annual return
shall be signed by the company secretary / when there is no CS, by the director.
Note 3: In case of a listed company or a company having PUSC of atleast Rs.10Cr or turnover of
atleast Rs.50Cr.
The Annual Return shall also be certified by a CS in practice & the certificate shall be in form MGT-8
which must state that ―the annual return discloses the facts correctly & adequately and the
company has complied with all the provisions of the Act.
Section 94 – Place of keeping and inspection of registers, returns, etc.
CIRCULATION OF MEMBER‘S RESOLUTIONS [SECTION 111]
(1) Members can make the use of administrative machinery of a company for introducing
resolutions at the next AGM or for circulation of statements.
(2) At least 10 % of paid up share capital held by the members
OR
At least 1/10th of the total voting powers of the members
Members shall submit a proposal / matter or circulate a statement as follows –
At least 6 weeks before the meeting At least 2 weeks before the meeting
For a requisition requiring a notice of Any other requisition

resolution (i,e matter that can passed by circular)
Default: Company and every officer in default in compliance with the above provisions shall be liable
to fine of Rs. 25.000/-
Notes:-
(1) All reasonable expenses for sending the requisition / statement incurred by a company shall be
paid by the requisitions.
(2) Any requisition duly submitted and AGM is called within 6 weeks thereafter, such requisition
shall be deemed to have been properly deposited.
(3) Company may by obtaining CG order refuse to circulate any statement which is to secure
needless publicity for defamatory matter and all cost incurred thereon shall be reimbursed by the
requisitionists.
REPRESENTATION OF THE PRESIDENT & GOVERNORS IN MEETING OF COMPANIES TO

WHICH THEY ARE MEMBER [SECTION 112]
REPRESENTATIONS OF CORPORATIONS MEETING OF COMPANIES AND CREDITORS

[SECTION 113]
RESOLUTIONS [SECTION 114–117]
RESOLUTIONS REQUIRING SPECIAL NOTICE [SECTION 115]

According to Companies (Management and administration)
 Signing of special notice

 Sending of notice to the company.
 On receipt of notice by the company.
 Publication of notice
1) Eligibility [who can give special notice] ?

Members holding at least 1% of total voting power
[OR]
Rs. 5,00,000 paid up share capital
Whichever is less.
2) Time limit to give special notice.

Minimum 14 clear days notice and max. 3 months, before the meeting.
3) Matters for which special notice can be given :

a) Appointment of a new auditor in place of retiring auditor.
For any other
b) Removal of an existing auditor [before tenure of 5 years is over]
matter as
c) Appointment of new director.
provided in
d) Removal of an existing director [before the term is complete] AOA
4) Procedure to be followed by company on receiving special notice :

(i) Company shall immediately send notice to all shareholders about the resolution mentioned
in special notice at least 7 clear days before the meeting.
[OR]
(ii) If it is not practicable to send notice indivisually, company shall give a newspaper
advertisement of the special notice. [English daily – National Newspaper, Regional daily –
Local language news paper in the area where R.O. is situated]. (+) Also publish the notice on
the website of the (any) company.
RESOLUTIONS PASSED AT ADJOURNED MEETING [SECTION 116]
RESOLUTIONS AND AGREEMENTS TO BE FILED [SECTION 117]
MAINTENANCE AND INSPECTION OF DOCUMENTS IN ELECTRONIC FORM [SECTION 120]
APPLICABILITY OF THIS CHAPTER TO ONE PERSON COMPANY [SECTION 122]
CHAPTER 7: DECLARATION AND PAYMENT OF DIVIDEND
Meaning of Dividend
When the company is a going concern When the company goes into liquidation
A portion of profits earned and allocate as Surplus left is distributed amongst the
payable to shareholder in proportion to that paid shareholders dividend
up share capital
Note: Section 2 (35) states that ―Dividend includes interim dividend.
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TYPES OF DIVIDEND
Dividend includes
Interim Dividend Final Dividend

Dividend declared by board of directors Dividend declared at AGM of company by the
between 2 AGM shareholders
Note: All the provisions applicable on dividend are also applicable on Interim dividend.
Dividend payable on the basis of Nature of Shares
Types of Shares
Preference Shares Equity Shares
Dividend dependent on the dividend policy of

a company and the availability of profits after
Cumulative Non Cumulative satisfying the right of preference shareholders
Preference Shares Preference Shares
Dividend accumulated No arrears of dividend
unless it is paid in full in future
PROVISIONS REGARDING DECLARATION AND PAYMENT OF DIVIDEND
Section 123 – Declaration of dividend (1)
Before declaration of dividend in financial year, a company may
Transfer a percentage of it‟ s profit for that financial year to reserve
As the company may consider appropriate (i.e. at the discretion of company – not mandatory)
Section 123 – Declaration of dividend (2)
Dividend is declared or paid for any financial year only
(a) Out of Current year‟ s profits (b) Out of previous year profits (c) (a + b)
Only after providing depreciation as per schedule II i.e. (rate of depreciation) as per Companies Act,
2013
Out of money provided by CG / SG in Out of accumulated profit (i.e. free reserve) in

pursuance of any guarantee given by Govt. previous year
Eg. Government Companies like HPCL, BPCL, Owing to inadequate or absence of its profit in
etc. any F.Y.
Subject to the prescribed rules under this
chapter
Declaration of dividend out of accumulated profits(free reserves)
(1) Rate of dividend ≤ Average rate of dividend declared in immediately proceeding 3 years.
(2) Amount drawn out of reserves ≤ 1/10th of (PUSC + Free Reserve)
(3) Balance amount of reserves after drawal ≥ 15% of the PUSC. (at least 15% PUSC)
(4) Amount drawns hall 1st be utilised to set off loss in the F.Y. in which dividend is declared
before any dividend in respect of equity shares is declares.
(5) No dividend shall be declared unless carried over previous years losses and depreciation is
provided out of current years profits/losses. (Accumulated depreciation / current losses are to
be deducted)
Notes:
(a) The condition no. 1 given in the rule above shall not be applicable if company has not declared
any dividend in each of the 3 preceding financial year.
(b) Government company in which the entire capital is held by CG / SG / both can not declared /
paid dividend out of reserves. (wholly owned by CG / SG)
(c) Dividend including ID declared shall be deposited within 5 days from the date of declaration of
dividend in a scheduled bank in a separate account. Exemption [Sec 123(4)] – Government
companies, in which entire capital is held by CG / SG / both.
Section 123(3): Interim Dividend.
Section 123(3) Interim Dividend
It is declared by BOD
Out of surplus in Profit and Out of profits of the financial Out of profits generated in
Loss Account year in which such dividend the FY till the quarter
i.e. Previous year profits is to be declared
1) Any dividend declared by the Preceding the date of
BOD during any FY declaration of interim dividend
OR Refer note 1
2) Any dividend declared at
anytime during the period from
closure of FY till holding of
AGM
Note 1:
In case a company has incurred loss during the current FY upto the end of the quarter immediately
preceeding the date of declaration of interim dividend.
Such interim dividend shall not be declared @ rate higher than average dividend by the company
during immediately preceding 3 F.Y.
(ID ≤ Average rate of dividend immediately 3 F.Y.)
Payment of Dividend
Payment of Dividend
Payable in cash Payable to Exception:

May be paid by 1) Registered shareholder OR In case of Nidhi company, any
1) Cheque or (negotiable 2) To his order OR dividend payable in cash may
further) be paid by crediting to the
3) To his banker account of member
2) Warrant or (not negotiable)
If dividend is not claimed
3) Electronically (Dividend within 30 days from the date of
mandate) declaration of dividend
Note:
(1) Dividend once declared becomes a debt, hence it cannot be withdrawn.
(2) As per section 123(6) – A company is prohibited from declaring dividend, if it has defaulted in:
(a) Prohibition of dividend if company fails to comply the provision of Section 73 – Prohibition
on acceptance of deposit from public / members or to comply Section 74 provision –
repayment of deposits accepted before the commencement of this Act ,so long as the failure
/ default continues
(b) Sec 8 Company
(3) In case company has incurred any loss during the current FY upto the end of the quarter
immediately preceding the date of declaration of interim dividend.
Such interim dividend shall not be declared at rate higher than average dividend by the
company during immediately preceding 3 FY‟ s
(ID ≤ Average rate of dividend immediately preceding 3 FY‟ s)
UNPAID DIVIDEND ACCOUNT (UDA) [Section 124]
Section 123 – Declaration of dividend
To be paid within 30 days of date of declaration
Dividend not paid & claimed within 30 days.
Amount to be transferred within 7 days from the date of expiry of 30 days
If transferred If not transferred

Amount to be deposited in a specific account in Pay interest @ 12% p.a. from the date of default.
a scheduled bank by the name „unpaid dividend
Account‟
Within 90 day of transfer, prepare a statement
[Name, last know address, unpaid dividend
amount]
Place it on the website of company or website
approved by Govt.
 Any amount which remains unpaid / unclaimed for a period of 7 years from the date of transfer
to „Unpaid Dividend‟ A/c Shall be transferred to Investor Education & Protection Fund, along
with interest accrued.
 Also, Transfer all the shares w.r.t. which dividend has not been paid / unclaimed For 7
consecutive year or more In the name of „Investor Education & Protection Fund‖
Notes:
1) Any person who has right to claim the dividend from unpaid dividend A/c. shall apply to the
company only within the period of 7 years from transfer to unpaid dividend A/c.
2) Any claimant of shares transferred in the name of IEPF shall be entitled to claim the transfer
of shares on submission of prescribed documents to the IEPF.
3) Contravention :-
(a) Company – Fine – Min – 5 Lakhs
Max – 25 Lakhs
(b) Officer in default – Min – 1 Lakh
Max – 5 Lakhs
4) Dividend once declared can not be revoked, except with the consent of shareholders.
5) Dividend declared can not be increase but can be decreased with shareholder‟ s consent.
6) Illegally declared dividend shall be revoked : If paid the directors in default shall be
personally liable to the company for the amount paid.
Exemption to a member of Nidhi Company– Unpaid / unclaimed dividend

Nidhi Company may announce the same in a local language newspaper of wide circulation
Announcement of said declaration is also displayed on a notice board of the Nidhi Company for
atleast 3 month.
INVESTOR EDUCATION AND PROTECTION FUND (IEPF)
(1) The Central Government shall establish the IEPF & shall constitute an authority to administer
the IEPF by notification in official gazette.
(2) The IEPF shall have a chair person & other members not exceeding 7 & a CEO to look after the
day to day management of the IEPF.
(3) The Authority shall work in Consultation with comptroller & Auditor General.
(4) The Authority shall have right to spend the money of IEPF as per Sec. 125[3] – ―Utilization of
Fund‖.
(5) The Authority shall get it‟ s accounts audited by C & AG + Audited Accounts & Audit Report
copy shall be forwarded to Central Government.
(6) The Authority shall also prepared the annual report given Full Account of it‟ s activity during
Financial year & also forward the same to Central Government
(7) The Central Government shall lay down the annual report copy + Audit Report copy before both
the houses of parliament.
Section 125 (2) – SOURCES FROM WHERE AMOUNT IS CREDITED TO THE IEPF:
The below mentioned amount is which is unclaimed & unpaid for a period of 7 years from the
date it has become due for payment, only shall be transferred.
1 Unclaimed „Unpaid Dividend A/c.‟ U/s. 125 [5]

2 Unclaimed matured deposit & debentures
3 Refund of application money to whom allotment is not made & is unclaimed
4 Unclaimed sale proceeds of Fractional shares due to bonus/merger / amalgamation
5 Unpaid / unclaimed preference shares not redeemed
6 Any interest accrued on point [2] & [3]
Other Miscellaneous Amounts
7 Any Income/ Interest received out of investment from Fund

8 Grants received from Central Government
9 Donations received from Central Government/State Govt. / Companies / Institutions
10 Amount Received through disgorgement or disposal of securities u/s. [38]
11 In any amount in general revenue A/c. of CG u/s. 205 A[5] of the Companies Act, 1956 &
any amount in IEPF u/s. 205C of Companies Act, 1956
12 Such other amount as may be prescribed.
Utilization of the Fund (DR – RAP)
Refund Promotion Distribution Reimbursement Any other

Unclaimed Of Investors Of any Of legal incidental
dividend, Education, disgorged expenses purpose
Matured awareness & amount incurred in class Under 1, 2, 3, 4
deposits, protection amongst the action suits Preventing of
eligible & [u/s. 37] & [U/s. operation and
Matured identifiable 245], by
Debenture, mismanagement
applicants who members, of minority
Application have suffered debenture shareholders by
money due for losses due to holders or the majority.
refund & wrong action depositor
interest by any person sanction by
thereon as per the Tribunal.
court order.
Note: Any person claiming any amount from the authorities out of IEPF must apply to the
authorities along with sufficient evidence for his claim.
RIGHT OF DIVIDEND, RIGHTS SHARES AND BONUS SHARES TO BE HELD IN ABEYANCE

PENDING REGISTRATION OF TRANSFER OF SHARES [Section 126]
The company shall, pending the registration of transfer in name of transfer.
(1) Transfer the dividend in relation to such shares to the unpaid dividend A/c. [unless authorized
by register holder in writing to pay such dividend to transferee]
(2) Keep in abeyance any offer of right share & bonus shares in relation to such shares.
PUNISHMENT FOR FAILURE TO DISTRIBUTE DIVIDENDS WITHIN 30 DAYS [Section 127]
IF DIVIDEND IS DECLARED
But not Paid OR But warrant in respect to the dividend has

not been posted within 30 days from the
date of declaration.
To any shareholder entitled to dividend
Company shall be liable Director of Company who is knowingly a party in

To pay Simple Interest @18% p.a. during the default shall be punishable with:
period which the default continues. Imprisonment & Fine
&
Upto 2 years Rs. 1000 for every day
when the default
continues.
Exception- [OLA Se Drive]
Dividend could Shareholder gave Dispute Dividend For any other

not be paid by directions & regarding lawfully reason not due
reason of these directions rights to adjusted on default on
operation of cannot be complied receive against any the part of
law by company dividend dues to the company.
payable company e.g. Postal
&
Death / lunacy delay
The same has been
/ insolvency communicated by Transferor
the company to the and
shareholder. transferee
Official both claim
assignee/ dividend
nominee/ legal
heir
Nidhi Company
When dividend payable to the member is Rs.100 or less (maximum Rs.100) it shall be sufficient
compliance if the declaration of dividend is announced in the local newspaper and announcement
of said newspaper is displayed on the notice board for atleast 3 months.
CHAPTER 8: ACCOUNTS OF COMPANIES
BOOKS OF ACCOUNTS, ETC., TO BE KEPT BY COMPANY [SECTION 128]

(1) Every Company shall prepare in every Financial Year :
1) Statutory Books of Accounts 2) Other Books & Papers 3) Financial Statements.
That reflects True & Fair view On Accrual basis According to be double entry
of the state of affairs of the system of accounting.
company & its Branch office.
Fundamental Accounting
assumption to be followed in
preparing the Financial
Statements
(2) Sec. 2(13) – Books of Accounts includes records maintained in respect of :

(a) All Receipts & Expenditure of a Company. (i.e. P & L / Income & Expenditure Account)
(b) All Sales & Purchase of Goods & services by company.
(c) Asset & Liabilities of the company.
(d) Items of cost as prescribed u/s. 148 to certain class of Companies specified therein.
Sec. 2(12) - Other Books & Paper includes :
(a) Books of A/c.
(b) Minutes
(c) Writing
(d) Deeds
(e) Voucher
(f) Documents
(g) Registers
(h) Maintained paper or in electronic form.
(3) Place of maintenance of books of Accounts :
Usually at the Registered Office At other Places in India Branch Office

OR At branch office itself
However the BOD shall within However proper summarized
7 days thereof file with the returns Periodically shall be
register a notice in writing sent to the Register office /
giving full address of that other place in India.
other place. OR
(4) Maintenance of books of Account in Electronic Form :-
BOA / other BAP shall remain accessible in Shall be capable of being displayed in eligible
India Form
&
Information to be retained completely in the Company shall inform the Registrar on annual
Format in which it was originally generated basis at a time of filing of Financial Statement
& shall be complete & unaltered the following information :
Both for Head office & Branch office. 1. Name of Service provider.
2. ISP address of SP [IP address]
3. Location
Backup if kept at a place outside India
4. Cloud address of service provider.
Then they shall be kept in servers physically

located in India on a periodic basis.
(5) Inspection of Books of Accounts :
Any director of the company A person can inspect the books In case the Financial
during business hours. of A/c. of the subsidiary only Information is maintained
i.e. no member can inspect. on authorization by way of rule outside India.
However central Govt / state resolution of the BOD.
Govt / statutory authority or On written request of director,
assessing officer of CG / SG / company shall within 15 days
Statutory authority can inspect make the information available
as per the rules. for inspection to the director
only [i.e. not to his agent /
representative / attorney
holder]
(6) Period of maintenance of Books of Account :
At least for 8 Financial year In case where a company is In case investigation is ordered
immediately preceding the end existence for a period less than by Central Government
of F.Y. for which the BOA is 8 year
prepared.
Central Government may direct
In respect of all preceding year. to maintain the BOA for period
longer than 8 years.
(7) Person Responsible to maintain the book of Account :
Managing Director Whole time director Chief Finance Officer Any officer appointed
[Finance] [CFO] by the board with the
OR OR duty to comply S.128
OR
provision.
Key Managerial Personnel (KMP)
(8) Penalty for Contravention : Compoundable offence
Imprisonment Fine
Upto 1 year Min. 50,000
OR Max. 5,00,000
OR Both
FINANCIAL STATEMENT [SECTION 129]

(1) Form of Financial Statement [F.S.] 129 (1)
True & Fair view of the state of affairs.
Comply with the Accounting Standards notified Shall be in the Form Provided in Schedule III
u/s. 133 AND (vertical format)
(2) The above provision shall not be applicable to :-

(a) Insurance Company.
(b) Banking Company
(c) Electricity Company.
(d) Companies governed by any other law. (W.e.f. 23/2/2018 – Govt companies engaged in
defence production) i.e. The FS of all above companies shall be treated as disclosing a
true & fair view of the state of affairs even though the FS do not disclose [Compliance at
all accounting standards or FS are not in Form Schedule III]
Laying of FS 129 (2)
At Every AGM by the BOD
(3) Consolidation of FS / Laying of FS : 129(3) and 129(4)

In case a company has one or more subsidiaries or associate company it shall also :-
(a) Prepare a consolidated Financial Statement [CFS] of the company & all its subsidiaries
and associate company in same Form & manner.
(b) Prepare a separate statement containing the salient features of the FS of its subsidiary
and associate company in Form AOC-1.
(c) Consolidation of FS shall be as per provisions of Schedule III & the applicable
Accounting Standards.
(4) All provisions for preparation, adoption & standalone audit of FS of a holding company shall
mutatis mutandis also apply to CFS [S. 129(4)]
(5) Deviation from Accounting Standards [S. (129)-5]

If the FS of a company do not comply with the AS, the company shall disclose in it‘s FS :
(a) Deviation From FS.
(b) Reason for deviation
(c) Financial effects arising out of deviation.
(6) Exemptions – Sec. 129 (6)
The Central Government - on it‘s own or (suo motto)
On application
Exempt either conditionally or unconditionally by notifications or any other provisions or
rules provided under this section.
If it deems fit that the exemption is necessary in Public interest.
(7) Contravention
1. MD In absence of any of the officers mention

2. Whole time director [Finance. therein
3. CFO &
―All BOD‖
4. Any Person incharged by BOD
Punishable with
Imprisonment Fine
OR
Upto 1 year Min – 50,000
Max.- 5,00,000
OR Both
RE-OPENING OF ACCOUNTS ON COURT‘S OR TRIBUNAL ORDERS [SECTION 130]

(1) Who can Apply :
(a) Central Government
(b) Income Tax authority
(c) SEBI
(d) Any other statutory body or authority
(e) Any person concerned.
(2) When to Apply :
When the Accounts are prepared in Fraudulent The affairs of company where mismanaged
manner OR during a relevant period.
This raises a doubt on reliability of FS.
(3) To Whom to apply : Court of Competent Jurisdiction or Tribunal.
(4) Courts Order :

Before passing any order court shall by giving notice to the applicant & after taking into
consideration, the representation made pass such order of re-opening the books of accounts
& recast the Financial Statements, as the courts deems fit.
(5) The Accounts so revised & recast shall be final.
(6) Time Limit in respect of reopening of Books of Accounts
For any of 8 financial year In case of Investigation ordered

immediately preceeding the by CG for a period longer than 8
current financial year years
(7) Financial statements – Recast

Books of Accounts – Reopen
VOLUNTARY REVISION OF FINANCIAL STATEMENTS OR BOARD‘S REPORT [SECTION 131]

If it appears to the Board of Directors, that
Financial Statements & board of directors report are not in compliance of Sec. 129 & Sec. 134,
respectively.
On approval & order of Tribunal – They may prepare :-
Revised FS OR Revised BOD Report
With respect to any of the – 3 preceding F. Y.
Copy of the Tribunal order shall be filed with the Registrars.

Note :
(1) Tribunal shall before giving approval, consider the representation made by Govt. & the
income tax authority.
(2) Revision of the Financial Statement or BOD report shall be approved only once in Financial
year provided detailed reasons for such revision are disclose in the BOD report.
(3) When copies of Financial Statement or BOD report have been sent to members or delivered
to Registrar & laid before AGM/EGM, revision must be restricted :
 To corrections for compliance of Sec. 129 or 134 &
 Any necessary consequential alternation.
CONSTITUTION OF NATIONAL FINANCIAL REPORTING AUTHORITY [SECTION 132]

(1) Constitution of NFRA: By the CG through notification.
(2) Purpose: To provide for matters relating to accounting and auditing standards under this act.
(3) Functions of NFRA
Make Monitor & enforce Oversee the quality of Perform such other
recommendations to the compliance with service of professions functions relating to
CG on formulation and accounting and associated with (a), (b) & (c) as
laying down of auditing standards ensuring compliance prescribed.
accounting and with such standards
auditing policies and and suggest measure
standards for improvement
(4) Composition of NFRA
(a) A chairperson – eminent and reputed person having expertise in accounting, auditing,
finance or law.
(b) Other members – part time and full time.
(5) Declaration by chairperson and members
(a) No conflict of interest or lack of independence.
(b) Chairperson and fulltime members shall not be associated with any audit firm (including
related consultancy firm) during the period of appointment and 2 years after ceasing to
hold such appointment.
(6) Powers to NFRA
(a) Power to investigate – suo motto OR on reference made by CG.
(b) Powers of civil court as per code of Civil Procedure 1908.
(c) Powers to pass order for professional/other misconduct, if proved:
(i) Imposing penalty:
- Individual: Minimum 1 lakh and Maximum 5 x of fees received
- Firm: Minimum 5 lakh and Maximum 10 x of fees received
(ii) Debarring the member or firm from practice: Minimum 6 months of practice &
Maximum 10 years of practise
(7) Accounts and Audit, Appeal
(a) Any person aggreieved by order of NFRA can appeal to the Appellate authority.
(b) NFRA to maintain BOA and other BOP as prescribed by CG and certified by C & AG.
(c) NFRA to audit its BOA audited by C & AG auditor.
(d) NFRA to prepare annual report of its activities and submit it with audit report copy to CG
who shall lay down before both the houses of parliament.
(i) On recommendations submitted by ICAI to NFRA
(ii) NFRA to add its own recommendations and submit to CG.
(iii) CG shall prescribe AS in consultation with NFRA
NFRA RULES 2018
1. NFRA shall have power to monitor & enforce compliance with accounting standards &
auditing standards and also oversea the quality of service or undertake investigation.
Of the auditors of following class of companies
(A) (B) (C) (D) (E)

Listed Unlisted Public Insurance/Bankin Any other body A subsidiary or
Companies Companies g/ Electricity corporate or associate
having company/ person or company
Statutory company whose incorporated
In India/
corporation or reference is made outside India of
Outside India Paid up share
body corporate to NFRA by CG in any of the
capital ≥ 500 Cr
public interest companies /
Or body corporate
Outstanding referred in A to
Borrowings ≥ D
500 Cr
Or Provided the
Turnover ≥ subsidiary or
1000Cr associate
company –
Income/net
During 31st
worth > 20% of
March of
consolidated
immediately
income or
preceding
consolidated
financial year
net worth of
such company
/body corporate
in A to D
Note 1:- Any existing body corporate governed by this rules (othr than company) shall
inform the NFRA the particulars of its auditor within 30 days inform NFRA1 from the
commencement of NFRA Rules.
Note 2:- Any listed / unlisted public company shall continue to be govern for the
period of 3 years by the NFRA, after it falls below the ceiling limit / ceases to be listed.
CENTRAL GOVERNMENT TO PRESCRIBE ACCOUNTING STANDARDS [SECTION 133]
FINANCIAL STATEMENT, BOARD‘S REPORT, ETC. [SECTION 134]

(1) S. 134 – (1), (2) & (7) – Authentication of Financial Statements :
Financial Statements including CFS, if any shall be approve by BOD & Signed by
The chairperson of the CEO CFO CS

company [if authorized
by BOD]
If he is a director If appointed If appointed.
OR AND
By 2 directors out of
which one shall be
MD.
Notes:
(1) In case of OPC even if one director signs the Financial Statement is valid.
(2) Along with the copy of Financial statement, the Following copies duly authenticated shall be
issued, circulated or publish :
(a) Any notes to accounts annex to or Forming part of FS.
(b) Audit Report
(c) Board of Directors Report.
Sec. 134(3), (4) – Board of Directors Report :

(1) Board Report shall be prepared based on standalone Financial Statements of Company.
(2) It shall Report on :
(a) Highlights of Performance of Subsidiary [Associates & Joint Venture also]
(b) Their contribution to overall performance of the company during the period under
Report.
CONTENTS OF BOARD REPORT – Except in case of OPC & Small Company

(1) Extract of annual Returns (2) No. of meetings of Board
(3) Directors Responsibility statement (4) Details of Fraud reported by auditors.
[Section 134(5)]
(5) Declaration by independent directors (6) Company‘s policy on directors
appointment & remuneration. [Not
applicable to Govt. Companies].
(7) Comments by Board on remark made by (8) Particulars of loans, guarantees,
Auditor & Company Secretary. investments by company.
(9) Particulars of contract or arrangement in (10) State of Companies Affairs.
which directors are interested.
(11) Amounts carrying reserves or paid by way (12) Material changes affecting the Financial
of dividend. Position.
(13) Conservation of Energy, Technology (14) Development & implementation of risk
absorption Foreign exchange management policy.
(15) CSR policy & initiatives (Sec 135) (16) Other matters as prescribed
Note : 1. In case of listed companies & other Note: 2. In case of Specified international
public companies [paid up share capital ≥ Rs.25 Financial Services company & IFSC] & IFSC Pvt.
Cr.] shall contain – ―a statement of annual Com, any information provides in its FS in the
evaluation of performance of the board of may not be included again in the BOD report.
directors, committee of directors &
individual directors.‖
OTHER MATTER TO BE INCLUDED IN BOD REPORT :

(1) Financial Summary.
(2) Changes in the nature of business, in any
(3) Details of directors or KMP, appointed or resigned during the year.
(4) Names of companies who become subsidiaries or who ceased to be subsidiaries.
(5) Details of deposits – accepted, unpaid / unclaimed, default in repayment of deposits or
interest thereon.
(6) Details of significant & material orders pass by court / Tribunal which affects the going
concern status & adequacy of financial controls.
Section 134(3A): CG may prescribe an abridged BOD report for the purpose of compliance by OPC
or small company.
Note: Sec. 134 (5) – The directors responsibility statement must state that : (AAP – DAL)
(1) Applicable accounting standards had been followed in the preparation of annual Accounts.
(2) Accounting policies selected were applied consistently
(3) Proper & sufficient care for maintenance of adequate accounting records, safeguarding of
assets, preventing & detecting fraud & other contingencies.
(4) Annual Accounts were prepared on going concern basis.
(5) Listed company – has laid down Internal Financial Controls are adequate & operating
effectively.
(6) Divided proper systems to ensure compliances of all the law & the systemize were adequate
& operating effectively.
Section 134 (6) – Signing of Board Report :
Any company except OPC At least 1 director of the OPC.
Chair person [if authorized by the board]

OR
If not authorized.
At least 2 directors, out of whom one shall be
managing director [MD]
Section 134 (8) – Contravention :
Fine – Min – 50,000 Impriosonment upto 3 years OR

Max. – 25 lakhs Fin Min – 50,000
Max. – 5,00,000
OR
Both.
SUMMARY : SEC. 134

1) Authentication of FS Sec. 134 (1), (2), (7)
2) Directors Responsibility Statement Sec. 134 (5)
3) Signing of Boards report Sec. 134 (6)
4) Contravention Section 134 (8).
CORPORATE SOCIAL RESPONSIBILITY [SECTION 135]
Respect Relationship Responsibility
People Society Environment
Commercially Successful company
Points to be Studied in CSR :-
(1) Why CSR ? Business duty towards society stakeholders & for betterment of the business
organization as well as nation as whole [i.e. Goodwill]
(2) What is CSR ?
(3) Meaning of CSR - Sec. 135 Companies [CSR Rules] 2014, Schedule VII
(4) Applicability.
(5) Exclusion of Companies from Sec. 135.
(6) Composition of CSR Committee.
(7) Disclosure of Composition of CSR Committee in BOD Report.
(8) Duties of CSR Committee.
(9) CSR Policy
(10) Duties of Board of Director
(11) Contribution towards CSR
(12) Failure to Contribute
(13) Contribution to CSR Activities through
(14) Exception to CSR Activities.
(15) Penal Provisions
(16) Schedule VII – CSR Activities.
Meaning of CSR :
CSR means & includes – Projects/programs relating to activities
General Customized
Specified in Schedule VII. OR Undertaken by BOD in pursuance of
recommendation of CSR Committee as per
declared CSR Policy [which includes activities
Specified in Schedule VII]
Applicability : Sec. 135 (1)

Every Company including :
It‘s Holding OR Subsidiary & Foreign company having

branch office / Project office
In India Only
Shall constitute a CSR Committee of the Board, if

 It has net worth 500 crores. OR
 Turnover 1000 crores OR
 Net Profit 5 crores OR
During immediately preceeding financial year.
Exclusion of Companies From CSR [Sec. 135] (Non applicability)

(1) IFSC Companies [Public / Private] – Specified by Govt. shall need not spend on CSR for a
period of 5 years from the commencement of the business.
(2) If a company ceases to be covered u/s. 135 (1) i.e. its net worth Rs. 500 Crore or Turnover
Rs. 1000 Crore or Net Profit Rs. 5 Crores during Consecutive 3 F.Y.It shall be excluded. i.e.
once applicable, applicable for 3 years.
COMPOSITION OF CSR COMMITTEE :- Amendment
Public Company Unlisted Public Private Company Foreign Company

Company / Private having only 2
Company directors
Atleast 3 director out At least 2 persons out
of which 1 shall be of which 1 shall be
independent director. Atleast 3 directors [i.e. 2directors themselves resident in India & the
it is not required to other shall be
appoint independent nominated by Foreign
director] Company.
DISCLOSRE OF COMPOSITION OF CSR COMMITTEE :

Under Board of Directors Report [Sec. 134 (3)]
Duties of CSR Committee :
(1) (2) (3)

Formulate & Recommend the Assist Implementation of the Monitor the CSR Policy from
CSR Policy & Expenditure CSR Policy Approved. time to time.
Contents of CSR Policy :
Includes Excludes Shall Specify
List of all CSR Projects / Activities under taken in That surplus if any shall not
Programmes i.e. activities as pursuance of normal course of Form part of business profit of
per Schedule 7. business. the company.
Specify the modalities [manner]

& implementation Schedule.
Maintenance Progress of the

projects / programmes
Duties of the board of directors – CSR Policy :

(1) Approve the CSR policy recommended.
(2) Disclose CSR policy contains in board report
(3) Place the CSR Policy on Companies Website.
(4) Ensure that activities included in CSR policy are only undertaken & the activities are as
specified in Schedule VII.
Contribution under CSR :
In every Financial year Contribute / Spend At least 2% of the Average N.P. of company made
during 3 immediately preceding F.T.
Note ;
(1) Company shall give preference to local area & areas around it where it operates.
(2) Net profit shall not include :
(a) Any profit received any overseas branch or any overseas company.
(b) Any dividend received from companies in India to whom Sec. 125(1) is applicable.
Failure to Contribute / Spend on CSR :
BOD shall in its board Report ―shall specify the reason of not spending the amount‖.
Contribution to CSR activities through :
(1) (2) (3)

Establish by the Company Established by Central Any other Sec. 8
Section 8 company / Government / State com/registered trust /
registered trust / registered Government / SC register society.
society
In Single Jointly with As section 8 Company / RT / Having track-record of at least
other company RS 3 F.Y. in the CSR
project/programme.
Exceptions to CSR Activities :
(1) (2) (3)

Projects / Programme Projects / programmes that Contribution of any amount
undertaken outside India. benefits only employees of the directly/ indirectly to any
companies & their families [See political party u/s. 182.
note below]
Contribution made company against implementation of against any labour law / provisions /
statutory.
Note : Company may build CSR capacities for their own personal as well as those of their
implementing agencies through any institution [at least 3 years track record.
Provided the expenditure incurred ≤ 5% of the total CSR expenditure in one F.Y.
Penalty :
Failure to disclose
Composition of CSR Committee Specify reason for not spending CSR in BOD
reports.
Penal Provision as given u/s. 134 shall be applicable [i.e. Refer Sec 134]
For any other contravention / failure punishment as provided in Section 450 shall be levied.
Rs. 10,000 & Rs. 1000 for

Each day of default.
Activities Specified in Schedule VII :

(1) Basic Living Requirement.
(2) Education.
(3) Gender Equality
(4) Environment
(5) Heritage
(6) Army
(7) Sports
(8) Charity
(9) Technology – Academic institutions
(10) Rural development programme
(11) Slum area development.
RIGHT TO MEMBERS TO COPIES OF AUDITED FINANCIAL STATEMENT [SECTION 136]

A copy of Financial Statement including consolidated Financial statement, auditors Report, BOD
Report & all other document shall be sent to :
(a) Atleast 21 days
(b) Shortfall
(c) Electronic mode – listed company
(d) Foreign subsidiary copies
Every Member Every Debenture trustee & All other Persons entitled [i.e.
creditors]
At least 21 days before the date of AGM

Note 1 :
In case of listed company, unless shareholders asked for full Financial Statement, CFS, AR, BR &
all other documents.
The listed company may make the above copies available for inspection at its registered office
during working hrs. for a period of 21 days before the meeting. &
Sent a statement containing sailent features of above document in Form no. AOC-3 or copies of the
documents.
At least 21 days before the date of AGM

Note 2 :
Listed companies & public companies [net worth Rs. 1 cr. & turnover Rs. 10 cr.] may send the
Financial Statements.
By electronic mode to all the members whose To all others by dispatch of physical copies.
shares are in demat form
&
Whose e-mail ID are register
&
To other members who have positively
consented in writing for receiving the copies
by electronic mode.
Note 3 :
Listed company can also place the copies of Financial Statement on the companies website.
Note 4 :
In case of Company having subsidiary, subsidiaries:
Place separate audited account of subsidiary on Provided a copy of separate audited financial
it‘s website if any. statement of subsidiary to any shareholder who
However if the FS are statutorily required to be asked for it.
prepared in CFS manner under the law of the
country of incorporation.
Then place the CFS copy on website of the
company.
Note 5 : Nidhi Company :-

In case of members holding [in a single/jointly] shares of face value Rs. 1000 or 1% or not more
than 1% of the total paid up share capital whichever is less.
The company may sent public notice in newspaper where register office is situated stating :-
(1) Date
(2) Time
(3) Venue of meeting
(4) Financial statement along with enclosures can be inspected at registered office of a
company.
Financial statements along with enclosures are affixed on notice board of company.
(5) A member is entitled to vote in person or by proxy.
Note 6 : Shorter notice of AGM :-
Company may also circulate the Financial Statement at such shorter notice.
Note 7 : Foreign companies not required to gets its account audited as per legal requirement of its
country of its incorporation.
The holding / parent company may place on the company‘s website or file such unaudited account.
[Applicable to Sec. 137]
Note 8 : Format of accounts of Foreign Subsidiary shall be as per Companies Act, 2013.
If not possible, a statement indicating the reasons for deviation may be placed / filed with such
account.
Note 9 : Contravention :
Company Fine Rs. 25,000 Office in Default

Fine Rs. 5,000
Shorter notice
The copy of FS shall be sent less than 21 days before the date of meeting and shall be deemed to
have been duly sent if it is agreed by:
In case of company Ltd. by shares In case of company Ltd. by guarantee

Majority in no. Atleast 95% of the total voting power exercisable
+ at the meeting.
Atleast 95% of PUSC, of the members present in

the meeting
COPY OF FINANCIAL STATEMENT TO BE FILED WITH REGISTRAR [SECTION

137]
Section 137 : Copy of Financial Statement to be filed with Registrar :
AGM
Held Not Held
Copy of FS + CFS = Other document to be Prescribed document

presented before AGM for adoption / approval. FS + CFS + other documents
(+)
Statement of Facts & reason of not holding AGM.
Filed with ROC within 30 days of the last date

before which AGM should have been held.
Adopted in AGM Unadopted in AGM/adjourned AGM
Filed with the Registrar within 30 days of the Filed within 30 days of AGM, with the registrar.
date of AGM He takes them as provisional in their records.
Further adopted by adjourned AGM – Filed with

ROC with in 30 days of the said meetings.
Note 1 :
In case of OPC, the copy of Financial Statements duly adopted by members shall be filed within
180 days from the closure of financial year.
Note 2 :
Companies having subsidiaries incorporated outside India & which do not have place of business in
India must also attached accounts of its subsidiaries.
Note 3 : Penalty –
Company Officers
Rs. 1000 for every day during which the failure 1. Managing director & chief financial officer
continues but it shall not more than 10 lakh. or
2. In their absence, any other director who
is authorized by board OR
3. In their absence all the directors.
4. Imprisonment @ 6 months or
Fine – Min – 1 lakh
max. – 5 lakh or Both.
Note 4 : Extensive Business Reporting Language: [XBRL]

Following class of company shall file their FS in XBRL format & by using the XBRL
Taxonomy Electronic dictionary for reporting the business data
All listed Company All Company having All company having All company covered
paid up share Capital turnover Rs. 100 under the XBRL rules
PUSC Rs. 5 cr. Cr. 2011.
Exemption :
(1) All banking companies
(2) Insurance companies
(3) Power Companies – Electricity
(4) NBFC
(5) Housing Finance Company.
Need not file F.S. under this rule.
Note* : XBRL : A standardized language for communication in electronic Form to express

report or file financial information by the Companies under the Act.
Taxonomy : In XBRL it is an electronic dictionary for reporting the business data as approved
by the Central Government.
INTERNAL AUDIT [SECTION 138]

Applicability
Internal auditor Shall be appointed by
Every Listed Company Every unlisted public company Every private company having
having outstanding deposit ≥
Rs. 25 cr. at any point of
time Outstanding loan /
borrowings ≥ Rs. 100 Cr at
OR any point of time
Paid-up Share Capital ≥ Rs. OR
50 Cr.
Turnover 200 Crore
OR
During the preceding F.Y.
Outstanding loan/
borrowings ≥ Rs. 100 cr. at
any point of time
OR
Turnover ≥ Rs. 200 Cr.
During the preceding F.Y.
Who can be the Internal Auditor
Any CA/CMA Any other professional as the May or may not be an employee
board of directors may think of company
fit.
Either in Practice or not
Audit committee / BOD shall in consultation with the internal auditor formulate the scope,
functioning, periodicity and methodology for conducting the audit.
Note :- In case of specified IFSC company Sec.138 shall be applicable if the articles provided for
the same.
CHAPTER 9: AUDIT AND AUDITORS

APPOINTMENT OF AUDITORS [SECTION 139]
First Auditor Subsequent Auditor
Non Govt. company Government
Non Government Government
Subsequent auditor
First
Company
1 2 3 4 5 6
Auditor
COI AGM
Within 30 days of Subsequent

the date of COI by auditor
the BOD
If BOD fails then they shall

inform the company
thereafter company shall in
AGM appoint 1st Auditor
within 90 days
Eligibility certificate
a. If individual / firm is appointed they are eligible for the apt. and not disqualified under
section 141.
b. The proposed appointment is as per the terms and limits laid down under this Act.
c. The list of proceedings against I/F/PF for professional misconduct as disclosed is there and
correct.
Appointment of auditor [Section 139(1)]:

Provisions relating to Section 139(1) + Companies [Audit & Auditor] Rules, 2014.
(1) Every company shall at its 1st AGM appoint an individual or a firm as an auditor of company till
conclusion of every 6th AGM.
(2) Manner & procedure for selection of auditor.
Is the company is required to constitute audit committee u/s. 177.
NO YES
Board will recommend the name of Individual (1) The audit committee will recommend the
or Firm, after considering their experience, to name of the individual or firm after
the members in AGM. considering their experience to the board.
(2) If the BOD agrees with the recommendation (3) If the BOD disagrees with the
made by audit committee, it shall propose recommendation made by audit committee.
the same individual or firm as auditor to
the members in AGM.
(4) It shall send back the recommendation (1) If BOD agrees, then suggest name in AGM.
made by audit committee & explain the
reasons for disagreement.
(5) The Audit Committee may reconsider its (2) If BOD still disagrees, BOD will suggest
recommendation given or stand on the same auditor of it‘s choice & BOD shall record
recommendation given previously the reasons for disagreement with the
recommendation made by Audit Committee.
Send its own recommendation to the
members in AGM
Notes:
(1) Before the appointment a written consent of auditor is obtained & certificate that the
appointment if made shall be in accordance with the Prescribed condition shall also be
obtained.i.e. Eligibility Certificate
(2) The company shall inform the auditor & also file form ADT-1 with the registrar within 15
days of meeting.
Term of Auditor [Section 139(2)]:

―Except‖ OPC & Small Companies :
(1) (2) (3) (4)

All listed Companies All unlisted Public All Private Limited All companies below
companies having companies having the Limit in (2) & (3)
but having.
Paid up share capital
Paid up share
Rs. 10 crores Capital Rs. 50 Public borrowing
Crores. from Financial
Institution or Bank
or Public deposit ≥
Rs. 50 Cr.
Shall not appoint or reappoint as auditor
An Individual An audit Firm
For more than 1 term of 5 consecutive year. For more than 2 terms of 5 consecutive year.
Notes:
(1) After completing his term, the individual or the audit firm shall not be eligible for
reappointment in same company in 5 years [cooling off period]
(2) No audit firm having a common partner or partners to the other audit firm whose tenure has
expired shall be appointed as auditor of same company for period of 5 years.
(3) Every company existing on or before the commencement of this act shall comply with the above
provision within 3 years from the date of commencement [1.4.2014 to 31.3.2017]
Rotation of auditor [section 139(3) and (4)]:
By Members By Central government
They may resolve to provide that : The Central Government may by rules
(1) In the audit firm appointed by it, the prescribed the manner in which the
auditing partner & his team shall be companies shall rotate their auditor.
rotated at such interval as may be resolved
by members. OR The audit committee shall recommend to the
(2) The audit shall be conducted by more board / the board shall on its own consider &
than one auditor [i.e. joint auditor] make its recommendation.
For appointment of next auditor by members

in AGM
Notes:
(1) Any period for which the individual or the audit firm has held office as auditor prior to the
commencement of this Act [1.4.2014] it shall be taken into account for calculating period of 5
consecutive years or 10 Consecutive years, as the case may be.
(2) Any incoming auditor or audit firm under the same network of audit Firm with the outgoing
auditor shall not be eligible for appointment.
i.e. Firms operating, Functioning or under the same brand name, trade name or common
control.
(3) If a partner, who is in charge of audit firm & also certifies the financial statement of company
retires from a firm & joins another firm. Such other firm also be eneligible to appoint for a
period of 5 years.
(4) It shall mean, all the preceding financial year for which the individual or audit firm has been
the auditor until their has been a break of 5 years or more.
(5) In case of joint auditors – the company may follow rotation of auditor in such manner that both
or all of Joint auditors do not complete their term. In the same year.
(6) Firm includes LLP.
First auditors [Section 139(6)]:

In case of non-Govt. Companies
To be appointed
1) By the BOD – within 30 days of the date of registration of company.
2) If the BOD fails –
(i) BOD to inform the members of company.
(ii) Company in GM may appoint the first auditor.
(iii) Within 90 days at on EGM.
Note: The first auditor so appointed shall held office until the conclusion of First AGM.
Filling up casual vacancy [Section 139(8)]:

Any casual vacancy caused in the office of auditor
Resignation of auditor – Casual vacancy to By any other reason e.g. [death]

be filled as follows:
BOD may fill casual vacancy within 30 days.

(1) BOD shall appoint and recommend for
approval the appointment to the
shareholders in general meeting.
(2) The appointment shall be approved by the
company in GM held within 3 months of
the date of receiving notice of appoint.
The auditor appointed shall hold office till conclusion of next AGM.
Appointment of auditors in case of Government Company or any other company controlled

by the State Government or the Central Government [Section 139(5), 139(7) and 139(8)]
First Auditor Sec 139(7) Sub-sequent Auditor Sec. Casual Vacancy in the office
139 (5) of auditor Sec. 139 (8)
1) To be appointed by C &
1) To be filed by the C & AG
AG within 60 days from To be appointed, within 180 within 30 days.
the date of registration of days from the commencement
company. of the financial year, by the C 2) If C & AG fails, BOD shall
& AG. fill the vacancy within next
2) If C & AG fails, then the 30 days.
BOD shall appoint within
the next 30 days.
3) If BOF fails, BOD to
inform the members & the
members shall appoint
within 60 days at an
EGM.
The auditor so appointed shall

hold office till the conclusion
first AGM [60 + 30 + 60]
Re-appointment of retiring auditor [section 139(9), (10) and (11)]:
At any AGM, retiring auditor may be reappointed at an AGM, if
He is not disqualified for re- He has not given a notice in Special resolution has not
appointment OR writing of his unwillingness to been passed at the meeting
be re-appointed appointing some other
auditor.
OR
Providing expressly that he
shall not be reappointed
[Resolution requiring special
notice = meeting chapter]
Note: If at any AGM, no auditor is appointed or re-appointed, the existing auditor is automatically
reappointed.
Removal of auditor before the expiry of his term [Section 140(1)]:

(1) Board Meeting: Pass a board resolution in the BM for removal of Auditor.
(2) Obtain previous approval of Central Government: Make application to the Central
Government alongwith prescribed fees in Form ADT-2, within 30 days of Board Resolution.
(3) Hold GM & pass Special Resolution: Within 60 days of receipt of Central Government
approval.
(4) Give opportunity to being heard to Auditor: Before taking any action for removal before
expiry. [30 + 60]
Appointing Auditor other than the Retiring Auditor [Section 140(4)]

(1) Special notice shall be required for a resolution in an AGM :-
a) Either BOD / Shareholders appointing as auditor a person other than a retiring auditor OR
b) Shareholders providing expressly that a retiring auditor shall not be re-appointed.
Accept where there is completed.
(2) The company shall forthwith send a copy of the special notice to the retiring auditor.
(3) The Retiring auditor shall make a representation in writing [not exceeding a reasonable length].
(4) The company shall:
If the representation received in time If the representation is received too late.

OR
(1) Send notice of the resolution stating the Auditor may require that:
facts of the representation to the member (1) The copy of representation shall be read
AND out at the meeting without prejudice to the
(2) Send a copy of representation to every auditors right to be heard orally]
member to whom notice is sent. (2) File the copy of representation with the
registrar.
Notes:
(1) If the tribunal is satisfied that the right of representation is being abused by the auditor, then a
copy of representation may not be send or read out at the meeting.
(2) In the meeting, a special resolution must be passed by the shareholders.
Resignation by Auditor [Section 140(2) & (3)]

If auditor resigns from company, then
A statement in form – ADT-3 indicating the reasons & other relevant facts to be filed within 30 days
of resignation with
In case of Non-Government Company. In case of Government Companies.
(1) Company (1) Company

(2) Registrar (2) Registrar
(3) C & AG
Penalty Rs. 50,000 or remuneration received whichever is less.

Continuing failure – Rs. 500 for each day of default subject to max 5,00,000
Auditor acts in a fraudulent manner or abetted or colluded in any fraud [Section 140(5)]
At any AGM, retiring auditor may be reappointed at an AGM, if
Tribunal If tribunal is satisfied within 15 days of

receipt of application that change of auditor
is required.
If satisfied that Auditor has directly / indirectly
acted in a fraudulent manner then it may:.
1) Suo Motto It shall order that he shall not function as
auditor &Central Government may appoint
OR another auditor.
2) An application by Central Government
OR
3) On application by any person concerned.
(Member / creditor of the company)
Direct the company to change its auditors.
Removed auditor shall not be eligible to be

appointed as auditor of any Company for 5
years & is liable for action u/s. 447 of the Act.
Qualifications of an auditor [Section 141(1) & (2)]:

Only a CA within the meaning of CA Regulation Act, 1949, In case of
Individual Firm LLP

OR
Where majority of partners Only those partners who are
practicing in India are chartered Accountants shall
qualified to be auditor be Authorized to Act & sign
OR behalf of Firm.
Disqualifications of an Auditor
Section 141(1)
(1) Body corporate other than LLP
(2) Officer OR Employee of a company.
(3) Any person who is a partner or employee of company.
(4) Any person himself OR relative OR partner.
(i) Holding any security or interest of FU 1 lakh in Co./ S / H / AC / SHC. However, if the
limit exceeds 1 lakh FU subsequently, corrective action to maintain the limit shall be
taken by the auditor within 60 days of such acquisition / interest.
(ii) Shall not be indebted 5 lakhs to the Co. / S / H / AC / SHC
(iii) Has given guarantee / security on behalf of a 3rd person to the Co. / S / H / AC / SHC
for 1 lakh.
(5) The person himself OR Firm – Direct / Indirect business relationship in Co. / S / H / AC /
SHC.
(i) Commercial transaction where professional services are rendered as permited by CA
Regulation Act, 1949.
(ii) Commercial transaction in the ordinary course of business at arm‘s length price.
Any transaction of commercial nature except.
(6) Person – Relative – (Director OR Director in employment OR KMP)
(7) Person is in full time employment in any other company OR
(Person OR firm) 20 companies audit (per partner) excluding audit of OPC, small company,
pvt. Company with PUSC < 100 crore.
(8) Convicted of an offence of fraud by court order and 10 years have not lapsed from date of
conviction.
(9) He is rendering services directly / indirectly as provided under section 144.
Note:
If an auditor incurs any disqualification specified in Section 141, he shall be deemed to have
vacated his office immediately and such vacancy shall be deemed to be a casual vacancy in the
office of auditor (i.e. new auditor is to be appointed by BOD who shall continue to hold office till
the next AGM).
Remuneration of auditors [section 142]
To be fixed by
The Board of Director The company in General Meeting
In case of First Auditor As determined by the Company in General

Meeting.
(1) Remuneration of Auditor includes :
(a) Audit fees payable.
(b) Out of Pocket expenses incurred in In case of subsequent auditor
connection with audit.
(c) Any facility extended to the auditor
e.g. pick up – drop facility company
guest house facility.
(2) Remuneration does not include any
remuneration paid for any other service
provided at the request of company.
Powers of Auditors [Section 143(1)]:
Access to books of A/c. & Have necessary information & Access to record of all its
Vouchers explanation subsidiaries
Auditors Report [Section 143(2)]:
Duty of the Auditor to make a report to the members
Duties of Auditors
Inquire about Transactions Inquire about Inquire about Personal Cash has
loan & Adv. of company assets of loan & expenses actually been
Made by [excess or Company advances have treated as received on
company have short have been been shown Revenue Exp. such
been properly provision] sold at SP < as deposits. allotment of
secured or CP shares.
prejudicial.
Content of Auditors Report u/s 143(3):

Duty to Report
1 2 3 4
All in formation & (a) Proper book of A/c. Report on the Financial statement
explanation (b)Proper return. accounts of any comply with
(c) Audit Report branch office accounting standards.
received from
branches not visited
by him.
5 6 7 8
Observation or Directors Any qualification Adequate internal
comment on FR which disqualification. reservation or adverse Financial Control.
have any adverse
effect
Other Matters :
Contingent Liabilities Provision Any delay in Specified bank notes
According to transferring amount to during the period from
accounting standards the IRPF 8th Nov. 16 to
if, any, 30.12.16.
Negative or Qualified Report by Auditor [Section 143(4)]:

If matters mentioned under section 143(3) are answered in negative / with a qualification,
auditors report must state reasons for the same.
Reporting of frauds by auditors [Section 143(12)]:
Amount (Individually)
1 crore or more Less than 1 crore
Within 2 days
Auditor
Communicate to
management Within 2
days
Management BOD / AC
Within 45 days
BOD Report (Section 134)
Auditor
Shareholder
Within 15 days ADT-4
MCA Nature amount
parties involved
remedial action
Communication to include
(1) Nature
(2) Amount
(3) Parties involved
AUDITOR NOT TO RENDER CERTAIN SERVICES [SECTION 144]

An auditor shall provide only such other services as are approved by the BOD or Auditor
committee (in case of Listed Companies)
But such services shall not include the Following services render directly / indirectly to the
company / holding subsidiary companies :
(1) Book keeping & Accounting Service.
(2) Actuarial services
(3) Design & Implementation of Any Financial Information System.
(4) Management Services
(5) Advisory Services [Investment purpose]
(6) Financial Services.
(7) Investment Banking Services.
(8) Internal Audit
(9) Any other kind of services as may be prescribed.
*[BAD – MAFIA – INDIA]
Note: Directly / indirectly includes rendering of services by the auditor in case of :
Individual Audit Firm
(1) Individual himself (1) The firm itself (directly)

(2) His relative (2) Any of the partners of the firm.
(3) Any other person connected or associated (3) Any parent firm
with him (4) Any subsidiary
(4) Any entity connected or associated. (5) Any associates
(5) Any entity in which the individual has (6) Any other entity in which the firm has
significant influence or control. significant influence or control.
(6) Any entity where name or track mark or (7) Any other entity in which partner of the firm
brand is used by such individual. has significant influence or control.
(8) Any person whose name or trade mark or brand
is used by the firm.
AUDITORS TO SIGN AUDIT REPORTS, ETC. [SECTION 145]

(1) Audit report to be signed by the auditor along with any other document where he is authorized
to sign.
(2) The qualifications, observations, comments in the audit report shall be read before the
company in the GM and open for inspection by any member.
AUDITORS TO ATTEND GENERAL MEETING [SECTION 146]

(1) Auditor to attend every GM either himself or through his authorized representative, qualified to
be an auditor.
(2) He shall have right to be heard in the meeting for such part of business which is related to him
as an auditor.
(3) All notices of any GM shall be forwarded to the auditor of the company.
PUNISHMENT FOR CONTRAVENTION [SECTION 147]
Penalty on company [Sec. Penalty of officer in default of Penalty on Auditor [Sec. 139,
139 to Sec. 146] company [Sec. 139 to Sec. 146] 143, 145]
Minimum Rs.25,000 Imprisonment 1 year If auditor contravenes under

Maximum Rs.5 lakhs OR section 139
Fine: Minimum Rs.10,000 OR
OR Under section 143
Maximum Rs.1 lakh OR
OR Under section 144
BOTH OR
Under section 145
The punishment shall be as
follows:
Contravention Contravention knowingly

unknowingly
Imprisonment 1 year
Fine: Fine: Minimum Rs.50,000
Minimum Rs.25,000 Maximum Rs.25 lakhs
Maximum Rs.5 lakh OR
OR 8 times the remuneration
4 times the remuneration Whichever is less i.e. max 25 lakhs
Whichever is less Notes:
 Refund the entire remuneration received &
Subject to Max 5,00,000  Pay for the damages to the company, statutory authority, OR
Any other person members, creditors for the loss arising out
of incorrect or misleading misstatement. Of particulars in his
audit report.
Note :
(1) Any liability of firm, whether civil or criminal for act of the partner shall be joint & several
liability of the partner & Firm, Both.
(2) The CG shall specify any statutory authority / officer for ensuring prompt payment of
damages.‘ By the Auditor
(3) File report with CG in respect of damages paid.
(4) However in case of criminal liability only that partner who was involved in the offense shall be
made criminally liable.
CENTRAL GOVERNMENT TO SPECIFY AUDIT OF ITEMS OF COST IN RESPECT OF CERTAIN

COMPANIES [SECTION 148]
Applicability:
(1) Companies engaged in production of goods or providing such services as may be prescribed
[cost Audit & Auditor Rule 2014]
(2) The Central Government shall direct that particulars relating to utilization of
(a) material,
(b) Labour,
(c) Overheads,
shall be included in the books of A/c. kept u/s. 128, in consultation with CMA institute.
(3) The Central Government shall order audit of the cost records of such class of companies as
may be prescribed to be conducted by Practicing Cost Accountant – Appointed by the board &
whose remuneration may be determined by the members.
Notes:
(1) No auditor shall be appointed as cost audit.
(2) Cost auditor appointed shall comply with the cost accounting standard issued by CMA
Institute.
(3) Cost audit report shall be submitted to BOD – Company shall within 30 day Furnish the copy
of cost Audit Report to Central Government alongwith full information & explanation on every
reservation or qualification – The Central Government may call for further information &
explanation as it deems fit.
(4) Penalty u/s. 147.
Cost audit is carried out by a practicing cost accountant who shall submit his cost audit report
within 30 days to the BOD & the BOD shall submit the report along with full explaination to
the Central Govt within 30 days.
No statutory auditor shall be appointed as cost auditor.
Penalty for cost auditor is same as provided for statutory auditor under section 147.

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in Expert Professional Academy,Pune 1

THE COMPANIES ACT 2013

CHAPTER 1: PRELIMINARY & INCORPORATION OF COMPANY

2. Need for Companies Act, 2013 :

3. Aims and objectives of Companies Act, 2013 :

(1) (2) (3) (4)

4. Applicability of Companies Act :

Every Banking Autonomous Insurance Electricity Any Body

[Salomon V/s. Salomon Ltd.]

Himself 1 Wife 4 Sons 1 Daughter Secured 10,000 6,050 pounds

Public Company Private Company

Free transferability of shares Restriction on transfer of shares

IV. Separate Property :

VI. Capacity to sue and be sued :

VII. Limited Liability :

Limited by Shares Limited by Guarantee Limited by Guarantee.

6. LIFTING OF THE “CORPORATE VEIL”

Circumstances in which court may lift the Corporate Veil :

Formed New Company Solicit Clients

3) Determination of character of a company whether it is enemy:

5) Company avoiding legal obligation

6) Company acting as agent or trustee of the shareholders:

Agent of US based company

7)Avoidance of welfare legislation :

Total voting power

MCA [Ministry of Corporate Affairs]

Holding H Ltd. H Ltd.

Financial Statements [Section 2(4)]

31st March every year & In case of year of incorporation on / after

Free Reserves Section 2 (43) :

Key Managerial Personnel Section 2 (51)

OPC Section 2(62)

Section 2(69) Defines Promoter as any Person :

Small Company Section 2(85)

Provided that nothing in this clause should apply to

Stage – 1 : Promotion of Company.

(b) If name is Reserved by furnishing wrong particulars :

Company has not been Company has been Incorporated

Section 3A: Reduction in number of members below the statutory limit

Stage – 5 : Prepare All other Documents like :

i) Power of Attorney (if required)

Stage – 6 : Issue of Certificate of Incorporation & CIN

Law Relating to OPC.

-Sec.-8 Company. Compulsory Voluntarily The OPC/the officer

Section8 Company :Procedure for Registration

Resolution [After approval of matter in meeting]

Valid Votes means :

Rule.38. Simplified Proforma for Incorporating Company Electronically (SPICe)-

DOCTRINE OF ULTRA VIRES means

TYPES OF ULTRA VIRES ACT:

Articles of association [Section 5]

From the formation of Only if all members give Special Resolution is

Limitations Regarding Alteration of Articles :

DOCTRINE OF INDOOR MANAGEMENT :

Company Mr. X Bank

CS forged MD Sign Share certificate CS

iv.Acts outside scope of apparent authority. (ultra vires act)

IF DOCTRINE OF CONSTRUCTIVE NOTICE IS A NEGATIVE DOCTRINE, THEN THE DOCTRINE OF