Inter Ca: Revision Notes

CAFCINTER CAFINAL CA
INTER CA
MAY '19
REVISION NOTES
LAW
COMPANY LAW
/ofﬁcialjksc Jkshahclasses.com/revision
INTER C.A. – LAW
INDEX
CHAPTER PARTICULARS PAGE
COMPANY LAW
1. PRELIMINARY 1–6
2. INCORPORATION OF COMPANY AND 7 – 13
MATTERS INCIDENTAL THERETO
3. PROSPECTUS AND ALLOTMENT OF 14 – 21
SECURITIES
4. SHARE CAPITAL AND DEBENTURES 22 – 33
5. ACCEPTANCE OF DEPOSITS BY 34 – 38
COMPANIES
6. REGISTRATION OF CHARGES 39 – 42
7. MANAGEMENT AND ADMINISTRATION 43 – 55
8. DECLARATION AND PAYMENT OF 56 – 61
DIVIDEND
9. ACCOUNTS OF COMPANIES 62 – 70
J.K.SHAH CLASSES INTER C.A.- LAW
CHAPTER 1
THE COMPANIES ACT, 2013
UNIT 1: PRELIMINARY
• BACKGROUND AND AIM OF THE ACT
It came into existence at once from the date of notification in the Official Gazette
i.e., from 30th August, 2013,
It extends to the whole of India.
Structure of the Act: The Companies Act, 2013 has 470 Sections (covered in 29
Chapters) and 7 Schedules as against 658 Sections (covered in 13 Parts) and 15
Schedules of the Companies Act, 1956.
promote the development of the economy.
encourage transparency, accountability and high standards of corporate
governance;
recognize various new concepts and procedures facilitating convenience of doing
business
enforce stricter action against fraud
The word 'company' is derived from the Latin words (com= with or together; and
panis = bread or meal); and originally referred to an association of persons who took their
meals together.
The term 'company' has been defined under Section 2(20) of the Companies Act, 2013. As
per this, 'company' means a company incorporated under Companies Act, 2013 or
under any of the previous laws relating to companies.
'Company' shall be used in the sense as defined above for the entire Companies Act, 2013,
unless the context otherwise requires.
1. Separate legal entity
2. Limited liability
3. Perpetual Succession
4. Separate Property
5. Transferability of Shares
6. Common Seal
7. Capacity to sue and be sued
8. Separate Management:
9. Voluntary Association for Profit
IS COMPANY A CITIZEN?
Although, a company is regarded as a legal person (though artificial), it is not a citizen
either under the Constitution of India or the Citizenship Act, 1955.
HAS COMPANY A NATIONALITY AND RESIDENCE?

Corporate veil: refers to a separate legal existence enjoyed by the company
which is distinct from people who own & manage it.
It is an artificial curtain created by law which separates the company from the
people who own and manage it.
It means looking behind the company as a legal person, i.e., disregarding the
corporate entity and paying regard, instead, to the realities behind the legal
facade. Where the Courts ignore the company and concern themselves directly
with the members or managers, the corporate veil may be said to have been
lifted. Only in appropriate circumstances, the Courts shall lift the corporate
veil.
:1: REVISION NOTES – MAY ‘19

TYPES OF COMPANY
Company limited by shares:
Section 2(22), company limited by shares is a registered company having the liability
of its members limited to the amount, if any, unpaid on the shares respectively held by
them. If his shares are fully paid - up, he has nothing more to pay.
Company limited by guarantee:

Section 2(21), "guarantee company" is a company having the liability of its members
limited to such an amount as the members may respectively thereby undertake, by the
memorandum of association of the company, to contribute to the assets of the
company.
But a guarantee company having a share capital raises its initial capital from its
members, while the normal working funds would be provided from other sources, such
as fees, charges, subscriptions.
Unlimited Company:
As per Section 2(92), unlimited company is a company not having any limit on the
liability of its members. In such a company the liability of a member ceases when he
ceases to be a member.
Thus, the maximum liability of the members of such a company could extend to their
entire personal property to meet the debts and obligations of the company.
The members of an unlimited company are not liable directly to the creditors of the
company, unlike in the case of partners of a firm. The liability of the members is only
towards the company, so long it is a going concern; and in the event of its being
wound up, only the Liquidator can ask the members to contribute to the assets of the
company.
Private Company:
Section 2(68),
restricts the right to transfer its shares;
limits the number of its members to two hundred (except in case of One Person
Company)
prohibits any invitation to the public to subscribe for any securities of the company.
There should be at least two persons to form a private company i.e., the minimum no.
of members in a private company is two. A private company should have at least two
directors. The name of a private limited company must end with the words "Private
Limited".
Public Company:
As per Section 2(71),
• is not a private company
• Seven or more members are required to form the company.
• a private company which is a subsidiary of a public company shall also be
deemed to be a public company for the purposes of this Act, even where such
subsidiary company continues to be a private company in its articles
• A public company should have at least three directors. The name of a public
limited company must end with the word "Limited".

One Person Company:
Definition: As per Section 2(62),one person company is a company which-
One Person Company' means a company which has only one person as a member.
It is basically a private company with some unique features.
As regards the name of a One Person Company, the Act provides that the words "One
Person Company" or 'OPC' shall be mentioned in brackets below the name of such
Company, wherever its name is printed, affixed or engraved.
Law with respect to formation of OPC provides that—

The memorandum of OPC shall indicate the name of the other person, who shall,
in the event of the subscriber’s death or his incapacity to contract, become the
member of the company.
The other person whose name is given in the memorandum shall give his prior
written consent in prescribed form and the same shall be filed with Registrar of
companies at the time of incorporation.
Such other person may be given the right to withdraw his consent.
The member of OPC may at any time change the name of such other person by
giving notice to the company and the company shall intimate the same to the
Registrar.
Any such change in the name of the person shall not be deemed to be an
alteration of the memorandum.
Only a natural person who is an Indian citizen and resident in India (person who
has stayed in India for a period of not less than 182 days during the immediately
preceding one calendar year)-
a) Shall be eligible to incorporate a OPC;
b) Shall be a nominee for the sole member of a OPC.
A natural person shall not be a member of more than a OPC at any point of time
and the said person shall not be a nominee of more than a OPC.
Where a natural person being member in OPC becomes member in another such
company by virtue of his being a nominee in that OPC, such person shall meet
the eligibility criteria (as given in point above) within a period of 182 days.
No minor shall become member or nominee of the OPC or can hold share with
beneficial interest.
Such Company cannot be incorporated or converted into a company under
section 8 of the Act. Though it may be converted to private or public companies
in certain cases. The procedure of conversion is given in the rules 6 & 7 of the
Chapter II.
Such Company cannot carry out Non-Banking Financial Investment activities
including investment in securities of anybody corporate.
OPC cannot convert voluntarily into any kind of company unless two years have
expired from the date of incorporation, except where the paid up share capital is
increased beyond fifty lakh rupees or its average annual turnover during the
relevant period exceeds two crore rupees.
Small Company
Section 2(85),
(i) paid-up share capital of which does not exceed fifty lakh rupees or such higher
amount as may be prescribed which shall not be more than ten crore rupees;
And
(ii) turnover of which as per as per profit and loss account for the immediately preceding
financial year does not exceed two crore rupees or such higher amount as may be
prescribed which shall not be more than one hundred crore rupees:
Provided that nothing in this clause shall apply to--

(i) a holding company or a subsidiary company;
(ii) a company registered under section 8; or
(iii) a company or body corporate governed by any special Act.
It is basically a private company meeting prescribed threshold.
Following are some of the important relaxations provided to a small company:

(i) Financial statements of small company may not include the cash flow statement.
(ii) Small company shall be deemed to have complied with the provisions relating to
Board meeting if at least one meeting of the Board of directors has been conducted in
each half of a calendar year and the gap between the two meetings is not less than
ninety days.
(iv) Merger or amalgamation between two or more small companies have been simplified
without the requirement of court process.
Holding & Subsidiary Company

(a) that other controls the composition of its Board of Directors;
(b) that other exercises or-controls more than one-half of the total voting power either at
its own or together with one or more of its subsidiary companies; or
(c) the first-mentioned company is a subsidiary of any company which is that other's
subsidiary.
Associate company
(a) Section 2(6), In relation to another company, means a company in which that other
company has a significant influence, but which is not a subsidiary company of the
company having such influence and includes a joint venture company.
(b) "significant influence" means control of at least twenty per cent. of total voting
power, or control of or participation in business decisions under an agreement;
BASED ON CAPITAL
• Listed company:
• Unlisted company:
OTHER COMPANIES
1. Government Company
Section 2(45), government company means any company in which not less than
fifty- one per cent. of the paid-up share capital is held by-
(i) the Central Government, or
(ii) by any State Government or Governments, or
partly by the Central Government and partly by one or more State
Governments,
And the section includes a company which is a subsidiary company of such a
Government company;
2. Foreign Company
As per Section 2(42),
(i) has a place of business in India whether by itself or through an agent, physically
or through electronic mode; and
(ii) conducts any business activity in India in any other manner.

3. Company not for profit/Non-Profit companies

(i) Object of formation of Section 8 Company : Section 8 of the Companies Act,
2013 deals with the formation of companies which are formed to promote the
charitable objects of commerce, art, science, sports, education, research, social
welfare, religion, charity, protection of environment etc. Such company intends to
apply its profit in promoting its objects and prohibiting the payment of any
dividend to its members.
(ii) Power of Central government to issue the license :

This section allows the Central Government to register such person or
association of persons as a company with limited liability without the
addition of words ‘Limited’ or ‘Private limited’ to its name, by issuing
licence on such conditions as it deems fit. The registrar shall on application
register such person or association of persons as a company under this
section.
In exercise of powers conferred by Section 458 of the Companies Act, 2013
the Central Government hereby delegates to the ROC the power &
functions vested in it under the section 8 (1), subject to the condition that
the Central Government may revoke such delegation of powers or may
itself exercise the powers & functions under the said sections, if in its
opinion, such course of action is necessary in the public interest.
(iii) Privileges of Limited Company: On registration the company shall enjoy same
privileges and obligations as of a limited company.
(iv) A firm may be a member of the company registered under section 8.
(v) Alteration of Memorandum and Articles: A company registered under this
section shall not alter the provisions of its memorandum or articles except with
the previous approval of the Central Government.
4. Dormant company:
Where a company is formed and registered under this Act for a future project or
to hold an asset or intellectual property and has no significant accounting
transaction, such a company or an inactive company may make an application to
the Registrar in such manner as may be prescribed for obtaining the status of a
dormant company.
"Significant accounting transaction" means any transaction other than—

(i) payment of fees by a company to the Registrar;
(ii) payments made by it to fulfil the requirements of this Act or any other law;
(iii) allotment of shares to fulfil the requirements of this Act; and
(iv) payments for maintenance of its office and records.
5. Nidhi company:
As per Section 406, a company which has been incorporated as a nidhi with the object
of cultivating the habit of thrift (cost cutting) and savings amongst its members,
receiving deposits from, and lending to, its members only, for their mutual benefits and
which complies with such rules as are prescribed by the Central Government for
regulation of such class of companies.

6. Public financial institutions
As per Section 2(72), following institutions are to be regarded as public financial
institutions.
(i) The Life Insurance Corporation of India, established under the Life Insurance
Corporation Act, 1956;
(ii) The Infrastructure Development Finance Company Limited,
(iii) Specified company referred to in the Unit Trust of India (Transfer of Undertaking
and Repeal) Act, 2002;
(iv) Institutions notified by the Central Government under section 4A(2) of the
Companies Act, 1956 so repealed under section 465 of this Act;
(v) Such other institution as may be notified by the Central Government in
consultation with the Reserve Bank of India:

CHAPTER 1
UNIT 2: INCORPORATION OF COMPANY AND MATTERS

INCIDENTAL THERETO
• PROMOTER
Meaning: A promoter is a one (i.e. individual firm, company etc.) who performs
the preliminary duties necessary to bring the company into being and float it, i.e.
who brings the company into existence. He conceives the idea, develops it and
induces others to join the enterprise.
The promoter originates the scheme for the formation of a company, gets
together the subscribers to the memorandum, gets the memorandum and articles
prepared, executed and registered; finds the bankers, brokers and legal advisers,
finds the first directors, settles the terms of preliminary contracts with vendors
and makes arrangement for preparation, advertisement and circulation of the
prospectus and placement of the capital.
Definition: The term "Promoter” under section 2(69) means a person—
a) who has been named as such in a prospectus or is identified by the
company in the annual return referred to in section 92; or
b) who has control over the affairs of the company, directly or indirectly
whether as a shareholder, director or otherwise; or
c) in accordance with whose advice, directions or instructions the Board of
Directors of the company is accustomed to act.
A person who merely acts in a professional capacity on behalf of the promoter,
such as a solicitor or an accountant and who is paid by him is not a promoter.
• INCORPORATION OF COMPANIES
I. Selection of the type of company
II. Preliminary Requirements
III. Reservation of Name
IV. Preparation of the Memorandum of Association and Articles of Association
V. Filing of the documents with the Registrar of Companies
(a) The memorandum and articles
(b) a declaration in the prescribed
(c) an declaration in Form INC-9
(d) The address for correspondence
(e) prescribed particulars of every subscriber
(f) particulars of the interests of the persons mentioned in the articles as the
first directors along with FormDIR-12
(g) E-Form INC-22
VI. Certificate of Incorporation and allotment of Corporate Identity Number
VII. Effect of Registration [Sec. 9]
VIII. Commencement of Business [Sec. 11]

• MEMORANDUM OF ASSOCIATION
“Fundamental Document”
Memorandum of Association is the fundamental condition upon which alone is
allowed to incorporate.
Definition and Meaning of "Memorandum" means memorandum

Memorandum: of association of a company as
Section 2(56) of the Companies Act, originally framed or as altered from
2013. time to time in pursuance of any
previous companies law or of this Act.
The memorandum of association is a document, which contains the fundamental

provisions of the company's constitution. It defines as well as confines the
powers of the company. It not only shows the objects of formation but also
determines the utmost possible scope of its operations beyond which its action
cannot go.
Purpose of The purpose of memorandum is two-fold.
Memorandum: 1. The Prospective shareholder who contemplates the
investment of his savings, should know the field in, or the
purpose for which it is going to be used and what risk he is
taking in making the investment.
2. Outsiders or Creditors dealing with the company will know
without reasonable doubt whether the contractual relation
into which he contemplates entering with the company is
one relating to a matter within its corporate objects.
Form of • Table A is applicable to companies limited by shares;

Memorandum • Table B is applicable to companies limited by guarantee
[Section 4]: and not having a share capital;
• Table C is applicable to the companies limited by guarantee
and having a share capital;
• Table D is applicable to unlimited companies and not
having a share capital;
• Table E is applicable to unlimited companies and having a
share capital.
Printing and Signing of Memorandum [Sections 3 & 4]: The memorandum of

association must be
a. Printed,
b. Divided into paragraphs, numbered consecutively and Signed by each
subscriber (7 in the case of a public company; 2 in the case of a private
company and 1 in the case of OPC) in the presence of at least one witness
who shall attest the signatures of the subscribers.

Contents of Memorandum: Section 4 of the Companies Act provides that the

memorandum of association of every company must contain the following
clauses:-
Name Clause
Situation or Registered Office Clause
Objects Clause
Liability Clause
Capital Clause (only in the case of a company having a share capital)
Association Clause and Subscription Clause
Succession Clause (only in the case of OPC)
Change of Name [Section 13] :

Pass SR
Approval of CG (not required in case of addition or deletion of the word
private)
Intimate to ROC under a form MGT 14
INC 24
New name INC 1
Alter MOA
Copy of altered MOA + Copy of SR + copy of approval from CG – file to
ROC
New COI
Rectification of Name (Sec. 16)

Mere resemblance
Central Government – SUO – MOTO given notice to the company for
rectification of name (pass OR within three months)
Company approaching CG for rectification of name – CG will give notice
(pass OR within 6 months – only within 3 years from DOI)

J.K. SHAH CLASSES INTER C.A. - LAW
Methods of shifting of Registered Office within same state:
Change within the local Change from one city to Change from one city to another within the same State involving
limits of same 'town another within the same State change of jurisdiction of Registrar of Companies [Sec. 12]:
[Sec. 12]: and which does not involve
A company can change its the change of jurisdiction of A special resolution has to be passed in the general meeting of the
registered office from one Registrar of Companies, [Sec. company.
place to another within the 12]:
local limits of the city, town Apply to Regional Director for approval
or village, where it is A special resolution has to be
situated by passing a passed in the general meeting Regional Director shall communicate within a period of 30 days from
Board Resolution. of the company. The special the date of receipt of application
Resolution shall be passed by
Postal Ballot in case of public The company shall file the confirmation with the Registrar within a
A notice of the change is company. period of 60 days of the date of confirmation
to be given to the Registrar
of Companies in Form Form No. MGT.14 shall be filed ROC shall register the same and certify the registration within a
INC.22 within 15 days of to the Registrar of Companies period of 30 days from the date of filing of such confirmation.
such change. within 30 days of passing the
☻ This change of special resolution. Form No. MGT.14 shall be filed to the Registrar of Companies within
registered office does 30 days of passing the special resolution.
not involve alteration Also within 15 days of the
of memorandum. change of the registered office, Also within 15 days of the change of the registered office, a notice to the
a notice to the Registrar should Registrar should be given of the new location of the office in Form No.
be given of the new location of INC.22.
the office in Form No. INC.22. ☻This change of registered office also does not involve alteration of
☻This change of registered memorandum.
☻ This provision is applicable only in those states where there are
office also does not involve more than one offices of Registrar of Companies. At present there are
alteration of memorandum. two states, where there are more than one offices of ROCs. They are
Maharashtra and Tamil Nadu. In Maharahstra, the two offices of ROCs
are located at Mumbai and Pune; whereas in Tamil Nadu, the two
offices of ROCs are located at Chennai and Coimbatore.
: 10 : REVISION NOTES – MAY ‘19

• Change from one State to another State [Sec.13]

A special resolution has to be passed in the general meeting of the company.
Apply to Central Government for approval
Central Government shall communicate within a period of 60 days from the date of
receipt of application
The Central Government, before passing its order, may satisfy itself that the alteration
has the consent of the creditors, debenture-holders and other persons concerned with
the company or that the sufficient provision has been made by the company either for
the due discharge of all its debt and obligations or that adequate security has been
provided for such discharge.
File following documents with Registrar of both states:

a) A certified copy of the order of the Central Government approving the alteration
for change.
b) Altered copy of MOA
The ROC of the State where the registered office is being shifted to, shall issue a fresh
certiﬁcate of incorporation indication the alteration.
Also Form No. MGT.14 shall be filed to the Registrar of Companies within 30 days of
passing the special resolution. Also within 15 days of the change of the registered
office, a notice to the Registrar should be given of the new location of the office in
Form No. INC.22.
☻ A State Government cannot oppose shifting of the registered office of a company
from one state to another on the ground that by this change the State would be
deprived of its revenue. The question of loss of revenue to one state would have
to be considered in the context of total revenue of the Republic of India and in the
interest of the country as a whole.
☻ It was held that employees’ union, which is a registered body and which
represents quite a number of the employees employed at a registered office of
the company, has the right to appear and to oppose the application made to the
Central Government u/s 13 on the ground that their interests would be likely to be
prejudicially affected if such special resolution would be confirmed by the Central
Government
☻ This change of registered office INVOLVES alteration of memorandum.
• OBJECT CLAUSE
• Pass SR
• Alter MOA
• Copy of SR + copy of altered MOA submit to ROC
• LIABILTY CLAUSE

• CAPITAL CLAUSE (ONLY IN THE CASE OF A COMPANY HAVING A SHARE

CAPITAL):
Alteration of Capital Clause (Section 61)
a) By increasing its authorized share capital by such amount as the company
requires;
b) By consolidating existing shares into shares of larger denomination;
c) By converting fully - paid shares into stock or vice - versa;
d) By sub-dividing its existing shares into shares of smaller denomination; and
e) By cancelling shares which have not been taken up or agreed to be taken up and
diminishing the amount of its share capital by the amount of the shares
cancelled. Such cancellation is known as diminution of share capital and
shall not, however, be deemed as reduction of share capital within the
meaning of Sec. 66.
Reduction of share capital (Section 66)

Company may reduce the share capital in any of the following manner:
Extinguish or reduce the Cancel any paid-up share Pay off any paid-up
liability on any of its capital which is lost or is share capital which is in
shares in respect of the unrepresented by excess of the wants of
the company
share capital not paid up available assets
Difference between diminution of share capital and reduction of share capital
Diminution of share capital Reduction of share capital

1. Affects Authorised share capital 1. Affects Paid up share capital
2. Ordinary Resolution 2. Special Resolution
3. No NCLT Approval required 3. NCLT Approval required
4. Balance Sheet is not affected 4. Balance Sheet is affected
5. Interest of creditors is not affected 5. Interest of creditors is affected
6. The words “And reduced” are not 6. The words “And reduced” are to be
be used used
• ASSOCIATION CLAUSE AND SUBSCRIPTION CLAUSE
• SUCCESSION CLAUSE (ONLY IN THE CASE OF OPC)

• ARTICLES OF ASSOCIATION
The articles of a company are its bye — laws or rules and regulations that govern
the management of its internal affairs and the conduct of its business. The
articles of a company are sub—ordinate to and are controlled by the
memorandum of association. The memorandum lays down the scope and
powers of the company and the articles govern the ways in which the objects of
the company are to be carried out.
Definition and Meaning of Articles Section 2(5) of the Companies Act, 2013:
'Articles' means the articles of association of a company as originally framed or
as altered from time to time in pursuance of any previous companies law or of
this Act.
Form and Schedule I

Contents of Table F= companies limited by shares;
Articles Table G= is applicable to companies limited by guarantee and having a
[Section 5]: share capital;
Table H = companies limited by guarantee and not having a share
capital;
Table I= unlimited companies and having a share capital;
Table J = unlimited companies and not having a share capital.
• A company may adopt all or any of the regulations of the aforesaid
Model Articles. If duly registered articles of a company do not
expressly exclude or modify the regulations contained in applicable
model articles, such regulations shall apply as if they were contained
in the duly registered articles of a company.

CHAPTER 1
UNIT 3: PROSPECTUS AND ALLOTMENT OF SECUTITIES
• ISSUE OF SECURITIES BY THE COMPANY
PUBLIC COMPANY PRIVATE COMPANY
'Public offer' Private placement Rights or bonus Private Rights or bonus

through issue of by complying with issue in placement by issue in
prospectus. the provisions of accordance with complying with accordance with
Public offer Section 42 of the provisions of the provisions of the provisions of
includes initial Section 42 of the Companies
Companies Act, the Companies
public offer (IPO)
2013. Act and the Companies Act, Act
or further public
offer (FPO) of Securities and 2013;
securities to the Exchange Board
public by a of India Act,
company, or an 1992.
offer for sale of
securities to the
public by an
existing
shareholder,
through issue of
a prospectus
(Section 23 to
41);
Matters to be stated in prospectus[Section 26]

(1) Dated: Every prospectus must be dated. The date appearing on the prospectus
is deemed to be date of publishing prospectus
(2) Registered: The prospectus must be registered with ROC on or before issue of
prospectus to public
(3) Issued: The prospectus must be issued to public within 90 days of registration
with ROC. Any issue of securities under the prospectus which is issued beyond
90 days shall be deemed to be an issue without a prospectus.
(4) Contents of the prospectus: Every prospectus issued by or on behalf of a
public company either with reference to its formation or subsequently, or by or on
behalf of any person who is or has been engaged or interested in the formation of
a public company, shall be dated and signed and shall state such information and
set out such reports on financial information as may be specified by the
Securities and Exchange Board in consultation with the Central Government:
General Information Financial Information Statutory Information

Variation in terms of contract or objects in prospectus (Section 27)
• special resolution
• Notice of resolution to shareholders:
• Exit offer to dissenting shareholders:

TYPES OF PROSPECTUS
Shelf Prospectus (Section 31)

The Companies Act, 2013 defines the term "shelf prospectus" which means a
prospectus in respect of which the securities or class of securities included
therein are issued for subscription in one or more issues over a certain period
without the issue of a further prospectus.
Section 31
• Filing of shelf prospectus with registrar:

(i) At the stage of the first offer of securities included therein, which shall
indicate a period not exceeding one year as the period of validity of such
prospectus which shall commence from the date of opening of the first offer
of securities under that prospectus, and
(ii) In respect of a second or subsequent offer of such securities issued

during the period of validity of that prospectus, no further prospectus is
required.
• Filing of an information memorandum containing all material facts with the

registrar-
• Shelf prospectus with information memorandum deemed to be prospectus:
Red Herring Prospectus (Section 32)

The expression "red herring prospectus" means a prospectus which does not include
complete particulars of the quantum or price of the securities included therein. Red
Herring Prospectus' concept has been introduced to facilitate Book Building method for
public issue of securities.
• Issue of red herring prospectus prior to prospectus:
• Filing with the registrar:
• Obligation and any variation in the red herring prospectus is same as that of
prospectus:
• Prospectus with the details not included in the red herring prospectus:
Abridged Prospectus
Section 33 of the Act relating to the issue of application forms for securities says that:
(1) The form of application for the purchase of any of the securities of a company
shall be issued along with an abridged prospectus.
As per the definition contained in the section 2(1) of the Companies Act, 2013,
abridged prospectus means a memorandum containing such salient
features of a prospectus as may be specified by the Securities and Exchange
board by making regulations in this behalf.
Exceptions: There are, however, certain exceptions to the above provision,
where an abridged prospectus containing all the prescribed details need not
accompany the Application Forms sent out. These exceptions are:
(a) In connection with a bona fide invitation to a person to enter into an
underwriting agreement with respect to such securities; or
(b) In relation to securities which were not offered to the public.

(2) A copy of the prospectus shall, on a request being made by any person before the
closing of the subscription list and the offer, be furnished to him.
(3) If a company makes any default in complying with the provisions of this section, it
shall be liable to a penalty of fifty thousand rupees for each default.
REMEDIES FOR MISREPRESENTATION IN THE PROSPECTUS
Remedies against Company Remedies against Directors/

Promoters/Expert:
1. Rescind the contract.
2. A person, who takes shares on
the faith of a prospectus Criminal Liability Civil Liability for
containing false statements, for mis-statement mis-statement in
in prospectus prospectus
may apply to the Court for the
contract to be set aside, and
his name to be struck off from
the register of members. Refer next page
3. He may also claim his money
back.
☻ But the allottee must act
within reasonable time, before
any proceedings to wind up
the company have been
commenced. He will lose his
right to rescind if he attempts
to sell the shares or attends a
general meeting of the
company, or receives
dividends.
4. Sue the company for damages

for deceit.

Remedies against Directors/

Promoters/Expert:
Criminal Liability for mis- Civil Liability for mis-statement in prospectus:

statement in prospectus: Section 35 makes the following persons liable to pay
Section 34 fastens criminal liability compensation for loss or damage sustained by
for mis-statements in prospectus. reason of mis-statement/untrue statement or inclusion
Where a prospectus, issued, or omission of any matter in the prospectus:-
circulated or distributed, includes 1. Every person who is a director of the company at
any statement which is untrue or the time of issue of prospectus;
misleading, every person who has 2. Every person who has authorized himself to be
authorised the issue of such named and is named in the prospectus as a
prospectus shall be held guilty for director [proposed directors];
fraud involving an amount of at 3. Every person who is a promoter of the company;
least ten lakh rupees or one per 4. Every person who has authorized the issue of the
cent. of the turnover of the prospectus; and
company, whichever is lower 5. Every person who is named in the prospectus as
punishable with imprisonment and an expert.
fine under section 447.
Exemptions from the liability: No person shall be
Section 447 provides the penalty
liable for the mis-statement, where such person
for fraud
proves that—
• which is imprisonment for a
term which shall not be less 1. Withdrawn his consent before the issue of
than 6 months but which may prospectus- Where a person having consented to
extend to 10 years (Where the become a director of the company, withdrew his
fraud in question involves consent before the issue of the prospectus, and
public interest, the term of that it was issued without his authority or consent;
imprisonment shall not be less or
than 3 years) 2. Prospectus issued without his knowledge/
and consent- Where the prospectus was issued
• fine which shall not be less without the knowledge or consent of a person, and
than the amount involved in that on becoming aware of its issue, he forthwith
the fraud, but which may gave a reasonable public notice that it was issued
extend to 3 times the amount without his knowledge
involved in the fraud.
3. As regards every misleading statement purported
Where the fraud involves an to be made by an expert or contained in what
amount less than 10 lakh purports to be a copy of or an extract from a report
rupees or 1%. of the turnover of or valuation of an expert, it was a correct and fair
the company, whichever is representation of the statement, or a correct copy
lower, and does not involve of, or a correct and fair extract from, the report or
valuation; and he had reasonable ground to believe
public interest, any person
and did up to the time of the issue of the
guilty of such fraud shall be prospectus believe, that the person making the
punishable with statement was competent to make it and that the
Imprisonment: Upto 5 years said person had given the consent required by
Or section 26 to the issue of the prospectus and had
Fine: Upto 20 lakh rupees not withdrawn that consent before delivery of a
Or copy of the prospectus for registration or, to the
defendant's knowledge, before allotment there
Both
under..

Further, Section 36 prescribes punishment for any person who fraudulently induces
persons to invest money by making statement which is false, deceptive, misleading or
deliberately concealing any material facts. He will be held guilty for fraud punishable with
imprisonment and fine under section 447, an offence which is non-compoundable.
Allotment of securities & underwriting commission (section 39 – 40)

Allotment should be done by proper authority, allotment should be communicated, it
should be unconditional etc.
Application Money : The company must have received in cash the amount payable on
application, which must not be less than 5% of the nominal value of the securities or
such other amount or per cent as may be specified by SEBI; and deposited the
amount received in a separate account.
Minimum Subscription: The minimum subscription as provided in the prospectus

must have been received within 30 days from the date of issue of the prospectus or
such other period as may be specified by SEBI.
Listing Permission:
Return of Allotment:
PAS.3,
PRIVATE PLACEMENT [SECTION 42]

Definition of Private Placement: Private Placement' means any offer of securities or
invitation to subscribe securities to a select group of persons by a company (other than
by way of public offer) through issue of a private placement offer letter (Form PAS.4)
and which satisfies the specified conditions.
Important Provisions: Following are the key provisions relating to private placement :
1. A private placement shall be made only to a select group of persons who have
been identified by the Board (herein referred to as "identified persons"), whose
number shall not exceed 50 or such higher number as may be prescribed
[excluding the qualified institutional buyers and employees of the company being
offered securities under a scheme of employees stock option, in a financial year
subject to such conditions as may be prescribed.
Provided that, subject to the maximum number of identified persons, a company
may, at any time, make more than one issue of securities to such class of
identified persons as may be prescribed
2. A company making private placement shall issue private placement offer and
application in such form and manner as may be prescribed to identified persons,
whose names and addresses are recorded by the company in such manner as
may be prescribed:
The private placement offer and application shall not carry any right of
renunciation.
3. If a company, listed or unlisted, makes an offer to allot or invites subscription, or
allots, or enters into an agreement to allot, securities to more than the prescribed
number of persons, whether the payment for the securities has been received or
not or whether the company intends to list its securities or not on any recognised
stock exchange in or outside India, the same shall be deemed to be an offer to
the public and shall accordingly be governed by the provisions of this
Chapter.

4. Every identified person willing to subscribe to the private placement issue shall
apply in the private placement and application issued to such person along with
subscription money paid either by cheque or demand draft or other
banking channel and not by cash.
5. A company shall not utilise monies raised through private placement unless
allotment is made and the return of allotment is filed with the Registrar.
6. No fresh offer or invitation under this section shall be made unless the allotments
with respect to any offer or invitation made earlier have been completed or that
offer or invitation has been withdrawn or abandoned by the company.
7. A company making an offer or invitation under this section shall allot its securities
within 60 days from the date of receipt of the application money for such
securities and if the company is not able to allot the securities within that period,
it shall repay the application money to the subscribers within 15 days from the
expiry of sixty days and if the company fails to repay the application money within
the aforesaid period, it shall be liable to repay that money with interest at the
rate of 12% p.a from the expiry of the sixtieth day.
8. The monies received on application under this section shall be kept in a separate
bank account in a scheduled bank and shall not be utilised for any purpose other
than—
(a) For adjustment against allotment of securities; or
(b) For the repayment of monies where the company is unable to allot
securities.
9. Company issuing securities under this section shall not release any public
advertisements or utilise any media, marketing or distribution channels or
agents to inform the public at large about such an issue.
10. A company making any allotment of securities under this section, shall file with
the Registrar a return of allotment within 15 days from the date of the
allotment in such manner as may be prescribed, including a complete list of all
allottees, with their full names, addresses, number of securities allotted and such
other relevant information as may be prescribed.
If a company defaults in filing the return of allotment within the period prescribed,
the company, its promoters and directors shall be liable to a penalty for each
default of one thousand rupees for each day during which such default continues
but not exceeding twenty-five lakh rupees.
11. Penalty: If a company makes an offer or accepts monies in contravention of this
section, the company, its promoters and directors shall be liable for a penalty
which may extend to the amount raised through the private placement or two
crore rupees, whichever is lower, and the company shall also refund all monies
with interest as specified to subscribers within a period of thirty days of the order
imposing the penalty.

• GLOBAL DEPOSITORY RECEIPTS (Section 41)
Eligibility to issue A company may issue depository receipts provided it is eligible to

depository receipts do so in terms of the Scheme and relevant provisions of the
[Rule 3] Foreign Exchange Management Rules and Regulations.
Conditions for issue 1. The Board of Directors of the company intending to issue
of depository depository receipts shall pass a resolution authorising the
receipts [Rule 4] company to do so.
2. The company shall take prior approval of its shareholders by a
special resolution to be passed at a general meeting. A
special resolution passed under section 62 for issue of shares
underlying the depository receipts, shall be deemed to be a
special resolution for the purpose of section 41 as well.
3. The depository receipts shall be issued by an overseas
depository bank appointed by the company and the underlying
shares shall be kept in the custody of a domestic custodian
bank.
4. The company shall ensure that all the applicable provisions of
the Scheme and the rules or regulations or guidelines issued by
the Reserve Bank of India are complied with before and after
the issue of depository receipts.
5. The company shall appoint a merchant banker or a
practising chartered accountant or a practising cost
accountant or a practising company secretary to oversee all
the compliances relating to issue of depository receipts and the
compliance report taken from such merchant banker or
practising chartered accountant or practising cost accountant or
practising company secretary, as the case may be, shall be
placed at the meeting of the Board of Directors of the company
or of the committee of the Board of directors authorised by the
Board in this regard to be held immediately after closure of all
formalities of the issue of depository receipts.
The committee of the Board of directors referred to above shall
have at least one independent director in case the company is
required to have independent directors.
Manner and form of 1. The depository receipts can be issued by way of public
depository receipts offering or private placement or in any other manner prevalent
[Rule 5] abroad and may be listed or traded in an overseas listing or
trading platform.
2. The depository receipts may be issued against issue of new
shares or may be sponsored against shares held by
shareholders of the company.
3. The underlying shares shall be allotted in the name of the
overseas depository bank and against such shares, the
depository receipts shall be issued by the overseas depository
bank abroad.
Voting rights [Rule 6] 1. A holder of depository receipts may become a member of the
company and shall be entitled to vote as such only on
conversion of the depository receipts into underlying shares
after following the procedure provided in the Scheme and the
provisions of this Act.
2. Until the conversion of depository receipts, the overseas
depository shall be entitled to vote on behalf of the holders of
depository receipts in accordance with the provisions of the

agreement entered into between the depository, holders of
depository receipts and the company in this regard
Proceeds of issue The proceeds of issues of depository receipts shall either be
[Rule 7] remitted to a bank account in India or deposited in an Indian bank
operating abroad or any foreign bank (which is a Scheduled Bank
under the Reserve Bank of India Act, 1934) having operations in
India with an agreement that the foreign bank having operations in
India shall take responsibility for furnishing all the information
which may be required and in the event of a sponsored issue of
Depository Receipts, the proceeds of the sale shall be credited to
the respective bank account of the shareholders.
Non applicability of (1) The provisions of the Act and any rules related to public issue
certain provisions of of shares or debentures shall not apply to issue of depository
the Act. receipts abroad.
(2) The offer document, if prepared for the issue of depository
receipts, shall not be treated as a prospectus or an offer
document within the meaning of this Act and all the provisions
as applicable to a prospectus or an offer document shall not
apply to a depository receipts offer document.
(3) Notwithstanding anything contained under section 88(Register
of members etc.) of the Act, until the redemption of depository
receipts, the name of the overseas depository bank shall be
entered in the Register of Members of the company.

CHAPTER 1
UNIT 4: SHARE CAPITAL AND DEBENTURES
PART A: SHARE CAPITAL

• CLASSIFICATION OF SHARE CAPITAL
The share capital of a company can be classified as :
Nominal, Authorised or Registered Capital
Issued Capital
Subscribed Capital
Called Up Capital Uncalled Capital
Paid-up Capital Unpaid Capital
• SHARE
Definition and Meaning of Share: Section 2(84) of the Companies Act, 2013
defines the term "share". As per this, share means a share in the share capital of
a company and includes stock.
By its nature, a share is not a sum of money but a bundle of rights and
liabilities. A share is a right to participate in the profits of a company, while it is a
going concern and declares dividend; and a right to participate in the assets of
the company, when it is wound up.
The shares or debentures or other interests of any member in a company shall
be movable property transferable in the manner provided by the articles of the
company [Section 44 of the Companies Act, 2013]. Every share in a company
having a share capital, shall be distinguished by its distinctive number [Section
45]. This shall not apply to a share held by a person whose name is entered as
holder of beneficial interest in such share in the records of a depository.
Basic requirement (Section 45 and 46): Physical entitlement to a particular
portion of share capital is prima facie evidenced by way of a share certificate
which has to be
1. Distinctively numbered; &
2. To be issued under common seal of the company or signed by two directors
or by a director and the Company Secretary, wherever the company has
appointed a Company Secretary.
Demat—Now-a-days most of the listed shares are held in electronic format. Even
banks and financial institutions now insist for demat of securities for charge
creation to facility corroboration with central registry for loans and mortgages.
Physical securities are mostly limited to private limited companies and closely
held companies.
At present there are two depositories in India: NSDL and CDSL with various
depository participants (DPs) linked to them. Dematerialised securities are held
by investors in their respective accounts with the DP. The DP keeps a track of
transfer, transmission, charge creation etc. There are necessary enabling legal
enactments to facilitate all these procedures.

• KINDS OF SHARE CAPITAL (Section 43)
Preference Share Equity Share
With voting rights With differential rights as

On the On the basis of On the basis
basis of convertibility of of to dividend, voting or
dividend shares redeemability otherwise
payout
Cumulative Convertible Redeemable

Non-Cumulative (mandatorily/
Participatory Optional/ Irredeemable
Non-participatory Partially/fully)
- Non-convertible
• PREFERENCE SHARE
Meaning: A preference share is a share which fulfils the following two conditions:
It carries preferential right in respect of payment of dividend; and
It also carries preferential right in regard to repayment of capital.
In simple terms, preference share capital must have priority both regards to
dividend as well as capital.
Issue of preference shares: Section 55 of the Companies Act, 2013 read with
Companies (Share Capital and Debentures) Rules, 2014 provides that a
company, if so authorized by its articles of association, may issue
redeemable preference shares, subject to the following conditions :
(a) The issue of such shares has been authorized by passing a special
resolution in the general meeting of the company;
(b) The company, at the time of such issue of preference shares, has no
subsisting default in the redemption of preference shares issued either
before or after the commencement of this Act or in payment of dividend due
on any preference shares; and
(c) The company cannot issue preference shares which is redeemable after the
expiry of 20 years from the date of its issue. However, a company engaged
in the setting up and dealing with of infrastructural projects, as defined in
Schedule VI to this Act, may issue preference shares for a period exceeding
20 years but not exceeding 30 years, subject to the redemption of a
minimum ten percent of such preference shares per year from the twenty
first year onwards or earlier, on proportionate basis, at the option of the
preference shareholders.
It may be noted that a company cannot issue irredeemable preference
shares.
Redemption of preference shares: A company can redeem its redeemable
preference shares subject to the following conditions:-
1. Shares are fully paid-up;
2. Share may be redeemed only out of the profits available for distribution as
dividend or out of proceeds of a fresh issue of shares made for the purpose
of redemption;
3. Where the shares are redeemed out of the profits available for distribution
as dividend, a sum equal to the nominal amount of the shares redeemed
shall be transferred out of profits to the Capital Redemption Reserve
Account, which can be utilized only for the purpose of issuing fully-paid
bonus shares, otherwise it shall be deemed to be reduction of share capital;
and
4. If premium is payable on redemption, it must have been provided for out of
profits or out of company's security premium account. However, such class
of companies as may be prescribed whose financial statements comply with
Accounting Standards prescribed for such class of companies cannot utilize
securities premium account for providing premium payable on redemption
of preference shares or debentures.
• VARIATIONS OF SHAREHOLDERS‘ RIGHTS [SECTION 48]

1. Where a share capital of the company is divided into different classes of shares,
the rights attached to the shares of any class may be varied with the consent
in writing of the holders of not less than three-fourths of the issued shares
of that class or by means of a special resolution passed at a separate
meeting of the holders of the issued shares of that class,
2. Provided that if variation by one class of shareholders affects the rights of any
other class of shareholders, the consent of three-fourths of such other class
of shareholders shall also be obtained and the provisions of this section shall
apply to such variation.
3. Where the holders of not less than 10 % of the issued shares of a class did not
consent to such variation or vote in favour of the special resolution for the
variation, they may apply to the Tribunal to have the variation cancelled, and
where any such application is made, the variation shall not have effect unless
and until it is confirmed by the Tribunal:
4. The decision of the Tribunal on any application shall be binding on the
shareholders.
• ISSUE OF SHARES AT A PREMIUM [SECTION 52]

A company may issue shares at a premium when it is able to sell them at a price
above par or nominal value, irrespective of the fact whether the shares are listed
on Stock Exchange or not. The rate of premium will be decided by the Board of
Directors of a Company. Section 52 of the Companies Act, 2013 deals with the
concept of share or securities premium.
The premium cannot be treated as profit and as such the amount of premium is
not available for distribution as dividend.
The amount of premium, whether received in cash or in kind, must be kept in a
separate account, known as the "Securities Premium Account".
The amount of share premium is to be maintained with the same sanctity as the
share capital.
The securities premium account cannot be treated as free reserves at it is in the
nature of capital reserve. [Section 52(1)].
In accordance with the provisions of Section 52(2) of the Act, the securities
premium can be utilized only for the following purposes :-
(a) Issuing fully — paid bonus shares to members;
(b) Writing off the balance of the preliminary expenses of the company;
(c) Writing off commission paid or discount allowed, or the expenses
incurred on issue of shares or debentures of the company;
(d) For providing for the premium payable on redemption of any
redeemable preference shares or debentures of the Company; and
(e) For the purchase of its own shares or other specified securities u/s 68.

However, certain class of companies, as may be prescribed and whose
financial statement comply with the accounting standards prescribed for
such class of companies, can utilize the share premium account only for
the purposes stated below :
(a) Issuing fully — paid bonus shares to members;
(b) Writing off commission paid or discount allowed, or the expenses incurred
on issue of equity shares of the company;
(c) For the purchase of its own shares or other specified securities u/s 68.
It may be noted that if a company proposes to apply share premium for any
purpose other than those mentioned above, it must then comply with the
requirements of the Act with respect to reduction of share capital.
• ISSUE OF SHARES AT A DISCOUNT [SECTION 53]

Section 53 prohibits a company to issue shares at discount except in the case of
issue of sweat equity shares. Any share issued by a company at a discount shall
be void.
However, 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 under the Reserve Bank of
India Act, 1934 or the Banking (Regulation) Act, 1949 (Notification dated 3rd
Jan, 2018)
In case of default, the company shall be punishable with fine which shall not be
less than one lakh rupees but which may extend to five lakh rupees and every
officer of the company who is in default shall be punishable with imprisonment for
a term which may extend to six months or with fine which shall not be less than
one lakh rupees but which may extend to five lakh rupees, or with both.
• SWEAT EQUITY SHARES [SECTION 54]

The concept of 'sweat equity shares' is defined in Section 2(88) of the
Companies Act, 2013. As per this, 'Sweat Equity Shares' means such equity
shares as are issued by a company to its directors or employees at a discount or
for consideration other than cash, for providing their know — how or making
available rights in the nature of intellectual property rights, or value addition, by
whatever name called.
Here the term ''Employee'' means:
(a) a permanent employee of the company who has been working in India or
outside India, for at least last one year; 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;
The expression 'Value additions' means actual or anticipated economic benefits
derived or to be derived by the company from an expert or a professional for
providing knowhow or making available rights in the nature of intellectual property
rights, by such person to whom sweat equity is being issued for which the
consideration is not paid or included in the normal remuneration payable under
the contract of employment, in the case of an employee.
Conditions:
1. The shares must be of class already issued;
2. At least one year must have elapsed since the Company had commenced
business;

3. The issue must be authorized by a special resolution passed by the
Company in general meeting;
4. The resolution must specify number of shares; their current market price;
consideration (if any); and the class or classes of directors or employees to
whom they are to be issued;
5. The shares must be issued in accordance with SEBI Regulations, in the
case of listed companies; and in accordance with Central Govt. Rules, in
the case of unlisted companies.
It may be noted that the rights, limitations, restrictions and provisions applicable
to equity shares shall be applicable to sweat equity share and holders of such
shares shall rank pari passu with other equity shareholders.
• FURTHER ISSUE OF SHARE CAPITAL [SECTION 62]

As per the section 62 of the Companies Act, 2013, where at any time, a company
having a share capital proposes to increase its subscribed capital by the issue of
further shares, such shares shall be offered—
(a) To persons who, at (b)To employees (c)To any persons, if it

the date of the offer, are under a scheme of is authorised by a
holders of equity employees' stock special resolution,
shares of the company option, subject to whether or not those
in proportion, to the paid- special resolution persons include the
up share capital on passed by company persons referred to in
those shares by sending and subject to the clause (a) or clause (b),
a letter of offer subject to conditions as may be either for cash or for a
the conditions (rights prescribed consideration other than
issue), cash, if the price of such
shares is determined by
the valuation report of a
As per Section 2 (37) employees’ stock registered valuer, subject
option means the option given to the to the compliance with
directors, officers or employees of a the applicable provisions
company or of its holding company or of Chapter III and any
subsidiary company or companies, if any, other conditions as may
which gives such directors, officers or be prescribed
employees, the benefit or right to
purchase, or to subscribe for, the shares
of the company at a future date at a pre-
determined price.
• BONUS SHARES/ CAPITALISATION OF RESERVES [SECTION 63]

A company may issue fully paid-up bonus shares to its members, in any
manner whatsoever, out of its:
1. Free reserves
2. Securities premium account
3. Capital redemption reserve account.
However, no issue of bonus shares shall be made by capitalizing reserves
created by the revaluation of assets. Further, the bonus shares shall not be
issued in lieu of dividend.

A company may issue fully paid bonus shares, subject to the following
conditions:
(a) it is authorized by its articles;
(b) it has, on recommendation of Board, been authorized in general meeting of
the company;
(c) it has not defaulted in payment of interest or principal in respect of fixed
deposits or debt securities issued by it;
(d) it has not defaulted in respect of the payment of statutory dues of the
employees;
(e) the existing shares are fully paid-up.
(f) it complies with such conditions as may be prescribed.
It may be noted that the company, which has once announced the decision
of its Board recommending a bonus issue, shall not subsequently withdraw
the same.
• RESTRICTION ON PURCHASE BY COMPANY OR GIVING OF LOANS BY IT FOR

PURCHASE OF ITS SHARES (SECTION 67)
Company limited by shares or by guarantee and having a share capital shall not
have power to buy its own shares unless the consequent reduction of share
capital is effected under the provisions of this Act.
No public company shall give, whether directly or indirectly and whether by
means of a loan, guarantee, the provision of security or otherwise, any financial
assistance for the purpose of, or in connection with, a purchase or subscription
made or to be made, by any person of or for any shares in the company or in its
holding company.
Exceptions : There are, however, certain exceptions where the company may
provide the financial assistance, namely :
1. The lending of money by a banking company in the ordinary course of its
business;
2. The provision is made by a company for lending of money in accordance
with any scheme approved by company through special resolution with
such requirements as may be prescribed, for the purchase of, or
subscription for, fully paid up shares in the company or its holding company,
if the purchase of, or the subscription for, the shares held by trustees for the
benefit of the employees or such shares held by the employee of the
company;
3. The giving of loans by a company to persons in the employment of the
company other than its directors or key managerial personnel, for an
amount not exceeding their salary or wages for a period of six months with
a view to enabling them to purchase or subscribe for fully paid-up shares in
the company or its holding company to be held by them by way of beneficial
ownership.
Nothing in Section 67 shall affect the right of a company to redeem any preference
shares issued under this Act or under any previous Companies law.
• BUY-BACK OF SHARES AND SECURITIES (Section 68)

Meaning: A procedure which enables a company to go back to the holder of its
shares/ specified securities and offer to purchase from them the shares/ specified
securities that they hold.
Purpose : A company would opt for buy — back for the following reasons:
(i) To improve shareholder value - Buy back generally results in higher earning
per share (E.P.S.)
(ii) As a defence mechanism - Buy back provides a safeguard against hostile
take — overs by increasing promoters' holding.
(iii) To provide an additional exit route to shareholders when shares are
undervalued or thinly traded.
(iv) To return surplus cash to shareholders.
Sources of buyback: Following are the important provisions of Section 68 :-
A company may purchase its own shares or other specified securities out of :
(i) its free reserves;
(ii) the securities premium account; or
(iii) the proceeds of an earlier issue of shares or other specified securities.
However, no buy - back can be done out of proceeds of an earlier issue of
same kind of shares/ securities.
Conditions for buyback: For buy - back purpose, the following conditions must
be fulfilled :-
(i) Buy - back is authorized by the articles of association of the Company.
(ii) A company may, by a Board Resolution, buy - back up to 10% of the
aggregate of paid - up equity capital and free reserves. This Board
resolution must be passed at a Board Meeting only and not by circulation.
If the company wants to buy-back more than 10% of the aggregate of paid
up equity capital and free reserves but up to 25% of the aggregate of the
paid - up capital (equity & preference) and free reserves, then a Special
Resolution in the general meeting is required.
The aforesaid limits are to be applied to the amount required for buy-back of
such shares/ securities.
(iii) In the case of buy - back of equity shares only, the buy - back in any financial
year shall not exceed 25% of its total paid - up equity capital in that financial
year.
The aforesaid limit is to be applied to the number of shares to be bought
back.
(iv) After buy - back, the debt equity ratio shall be less than or equal to 2 i.e., the
debt should not be more than twice the equity after buy - back. Here 'debt'
means secured as well as unsecured debts; and 'equity' means paid-up share
capital and free reserves.
However, Central Government may, by order, notify a higher debt equity
ratio for a class or classes of companies.
(v) All the shares or other specified securities for buy - back are fully paid - up.
(vi) Buy-back offer shall not be made within a period of one year reckoned from
the date of the closure of the preceding offer of buy-back, if any.
(vii) If company is listed, then SEBI (Buy-Back of Securities) Regulations, 1998
made by SEBI are complied with; and if the company is not listed, then
Companies (Share Capital and Debentures) Rules, 2014 made by Central
Government are complied with.
Disclosure: The Companies will have to make full and complete disclosure of all
material facts in the notice of the meeting at which special resolution is proposed
to be passed. These disclosures will include the necessity for buy — back; the
time limit for completion of the buy — back; class of securities intended to be
purchased; and amount to be invested for buy — back.
Time period for buyback: Every buy — back shall be completed within one year
from the date of passing the Special Resolution or Board Resolution, as the case
may be. If the company is not able to do so, then the reasons for such failure
shall be disclosed in the Directors' Report. Further, in order to pursue the same
buy-back, a fresh Board Resolution or Special Resolution, as the case may be,
will be required.
The buyback may be
(i) from the existing holders on a proportionate basis;
(ii) from the open market; or
(iv) from the employees of the company to whom shares / securities have been
issued under a scheme of stock option or as sweat equity.
A company can implement buy-back by any of the aforesaid methods but, for a
single offer of buy-back, different methods of buy-back cannot be adopted.
Declaration of solvency: After passing the special resolution or board resolution
and before making buy back, the company is required to file 'a declaration of
solvency' in Form No. SH.9 with the ROC and also with SEBI, if listed. This
declaration of solvency shall be signed by at least two directors of the company,
one of whom shall be the managing director, if any.
Destruction of securities: The company shall extinguish and physically destroy
the shares / securities bought— back within 7 days of the last date of completion
of buy — back.
Cooling period: The Company shall not make any issue of same kind of shares/
securities (including rights shares) within a period of 6 months from the date of
completion of buy — back.
Exceptions are :-
(i) Bonus issue;
(ii) Conversion of warrants;
(iii) Stock option scheme;
(iv) Sweat equity; and
(v) Conversion of preference shares debentures into equity shares.
Register of buyback: The Company shall maintain a register of shares /
securities bought—back in Form No. SH.10, giving the following details :-
(i) the consideration paid;
(ii) the date of cancellation;
(iii) the date of extinguishment and physical destruction; and
(iv) such other particulars as may be prescribed.
After the completion of buy — back, the company shall file with the ROC and also
with SEBI, if listed, a return in Form No. SH.11 containing such particulars as
may be prescribed, within 30 days of such completion.
Penalty: In case of default, the company shall be punishable with fine which shall
not be less than one lakh rupees but which may extend to three lakh rupees and
every officer of the company who is in default shall be punishable with
imprisonment for a term which may extend to three years or with fine which shall
not be less than one lakh rupees but which may extend to three lakh rupees, or
with both.
Transfer to Capital Redemption Reserve [Section 69] : Where a company
purchases its own shares out of free reserves, then a sum equal to the nominal
value of the share so purchased shall be transferred to the capital redemption
reserve account and details of such transfer shall be disclosed in the balance
sheet. The capital redemption reserve account shall be utilized by the company
only for the purposes of issuing fully paid bonus shares.
Prohibition for buy-back in certain circumstances (Section 70): This section
of the Companies Act, 2013 prohibits the company for buy back in the certain
circumstances.
(1) The provision 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 companies; or
(b) Through any investment company or group of investment companies; or
(c) If a default, is made by the company, in repayment of deposits or interest
payment thereon, redemption of debentures or preference shares or payment of
dividend to any shareholder or repayment of any term loan or interest payable
thereon to any financial institutions or banking company.
But where the default is remedied and a period of three years has
lapsed after such default ceased to subsist, there such buy-back is
not prohibited.
(2) No company shall directly or indirectly purchase its own shares or other
specified securities in case such company has not complied with provisions
of Sections 92( Annual Report), 123(Declaration of dividend),
127(Punishment for failure to distribute dividends), and section 129(
Financial Statements).
• TRANSFER OF SHARES
Transfer of shares means the voluntary conveyance of the rights and possibly,
the duties of a member (as represented in a share in the company) from a
shareholder who wishes to cease to be a member to a person desirous of
becoming a member. Thus, shares in a company are transferable like any other
moveable property in the absence of express restrictions under the articles.
Section 56 of the Companies Act, 2013 deals with the transfer and transmission
of securities or interest of a member in the company.
1. A proper instrument of transfer, in such form as may be prescribed, duly
stamped, dated and executed by or on behalf of the transferor and the
transferee (except where the transfer is between persons both of whose
names are entered as holders of beneficial interest in the records of a
depository), specifying the name, address and occupation, if any, of the
transferee, has been delivered to the company by the transferor or the
transferee within a period of 60 days from the date of execution,
(+)
The certificate relating to the securities, or if no such certificate is in existence,
along with the letter of allotment of securities.
2. In case a company has partly —paid shares and where the company has
received any instrument of transfer of such shares from transferor, the
company shall give a notice by registered post to the transferee and shall
register the transfer only when no objection is received from the transferee
within 2 weeks from the date of receipt of notice.
3. Where the instrument of transfer has been lost or the instrument of transfer
has not been delivered within the prescribed period, the company may register
the transfer on such terms as to indemnity as the Board may think fit.
Company may register the Company may refuse to

transfer register the transfer
Company shall issue share

certificate within 1 month of Refer next page
registering the transfer

Refusal of Registration (Section 58)
Private company refuses to register Public company refuses to register the

the transfer of shares transfer of shares
The Board of Directors of a private The shares or debentures and any interest
company can refuse to register transfer therein of a company shall be freely
of shares in favour of any person in terms transferable.
of the provisions of Articles of Association The Board of Directors and the concerned
of the Company. However while refusing depository has no discretion to refuse or
to transfer shares; the power must be withhold transfer of any security on any
exercised by the Board bona fide and in ground, except on the ground of sufficient
the best interests of the company. cause.
Company shall within a period of 30
Company shall within a period of 30 days from the date on which the
days from the date on which the instrument of transfer was delivered
instrument of transfer was to the company, send notice of the
delivered to the company, send refusal to the transferor and the
notice of the refusal to the transferor transferee or to the person giving
and the transferee or to the person intimation of such transmission, as the
giving intimation of such transmission, case may be, giving reasons for such
as the case may be, giving reasons for refusal.
such refusal. Transferee may appeal to the NCLT
Transferee may appeal to the NCLT against the refusal within a period of 60
against the refusal within a period of days from the date of receipt of the
30 days from the date of receipt of the refusal notice. In case no notice has
refusal notice. In case no notice has been sent by the company, then appeal
been sent by the company, then may be made within a period of 90 days
appeal may be made within a period of from the date on which the instrument of
60 days from the date on which the transfer or the intimation of transmission,
instrument of transfer or the intimation as the case may be, was delivered to the
of transmission, as the case may be, company.
was delivered to the company.
Apply to NCLT
Power of National Company Law Tribunal (NCLT) : The tribunal, while dealing with an
appeal both in respect of private and public company, may, after hearing the parties, either
dismiss the appeal, or by order —
(a) Direct that the transfer or transmission shall be registered by the company and the
company shall comply with such order within a period of ten days of the receipt of the
order; or
(b) Direct rectification of the register and also direct the company to pay damages, if any,
sustained by any party aggrieved.
Distinction between Transfer and Transmission
(1) Transfer is a voluntary act of a member while transmission is by operation of law.
(2) There is always consideration involved in transfer whereas in transmission, there
is no question of consideration, hence no stamp duty, etc.
(3) Transfer is affected as transfer of property when a member intends to sell it
whereas transmission takes place only on the death, bankruptcy and lunacy of
the member.
(4) In case of transfer, the member has to execute a valid instrument of transfer
whereas in case of transmission, it is not so possible.
PART B : DEBENTURES
Definition and meaning of debenture
Section 2 (30) of the Companies Act, 2013 defines a debenture as :
“Debenture includes debenture stock. bonds or any other instrument of a company
evidencing a debt, whether constituting a charge on the assets of the company or not".
In simple terms, a debenture may be defined as an instrument acknowledging a debt by a
company to some person or persons.
Features/ Characteristics of debenture

The usual features of a debenture are as follows:
1. A debenture is usually in the form of a certificate (like a share certificate) issued
under the common seal of the company.
2. The certificate is an acknowledgement by the company of indebtedness to a holder.
3. A debenture usually provides for the payment of a specified sum at a specified date.
4. A debenture usually provides for payment of interest until the principal sum is paid
back..
5. A company shall not issue any debentures carrying voting rights. [Sec. 71(2)]
6. 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. [Sec. 71(12)
Kinds of debenture
1. Issue of debentures with an option to convert: A company may issue debentures
with an option to convert such debentures into shares, either wholly or partly at the
time of redemption. Provided that the issue of debentures with an option to convert
such debentures into shares, wholly or partly, shall be approved by a special
resolution passed at a general meeting.
2. Unsecured/Naked Debentures: Where they are not secured by any mortgage or
charge on any property of the company, they are said to be naked or unsecured.
3. Secured Debentures: Where debentures are secured by a mortgage or a charge on
the property of the company. They are called secured debentures.
A company shall issue secured debentures, after unless it complies with the
following conditions, namely:-
(a) An issue of secured debentures may be made, provided the date of its
redemption shall not exceed ten years from the date of issue. However, a
company engaged in the setting up of infrastructure projects may issue
secured debentures for a period exceeding ten years but not exceeding
thirty years for companies engaged in setting up of infrastructure projects;
(b) Such an issue of debentures shall be secured by the creation of a charge on
the assets of the company, by way of either mortgage or hypothecation only,
having a value which is sufficient for the due repayment of the amount of
debentures and interest thereon;
(c) The company shall appoint a debenture trustee before the issue of prospectus
or letter of offer for subscription of its debentures; and
(d) The company shall execute a debenture trust deed in Form No. SH.12 or as
near thereto as possible, within 60 days from the date of allotment of the
debentures.
Trust Deed :
There are several advantages of having a trust deed, some of which are as follows :-
1. The trustees hold the title deeds of the mortgaged property, which prevents the
company from misusing the title deeds for any purpose.
2. The trustees are given power under the trust deed so that the property
mortgaged is kept insured and is maintained in proper condition.

3. The company can, with the consent of the trustees, enjoy a number of powers
over the property charged, e.g., by way of sale, exchange or lease, thus
enabling the company to put the property to advantageous use without
jeopardizing the interest of debenture holders.
4. In case of default by the company, the trustees can take necessary steps to
realise the security without the aid of the Court.
Debenture Trustee:
When debentures are issued for public subscription, involving a considerable
number of debenture holders, who do not have the time to look after their interests in
the properties mortgaged or charged to them, a trustee may be appointed for the
supervision of their common interest.
The trustees act as watchdogs to ensure that company's obligations under the trust
deed are carried out and they can act expeditiously and effectively to safeguard the
interests of the debenture holders.
Appointment of Debenture Trustee :
a) When the company issues prospectus or make an offer or invitation to the
public or to its members exceeding 500 for the subscription of its debentures,
then appointing a debenture-trustee is mandatory
b) The company shall appoint debenture trustees, after complying with the
following conditions, namely.-
- the names of the debenture trustees shall be stated in letter of offer
inviting subscription for debentures and also in all the subsequent notices
or other communications sent to the debenture holders;
- 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.
Redemption of debentures [section 71]

Debenture Redemption Reserve (DRR) : The company shall create a Debenture
Redemption Reserve out of the profits of the company available for payment of
dividend;
The amount credited-to the Debenture Redemption Reserve shall not be utilised by
the company except for the purpose of redemption of debentures.
Failure in Redemption of Debentures:
1. 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 amounts as and when it becomes due, the debenture-trustee may
file a petition before the Tribunal and the Tribunal may by order/ impose
such restrictions as may consider necessary in the interests of the debenture-
holders.
2. Where a company fails to redeem the debentures on the date of their maturity
or fails to pay interest on the debentures when it is due, the Tribunal may, on
the application of any or all of the debenture-holders, or debenture-trustee and,
after hearing the parties concerned, direct, by order, the company to redeem
the debentures forthwith on payment of principal and interest due thereon.
3. If any default is made in complying with the order of the Tribunal under this
section, every officer of the company who is in default shall be punishable with
imprisonment for a term which may extend to three years or with fine which
shall not be less than two lakh rupees but which may extend to five lakh
rupees, or with both.

CHAPTER 1
UNIT 5: ACCEPTANCE OF DEPOSITS BY COMPANIES
KINDS OF DEPOSIT
ACCEPTANCE OF DEPOSIT ACCEPTANCE OF DEPOSITS FROM

FROM MEMBERS (SECTION 73) THE PUBLIC (SECTION 76)
Private or public company Only Eligible company can accept

can accept deposits from its deposits from public
members Eligible Company: Public company
By passing of a resolution in having Net worth ≥ 100 crores
general meeting and subject Or
to certain specified conditions. Turnover ≥ 500 crores
In order to accept deposits Pass Special Resolution in general
from members, the company meeting
has to certify, in circular, that it However, if the proposed deposits from the
has not committed any default public together with the existing
in the repayment of deposits borrowings of the company do not
accepted either before or after exceed its net worth (i.e., sum total of
the commencement of this Act paid-up share capital and free
or payment of interest on such reserves). an eligible company may
deposits. accept deposits by means of an
ordinary resolution.
In order to accept deposits from the
public, the company has to certify, in
circular in the form of an advertisement,
that it has not committed any default in
the repayment of deposits accepted
either before or after the
commencement of this Act or payment
of interest on such deposits.
Further, such company shall obtain the
credit rating from a recognized credit
rating agency for information the public
about such rating at the time of
invitation of deposits from the public.
The rating shall be obtained for every
year during the tenure of deposits

TERMS AND CONDITIONS OF ACCEPTANCE OF DEPOSITS BY COMPANIES [RULES]
Periods of No company shall accept or renew any deposit, which is repayable on
Acceptance demand; or on notice; or after a period of less than 6 months or more
of Deposits than 36 months from the date of acceptance or renewal of such
[Rule 3(1)(a)] deposits, as the case may be.
However a company may, for meeting short-term requirements of
funds, accept or renew short-term deposits for repayment earlier than
6 months from the date of deposit or renewal; provided that such
deposits do not exceed 10% of the aggregate of the paid-up share
capital and free reserves of the company and such deposits are
not repayable earlier than 3 months from the date of acceptance or
renewal, as the case may be.
Ceiling For a Company other than an Eligible Company: It may accept or renew
limits for any deposit from its members, if the amount of such deposits together
acceptance with the amount of other deposits outstanding as on the date of
of Deposits acceptance or renewal of such deposits does not exceed 35% of the
[Rule 3(3), aggregate of the paid-up share capital and free reserves of the
(4)&(5)] company.
For an Eligible Company :
other than a Government Eligible Company, can accept or renew
deposits, together with existing deposits, subject to the following ceiling
• Deposits from Members: 10% of the aggregate of paid-up share
• Any other Deposits: 25% of the aggregate of paid-up share capital
and free reserves.
A Government Eligible Company can accept or renew deposits,
together with existing deposits, up to 35% of aggregate of its paid-up
Any private company may accept deposits from its members up to
100% of its (Paid up share capital and Free reserves)
Ceiling on No company shall accept/renew deposits at a rate of interest exceeding
Rate of the maximum rate of interest prescribed by RBI that the NBFCs can pay
Interest and on their public deposits.
Brokerage Similarly, no company shall pay brokerage at a rate exceeding the
[Rule 3(6)] : maximum rate of brokerage prescribed by RBI that the NBFCs can pay on
their public deposits.
Credit Every eligible company shall obtain, at least once in a year, credit
Rating rating for deposits accepted by it and a copy of the rating shall be sent
[Rule 3(8)] to the Registrar of Companies along with the return of deposits in Form
DPT-3.
The credit rating shall not be below the minimum investment grade
rating or other specified credit rating for fixed deposits, from any one of
the approved credit rating agencies as specified for Non- Banking
Financial Companies in the Non-Banking Financial Companies
Acceptance of Public Deposits (Reserve Bank) Directions, 1998,
issued by the Reserve Bank of India, as amended from time to time.
Creation of Every company inviting secured deposits shall, within 30 days from the
Security date of acceptance, provide for security by way of a charge on its
[Rule 6] : assets, by way of either mortgage or hypothecation only.
It may be noted that the company shall ensure that the total value of
the security either by way of deposit insurance or by way of charge or
by both on company's assets shall not be Jess than the amount of
deposits accepted and the interest payable thereon.
Appointment Every company, inviting secured deposits, shall appoint one or mere
of Trustee trustees for depositors for creating security for the deposits.
for The company shall execute a deposit trust deed in Form DPT-2 at least
Depositors, 7 days before issuing the circular or circular in the form of
etc. [Rules advertisement.
7] : The duties and functions of depositor trustee shall generally be ---
(i) To protect the interest of holders of depositors (including creation of
securities within the stipulated time); and
(ii) To redress the grievances of holders of depositors effectively.
Disqualification: No person including a company that is in the business
of providing trusteeship services shall be appointed as a trustee for the
depositors, if the proposed trustee—
a) is a director, key managerial personnel or any other officer or an
employee of the company or of its holding, subsidiary or
associate company or a depositor in the company;
b) is indebted to the company, or its subsidiary or its holding or
associate company or a subsidiary of such holding company;
c) has any material pecuniary relationship with the company;
d) has entered into any guarantee arrangement in respect of
principal debts secured by the deposits or interest thereon;
e) is related to any person specified above.
No trustee for depositors shall be removed from office after the issue of
circular or advertisement and before the expiry of his term except with
the consent of all the directors present at a meeting of the board.
Register of Every company accepting deposits shall keep, at its registered office,
Deposits one or more registers in which there shall be entered, separately in
[Rule 14] : case of each depositor, the fo1lowing particulars, namely:-
(i) Name, address and PAN of the depositor/s;
(ii) Particulars of guardian, in case of a minor;
(iii) Particulars of the nominee;
(iv) Deposit receipt number;
(v) Date and the amount of each deposit;
(vi) Duration of the deposit and the date on which each deposit is
repayable;
(vii) Rate of interest or such deposits to be payable to the depositor;
(viii) Due date for payment of interest;
(ix) Mandate and instructions for payment of interest and for non-
deduction of tax at source, if any;
(x) Date or dates on which the payment of interest shall be made;
(xi) Details of deposit insurance including extent of deposit insurance;
(xii) Particulars of security or charge created for repayment of deposits;
(xiii) Any other relevant particulars;
The entries specified above shall be made within 7 days from the date
of issuance of the receipt duly authenticated by a director or secretary
of the company or by any other officer authorised by the Board for this
purpose.
The register or registers must be preserved in good order for a period
of not less than 8 calendar years from the financial year in which the

latest entry is made in the register.

Return of Every company shall file a return of deposits, in Form DPT-3, with the
Deposits Registrar of Companies on or before 30th June of every year. This return
[Rule 16] : shall contain information as on 31st March and shall be duly certified by
the Auditors of the Company.
Disclosures Every company, other than a private company, shall disclose in its
in the financial statement, by way of notes, about the money received from
financial the director.
statement Every private company shall disclose in its financial statement, by way
[Rule 16A]: of notes, about the money received from the directors, or relatives of
directors.
Penal rate of A penal rate of interest of 18% per annum shall be paid for the overdue
interest period, in case of public deposits, whether secured or unsecured, matured
[Rule 17]: and claimed but remaining unpaid.
• REPAYMENT OF DEPOSITS, ETC, ACCEPTED BEFORE COMMENCEMENT OF

THIS ACT [SECTION 74]
According to section 74 of the Companies Act, 2013,
(i) Where in respect of any deposit accepted by a company before the
commencement of this Act, the amount of such deposit or part thereof or any
interest due thereon remains unpaid on such commencement or becomes due at
any time thereafter, the company shall—
a) File, within a period of 3 months from such commencement or from the
date on which such payments, are due, with the Registrar a statement of all
the deposits accepted by the company and sums remaining unpaid on such
amount with the interest payable thereon along with the arrangements
made for such repayment, notwithstanding anything contained in any other
law for the time being in force or under the terms and conditions subject to
which the deposit was accepted or any scheme framed under any law; and
b) Repay within three years from such commencement or on or before
expiry of the period for which the deposits were accepted, whichever
is earlier.
Provided that renewal of any such deposits shall be done in accordance with the
provisions of Chapter V and the rules made there under (As amended as per
Notification dated 3rd Jan, 2018).
(ii) The Tribunal may on an application made by the company, after considering the
financial condition of the company, the amount of deposit or part thereof and the
interest payable thereon and such other matters, allow further time as considered
reasonable to the company to repay the deposit.
(iii) Punishment: If a company fails to repay the deposit or part thereof or any
interest thereon within the time specified or such further time as may be allowed
by the Tribunal, the company shall, in addition to the payment of the amount of
deposit or part thereof and the interest due, be punishable with fine which shall
not be less than one crore rupees but which may extend to ten crore rupees and
every officer of the company who is in default shall be punishable with
imprisonment which may extend to seven years or with fine which shall not be
less than twenty-five lakh rupees but which may extend to two crore rupees, or
with both.

• DAMAGES FOR FRAUD [SECTION 75]

Section 75 provides that in case the company fails to pay the deposit or any
interest thereon within 3 years from the commencement of the Act or from the
date on which such payments becomes due, whichever is earlier, or within such
time periods as allowed by the NCLT and it is proved that the deposits had been
accepted with intent to defraud the depositors,
Every officer who was responsible for acceptance of such deposits shall be liable
without prejudice to the provisions contained under section 74 and liability for fraud
under section 447, be personally responsible, without any limitation of liability for all
losses or damages incurred by the depositors.
For failure to repay the deposits, action may also be taken by any person, group
of persons or any association of persons who had incurred any loss as a result
such failure.
• PUNISHMENT FOR CONTRAVENTION OF SECTION 73 OR SECTION 76

[SECTION 76A] (As amended as per Notification dated 3rd Jan, 2018).
Where a company accepts or invites or allows or causes any other person to
accept or invite on its behalf any deposit in contravention of the manner or the
conditions prescribed under section 73 or section 76 or rules made there under
or if a company fails to repay the deposit or part thereof or any interest due
thereon within the time specified under section 73 or section 76 or rules made
there under or such further time as may be allowed by the Tribunal under section
73:
(a) The company shall, in addition to the payment of the amount of deposit or
part thereof and the interest due, be punishable with fine minimum ` 1
Crore
or twice the amount of deposit accepted by the company, whichever is
lower up to `10 Crore and
(b) Every officer of the company who is in default shall be punishable with
imprisonment which may extend to 7 years AND with minimum fine of
` 25 lacs and a maximum fine of ` 2 crore.
Provided that if it is proved that the officer of the company who is in default, has
contravened such provisions knowingly or wilfully with the intention to deceive the
company or its shareholders or depositors or creditors or tax authorities, he shall
be liable for action under section 447.

CHAPTER 1
UNIT 6: REGISTRATION OF CHARGES
• DEFINITION OF CHARGE
A charge is a security, given for securing loans or debentures. The security may be
provided either by way of mortgage, hypothecation or pledge.
Thus, charge is a general concept and it covers each and every mode of creating the
security on the assets of a company, for the purpose of securing the repayment of any
debt due by a company.
KINDS OF CHARGE
Fixed or Specific Charge Floating Charge

A charge is fixed or specific when it is A floating charge is a charge on a class of
made specifically to cover assets, which assets present and future, which in the
are ascertained and definite or are ordinary course of business is changing from
capable of being ascertained and time to time.
defined, at the time of creating charge A floating charge is not attached to any definite
e.g., land, buildings, or heavy property but covers property of a fluctuating
machinery. type e.g. stock - in - trade, debtors, etc. and is
A fixed charge is against security of thus necessarily equitable.
certain specific property. The company free to deal with the property as
The company loses the right-to dispose it sees fit until the holders of charge take steps
off that property as unencumbered. to enforce their security.
• FILING OF PARTICULARS OF CREATION OF CHARGE [SECTION 77]

Section 77 of the Companies Act, 2013 provides that a Company shall file, the
particulars of every charge created, with the ROC, within a period of 30 days
from the date of creation of charge on its properties, within or outside India.
The particulars of charge shall be filed in Form No. CHG.1, together with the
instrument, if any, creating, evidencing, etc. the charge. If the charge relates to
debentures, the particulars of charge shall be filed in Form No. CHG.9.
The Registrar, after registering the charge, shall issue certificate of registration.
The ROC has power to grant extension of time for registration of charge, for
a period not exceeding 300 days from the date of creation of charge, on the
payment of prescribed additional fees.
The power to grant extension of time for registration of charges, beyond
the period of 300 days, vests in the Central Government u/s 87.
It may be noted that a charge created orally would also require registration. The
registration of a charge with the ROC itself would show that the charge is created
even if no instrument is created. A Board resolution can also be taken to be the
fact of creation of a charge.
This section shall not apply to such charges as may be prescribed in consultation
with the Reserve Bank of India.

• APPLICATION FOR REGISTRATION OF CHARGE [SECTION 78]

Where a company fails to register the charge, the person in whose favour the
charge is created may apply to the Registrar for registration and the Registrar
may, on such application, within a period of 14 days after giving notice to the
company, unless the company itself registers the charge or shows sufficient cause
why such charge should not be registered, allow such registration.
Consequences of Non – Registration :

If a charge, which requires registration under Section 77, is not registered, the
consequences are as follows:-
(a) An unregistered charge is not void from its inception and would be enforceable
against the company so long it is a going concern.
(b) During liquidation, a creditor with an unregistered charge assumes the status of
an unsecured creditor.
(c) Although, the security becomes void by non - registration but it does not affect
the contract or obligation of the company to repay the money thereby secured.
(d) The company shall be punishable with fine which shall not be less than one lakh
rupees but which may extend to ten lakh rupees and every officer of the company
who is in default shall be punishable with imprisonment for a term which may
extend to six months or with fine which shall not be less than twenty-five
thousand rupees but which may extend to one lakh rupees, or with both.
[Section 86]
• REGISTRAR'S REGISTER OF CHARGES [SECTION 81]

Section 81 requires ROC to keep a register of charges in respect of each company
and register therein the full particulars relating to charges created by the Company.
This register is open to inspection to any person on payment of prescribed fess.
It may be noted that the particulars of charges maintained on the Ministry of Corporate
Affairs portal (www.mca.gov.in/MCA21) shall be deemed to be the register of charges
for the purposes of section 81 of the Act.

• SATISFACTION OF CHARGES [SECTION 82]

Section 82 requires that on payment or satisfaction of charge, in full, relating to a
Company, the Company shall give intimation to ROC, within a period of 30
days from the date of such payment or satisfaction. The 'particulars of
satisfaction of charge shall be filed in Form No. CHG.4, together with 'no dues
letter' issued by the creditor.
Provided that the Registrar may, on an application by the company or the charge
holder, allow such intimation of payment or satisfaction to be made within a
period of 300 days of such payment or satisfaction on payment of such additional
fees as may be prescribed. (Amended as per notification dated 3rd Jan, 2018).
• COMPANY'S REGISTER OF CHARGES [SECTION 85]

Every company is required to keep at its registered office, a register in Form No.
CHG.7 containing the particulars of all charge created, modified and satisfied.
Further, every company must keep at its registered office a copy of every
instrument creating/modifying/satisfying any charge.
Inspection of the Register of charges and of the instruments
creating/modifying/satisfying charges can be allowed only during the business
hours to any member or creditor of the Company without any fees and to any
other person on payment of prescribed fees.
According to the rules related to the Company's register of charges-
(1) every company shall keep at its registered office a register of charges and
enter therein particulars of all the charges registered with the Registrar on
any of the property, assets or undertaking of the company and the
particulars of any property acquired subject to a charge as well as
particulars of any modification of a charge and satisfaction of charge.
(2) The entries in the register of charges maintained by the company shall be
made forthwith after the creation, modification or satisfaction of charge, as
the case may be.
(3) Entries in the register shall be authenticated by a director or the secretary of
the company or any other person authorised by the Board for the purpose.
(4) The register of charges shall be preserved permanently and the instrument
creating a charge or modification thereon shall be preserved for a period of
eight years from the date of satisfaction of charge by the company.

• RECTIFICATION OF THE REGISTER OF CHARGES MAINTAINED BY

THE ROC [SECTION 87]
Under Section 87 of the Companies Act, 2013, the Central Government
(Power delegated to RD) has powers to grant extension of time for filing
particulars of any charge; or any modification thereof; or for giving of any
intimation about the payment or satisfaction of charge, if the Central
Government is satisfied: -
(a) That the omission to do so within the prescribed time: -
(i) is accidental; or
(ii) is due to inadvertence; or
(iii) is not of a nature, as to prejudice the position of creditors I
shareholders,
(b) That it is just and equitable to grant relief on other grounds.
For this purpose, an application shall be made to the Central Government

in Form No. CHG.8, along with the following documents : -
1. Copy of the agreement creating I modifying the charge/ no dues letter, as
the case may be.
2. Copy of the resolutions passed for borrowing the funds by the company and
creation of security thereof.
3. Affidavit verifying the petition.
4. Memorandum of appearance with copy of Board resolution, authorizing any
one of the Directors or Company Secretary of the Company, to appear
before the Central Government (RD), as the case may be.

CHAPTER 1
UNIT 7: MANAGEMENT AND ADMINISTRATION
Register of members [Section 88]:

Rule 3 Particular in register of members: Every company limited by shares, shall,
from the date of its registration, maintain a register of its members in Form MGT
– 1.
In case of a company not limited by shares, the register shall contain the
following particulars, in respect of each member–
1. Name of the member, address (registered office address in case the member
is a body corporate); email address; Permanent Account Number or
Corporate Identity Number (‘CIN’); Nationality; in case member is a minor –
name of his guardian and the date of birth of the member, name and address
of the nominee;
2. Date of becoming the member;
3. Date of cessation;
4. Amount of guarantee, if any;
5. Any other interest, if any; and o Instructions, if any, given by the member with
regard to sending of notices, etc.
Rule 4 Particular in register of debenture holder/any other security holder: Every
company which issues or allots debentures or any other security shall maintain a
separate register for debenture holder or security holder in Form– MGT–2.
Rule 5 1. Time period for entries in register: As per Rule 5, entries have to be made in
the Register within 7 days of the date of approval by the Board or Committee
thereof by approving the allotment or transfer as the case may be.
2. Place where register shall be maintained: Rule 5 also states that the
registers shall be maintained at the registered office of the company unless a
special resolution is passed in a general meeting authorising the keeping of the
register at any other place within the city, town or village in which the registered
office is situated or any other place in India in which more than 1/10th of the
total members entered in the register of members reside.
3. Other information also to be referred in register: Any order passed by the
authority attaching the shares or relating to dividends is also required to be
referred in the register of members. Hypothecation and pledge of shares is also
required to be entered in the register of members.
4. Updating of rewards of members: Rule 5 also states that the changes
relating to the status of the member should be effectively captured and updated
accordingly in the relevant register. If any change occur in the status of a
member or debenture-holder or any other security holder whether due to death
or insolvency or change of name or due to transfer to Investor Education
Protection Fund or due to any other reason, entries shall be made in the
respective registers.
Rule 6 Index of names: The maintenance of index is not necessary where the number
of members is less than 50. It also states that the company shall make the
necessary entries in the index simultaneously with the entry for allotment or
transfer of any security in such Register.
Register and index of beneficial owners maintained by a depository under section
11 of the Depositories Act, 1996, shall be deemed to be the corresponding
register and index for the purposes of this Act.

Rule 7 Foreign Register: A company may, if so authorised by its articles, keep in any
country outside India, in such manner as may be prescribed, a part of the
register, called foreign register containing the names and particulars of the
members, debenture-holders, other security holders or beneficial owners residing
outside India
The company shall –
1. Transmit to its registered office in India, a copy of every entry in any foreign
register within 15 days after the entry is made; and
2. Keep at such office a duplicate register for all the purposes of this Act, be
deemed to part of the principal register.
Power to close Company may close the register of members or the register of
register of debenture-holders or the register of other security holders for
members or any period or periods not exceeding in the aggregate 45 days in
debenture- each year, but not exceeding 30 days at any one time, subject to
holders or other giving of previous notice of at least 7 days.
security holders
[Section 91]
Annual return Every company shall prepare a return (hereinafter referred to as
[Section 92] the annual return) in the prescribed form containing the
particulars as they stood on the close of the financial year
regarding—
a) its registered office, principal business activities, particulars of
its holding, subsidiary and associate companies;
b) its shares, debentures and other securities and shareholding
pattern;
c) its indebtedness;
d) its members and debenture-holders along with changes
therein since the close of the previous financial year;
e) its promoters, directors, key managerial personnel along with
changes therein since the close of the previous financial year;
f) meetings of members or a class thereof, Board and its
various committees along with attendance details;
g) remuneration of directors and key managerial personnel;
h) penalty or punishment imposed on the company, its directors
or officers and details of compounding of offences and
appeals made against such penalty or punishment;
i) matters relating to certification of compliances, disclosures as
may be prescribed;
such other matters as may be prescribed, and signed by a
director and the company secretary, or where there is no
company secretary, by a company secretary in practice.
The Central Government may prescribe abridged form of annual
return for "One Person Company, small company and such other
class or classes of companies as may be prescribed
Every company shall file with the Registrar a copy of the annual
return, within 60 days from the date on which the annual general
meeting is held or where no annual general meeting is held in any
year within 60 days from the date on which the annual general
meeting should have been held together with the statement

specifying the reasons for not holding the annual general

meeting, with such fees
Every company shall place a copy of the annual return on the
website of the company, if any, and the web-link of such annual
return shall be disclosed in the Board's report.
Section 93 Omitted as per Notification dated 3rd Jan,2018
Place of keeping The registers required be keeping and maintaining by a company
and inspection under section 88 and copies of the annual return filed under
of registers, section 92 shall be kept at the registered office of the
returns, etc company.
[Section 94] Provided that such registers or copies of return may also be kept
at any other place in India in which more than one-tenth of
the total number of members entered in the register of
members reside, if approved by a special resolution passed
at a general meeting of the company.
The copies of all the returns shall be open for inspection by
any member, debenture-holder, other security holder or
beneficial owner, during business hours without payment of
any fees.
Any such member, debenture-holder, other security holder or
beneficial owner or any other person may—
(a) Take extracts from any register, or index or return without
payment of any fee; or
(b) Require a copy of any such register or entries therein or return
on payment of such fees as may be prescribed.
Preservation of Preservation of register of members: Rule 15 states that the
register of register of members along with the index shall be preserved
members etc. permanently.
and annual Preservation of register of debenture holders/ other security
return– holders: The register of debenture-holder or any other security
(Rule 15) holder along with the index shall be preserved for a period of 8
years.
Copies of documents filled with ROC to be preserved: for a
period of 8 years from the date of filing with the RoC.
Preservation of foreign register: Shall be preserved
permanently
Registers, etc., The registers, their indices and copies of annual returns maintained
to be evidence under sections 88 and 94 shall be prima facie evidence of any
[Section 95] matter directed or authorised to be inserted therein by or under this
Act

PART B: MEETINGS
• ANNUAL GENERAL MEETING (AGM) [SECTIONS 96, 97, 99 & 121]
Introduction:
Every company, other than One Person Company (OPC), shall, in each
year hold (in addition to any other meetings) a general meeting as its
Annual General Meeting.
According, to General Clauses Act, 1897, a 'year' means a period of 12
months running from l" January to 31st December. Thus, holding of an
.Annual General Meeting, in every calendar year is a statutory requirement.
The proper authority to call Annual General Meeting is the Board of
Directors.
PERIOD OF HOLDING AN ANNUAL GENERAL MEETING
First Annual General Meeting Subsequent Annual General Meeting
The first annual general meeting The subsequent annual general

shall be held within a period of 9 meeting shall be held within a period
months from the closing of first of 15 months from the last AGM.
financial year. Subsequent annual general meeting
If a company holds its first annual shall be held within a period of six
general meeting as aforesaid, it months of closure of relevant financial
shall not be necessary for the year.
company to hold any annual Such meeting should be conducted
general meeting in the year of its every calendar year.
incorporation. The Registrar may, for any special
No extension by authority reason shown, grant an extension of
possible time for holding the subsequent AGM
up to 3 months.
☻ Department of Company Affairs has clarified that while granting the extension, ROC
can ignore the requirement of holding an AGM in every calendar year. However in
such a case, AGM held in the next year shall be deemed to the AGM of the previous
year and for the next year, one more AGM will be required to be held.
Business transacted at an Annual General Meeting:

Both Ordinary Business and Special Business can be transacted at an Annual
General Meeting.
Following matters are related with the Ordinary Business :-
(a) The consideration of the accounts, balance sheet and the reports of the
Board of Directors and Auditors;
(b) The declaration of dividend;
(c) The appointment of directors in the places of those retiring; and
(d) The appointment of and the fixing of remuneration of, the auditors.

Any business other than the above mentioned business, which can be transacted
at an Annual General Meeting, shall be deemed to be Special Business. It may
be noted that in the case of Extra-ordinary General Meeting (EGM), all
businesses are special businesses. [Section 102]
Day for holding an Annual General Meeting:

Every Annual General Meeting shall be called on a day, which is not a National
Holiday. 'National Holiday' means and includes a day declared as National
Holiday by the Central Government.
Where the Central Government declares a day to be a National Holiday, after the
company has issued the notice convening the meeting, it shall not be deemed to
be a national holiday in relation to that meeting.
It may be noted that the Central Government may exempt any company from the
aforesaid provisions subject to such conditions as it may impose.
Time for holding an Annual General Meeting:

Every Annual General Meeting shall be called at a time during the business hours
i.e., between 9 a.m. and 6 p.m. It may be noted that Annual General Meeting
convened during business hours may continue even after business hours.
Place for holding all Annual General Meeting :

Every Annual General Meeting shall be held either at the registered office of the
company or at some other place within the city, town or village in which the
registered office of the company is situated.
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. (Amended as per notification dated 3rd Jan,2018)
• EXTRA-ORDINARY GENERAL MEETING [EGM] [SECTIONS 98 & 100]

Introduction:
Sometimes, matters requiring immediate consideration by members may
crop up whose consideration cannot be deferred till the next Annual General
Meeting.
To meet such emergencies, the companies can provide for holding of
emergency meetings of the members, which are known as Extra-ordinary
General Meetings. Regulation 42 of Table F provides that all general
meetings, other than annual general meetings, shall be called as extra-
ordinary general meetings. All business which can be transacted at an
E.G.M. shall be deemed special.

Who may call Extraordinary General Meeting:
Board of Directors Requisitionists National Company Law

Tribunal (NCLT)
Suo moto
On requisition
Calling of E.G.M. by Board of Directors [Section 100(1) and Regulation 43(i) of
Table F]: The Board of Directors may, whenever it thinks fit, call an extra-ordinary
general meeting. For this purpose, a resolution of the Board is required.
Subject to the provisions in the articles, any general meeting of the company can
be called only on the authority of a Board resolution. If the managing director,
manager, secretary or other officer calls a meeting without the authority of the
Board of Directors, it will not be effectual unless the Board ratifies the convening
of the general meeting before it is held.
Calling of E.G.M. on requisition [Section 100]: The demand of members to

convene a meeting is called requisition. The requisition must be in plenty. It shall
set out the matters for the consideration of which the meeting is to be called. It
shall be signed by the requisitionists. It must be deposited at the registered office
of the company.
The number of members entitled to requisition a meeting in regard to any matter
shall be:
(a) In the case of a company having a share capital, members holding at least
one- tenth of such paid - up capital of the company which carries a right
of voting in regard to that matter;
(b) In the case of a company not having a share capital, members holding at
least one-tenth of total voting power of all the members who have a right to
vote in regard to that matter.
The Board of Directors shall, on receipt of requisition, immediately proceed
to call E.G.M. within 21 days from the date of the deposit of requisition,
on a date, which shall not be later than 45 days of the date of deposit
of requisition. The BOD shall be said to have failed in calling the meeting
if:
(i) it does not call the meeting within 21 days of the deposit of requisition;
(ii) it calls the meeting on a day which is later than 45 days from the date
of deposit of requisition; or
(iii) it convenes a meeting to transact only a part of the business specified
in the requisition.
(c) Where the Board fails to call a meeting, the meeting may be called by the
requisitionists themselves within a period of three months from the
date of the deposit of requisition. A meeting under called by the
requisitionists shall be called and held in the same manner in which the
meeting is called and held by the Board.
Here, requisitionists shall convene the meeting at the Registered Office of
the Company or at some other place within the city, town or village in which
the registered office of the company is situated. Further, the EGM shall be
held on a working day.

Any reasonable expenses incurred by the requisitionists in calling a meeting shall be
reimbursed to the requisitionists by the company and the sums so paid shall be deducted
from any fee or other remuneration payable to such of the directors who were in default in
calling the meeting.
• PROCEDURE FOR CONVENING AND CONDUCT OF GENERAL MEETINGS
• NOTICE OF MEETING [SECTIONS 101 & 102]

Meaning :
The term 'notice' is derived from the Latin word 'Notitia' this means ‘knowledge’. A
meeting cannot be validly held unless a proper notice of it has been given. Three
things in connection with the notice have to be considered namely:-
(a) Length of notice;
(b) Contents of notice; and
(c) To whom it must be given
Length of Notice [Section 101(1)]:

A general meeting of a company can be called by giving not less than 21
days’ notice either in writing or through electronic mode in such manner as
may be prescribed. However, a company may, by its Articles, provide a
period longer than 21 days for convening a meeting. It must be noted that
21 days imply 21 clear days i.e., 21 days excluding the day of the
service of notice and the day on which the meeting is to be held.
For companies covered under section 8, general meeting of a company
can be called by giving not less than 14 clear days notice.
If the notice is sent through post then service of notice shall be deemed to
have been effected in the case of notice of meeting on the expiry of 48
hours since the posting of the same.
It may be noted that a general meeting may be called up by giving a notice
shorter than 21 days, if consent is accorded thereto in writing or by
electronic mode, by not less than 95% of the members entitled to vote at
such meeting. The consent of the members may be obtained either at the
meeting or before the meeting.
The expression "electronic mode" shall mean any communication sent by a
company through its authorized and secured computer programme which is
capable of producing confirmation and keeping record of such
communication addressed to the person entitled to receive such
communication at the last electronic mail address provided by the member.

• QUORUM OF GENERAL MEETING [SECTION 103]

Meaning :
Quorum is the minimum no. of members required to be present at a general
meeting of the company to validly transact any business. Quorum is the
minimum number of members of a company where presence is necessary
for the transaction of business.
Generally, preference shareholders are not counted in quorum, unless there
is some matter affecting their rights.
In the case of joint shareholders, only one shareholder, as per the order in
which their name appears in the Register of Members, shall be counted
towards quorum
Proxies are not counted in quorum as section provides for personal
presence of members.
Provisions:
In case of public company:
Number of members as on date of meeting Quorum for meeting
Up to 1000 5 members personally present
> 1000 but ≤ 5000 15 members personally present
> 5000 30 members personally present
In the case of a private company, 2 members personally present, shall be
the quorum for a meeting of the company.
The representative of a company, if it holds shares in another company,
shall be deemed to be a member of the company for all practical purposes
under Section 113 of the Companies Act, 2013.
Similarly, the representative of the President or the Governor of a State,
if they hold shares in a company, shall be deemed to be member of the
company for all practical purposes under Section 112 of the Companies
Act.
Consequences of absence of quorum [Section 103(2)]:
If the quorum is not present within half-an-hour from the time appointed for
holding a meeting of the company—
a. the meeting shall stand adjourned to the same day in the next week at
the same time and place, or
b. to such other date and such other time and place as the Board may
determine; or
c. The meeting, if called by requisitionists (under section 100), shall
stand cancelled.
In case of adjournment, notice is required to be given to the members:
Where there is adjournment or of change of day, time and place of meeting,
the company is required to give not less than three days' notice to the
members either individually or by publishing and advertisement in the
newspapers (one in English and one in vernacular language) which is in
circulation at the place where the registered office of the company is
situated.
Section 103(3) lays down that if at the adjourned meeting also, quorum is
not present within half an hour from the time appointed for holding the
meeting, the members present shall constitute quorum.
Any resolution passed without a quorum is invalid. In fact, if no quorum is
present there is no meeting and the proceedings are invalid. But if all the
members of a company are present in person the proceedings will be valid
even if the quorum required is more than the total number of shareholders.

• CHAIRMAN OF MEETING [SECTION 104]

One of the essentials of a valid meeting is that it must have a presiding officer
endowed with authority to conduct its affairs in an orderly fashion. A Chairman
derives his authority from the assembly over which he presides.
The provisions of the articles in respect of appointment of chairman are to be

followed in preference; to the provisions of Section 104.
Appointment of Chairman under Articles
Regulation 45 of Table F: It provides that the Chairman, if any, of the Board
shall preside as Chairman at every general meeting of the company.
Regulation 46 of Table F: If there is no Chairman or he is not present within 15
minutes after the appointed time of the meeting or is unwilling to act as Chairman
of the meeting, the directors present shall elect one among themselves to be
chairman of the meeting.
Regulation 47 of Table F: If at any meeting, no director is willing to act as
chairman or if no director is present within 15 minutes after the appointed time of
the meeting, the members present should choose one among themselves to be
chairman of the meeting.
Appointment under section 104: If the articles of association of a company do

not contain any provision for the appointment of chairman, such appointments
shall be made by the members personally present at the meeting who shall
elect one of themselves to be the chairman thereof on a show of hands. If a
poll is demanded on the election of the Chairman, it shall be taken immediately. If
some other person is elected as a result of poll, he shall be the Chairman for the
rest of the meeting.
Appointment of Chairman by National Company Law Tribunal: Where the

NCLT under Section 97 or Section 98 directs the calling of general meeting of a
company, it may give directions regarding its calling, holding and conducting. It
may appoint any person as its Chairman.
Casting Vote of Chairman: In the case of an equality of votes on a matter

requiring ordinary resolution, the Chairman of general meeting shall be entitled to
a second or casting vote. It is a right of chairman to cast such vote and not his
duty. Chairman may cast such vote different from the original one. It may be
noted this provision can be used by a company only if the AOA of a company so
provides.
• PROXIES [SECTION 105]

Meaning: The word "proxy" has two different meanings.
Firstly, it means the agent appointed by the member of a company to attend
and vote on his behalf at a meeting of members.
Secondly, it means the document by which such an agent is appointed.
The relation between the member appointing proxy and the proxy so
appointed is that of principal and agent and thus this relationship is
governed by the relevant provisions of Indian Contract Act, 1872.
Who has right to appoint proxy:

In the case of a company having a share capital every member of the
company who is entitled to attend and vote at the meeting can appoint
a proxy.

In the case of a company not having a share capital, this right is available
only if the articles make a specific provision for it. A proxy need not to be
member of the company. Generally, the preference shareholders are not
entitled to appoint a proxy as they are not entitled to vote at the meeting. It
may be noted that a member of a company registered under section 8 (Non-
Profit Company) shall not be entitled to appoint any other person as his
proxy unless such other person is also a member of such company.
Person acting as a proxy:

A person can act as proxy on behalf of members not exceeding 50 and
holding in the aggregate not more than ten percent of the total share capital
of the company carrying voting rights. A member holding more than ten
percent, of the total share capital of the Company carrying voting rights may
appoint a single person as proxy and such person shall not act as proxy for any
other person or shareholder.
• VOTING [SECTION 106-109]

Methods
1. Voting by show of hands – (Section 107);
2. Voting by electronic means – (Section 108);
3. Voting by demand of poll – (Section 109);
4. Voting by Postal Ballot – (Section 110).
Restriction on voting rights [Section 106]:

A company shall not prohibit any member from exercising his voting right on any
ground except:
1. Any calls or other sums presently payable by him have not been paid, or
2. In regard to which the company has exercised any right of lien.
Show of Hands [Section 107]:

Here, 1 member = 1 vote
The method of voting by show of hands shall be adopted first for deciding
the fate of motion. It may be noted that proxies are not allowed to vote on a
show of hands.
After counting the votes in favour and against the resolution, the Chairman
may declare that on show of hands, it has been carried on or it has been
lost. A declaration by the Chairman of the resolution of the voting by show of
hands and an entry to this effect in the minute’s book of the proceedings of
the meeting shall be a conclusive evidence of such a declaration.
Voting through Electronic Means [Section 108]:

This new concept of e-voting is a method of voting via electronic means.
The Central Government has prescribed that every listed company or a
company having ≥ 1000 shareholders, shall provide to its members facility
to exercise their right to vote at general meetings by electronic means.
The expressions "voting by electronic means" or "electronic voting system"
means a 'secured system' based process of display of electronic ballots,
recording of votes of the members and the number of votes polled in favour
or against, such that the entire voting exercised by way of electronic means
gets registered and counted in an electronic registry in a centralized server
with adequate 'cyber security.

Procedure- A company which provides the facility to its members to
exercise voting by electronic means shall comply with the following
procedure, namely:-
(i) Notice of meeting- The notice of the meeting shall be sent to all the
members, directors and auditors of the company either-
(a) by registered post or speed post; or
(b) through electronic means, namely, registered e-mail ID of the
recipient; or
(c) by courier service;
(ii) The notice shall also be placed on the website, if any, of the company
and of the agency forthwith after it is sent to the members;
(iii) The notice of the meeting shall clearly state -
(a) that the company is providing facility for voting by electronic
means and the business may be transacted through such voting;
(b) that the facility for voting, either through electronic voting system
or ballot or polling paper shall al so be made available at the
meeting and members attending the meeting who have not
already cast their vote by remote e-voting sha ll be able to
exercise their right at the meeting;
(c) that the members who have cast their vote by remote c-voting
prior to the meeting may also attend the meeting but shall not be
entitled to cast their vote again;
(iv) The notice shall -
(a) indicate the process and manner for voting by electronic means;
(b) indicate the time schedule including the time period during which
the votes may be cast by remote e-voting;
(c) provide the details about the login ID;
(d) Specify the process and manner for generating or receiving the
password and for casting of vote in a secure manner.
(v) The company shall cause a public notice by way of an advertisement
to be published, immediately on completion of dispatch of notices for
the meeting.
Demand for Poll [Section 109] :

A poll can be ordered at any time before or after the declaration of the result on
the voting of any resolution by show of hands.
Here, 1 share = 1 vote
A poll can be demanded by any of the following persons :-
(i) Chairman himself;
(ii) Members and proxies.
The Chairman shall order a poll to be taken, if any demand is made in this
behalf:-
(a) In the case of a company having a share capital, by any member or
members present in person or by proxy and holding shares in the
company:
(i) Which confer a power to vote on the resolution ≥ 1/10th of the
total voting power in respect of the resolution; or
(ii) On which an aggregate sum of ≥ ₹ 5,00,000 has been paid up;

(b) in the case of any other company, by any member or members
present in person or by proxy and having ≥ 1/10th of the total voting
power in respect of the resolution.
The demand for a poll may be withdrawn at any time by the person or
persons who made the demand.
Time of taking poll: A poll demanded on the question of adjournment of
the meeting and on the election of Chairman under Section 104 must be
taken immediately. A poll demanded on any other question shall be taken at
any time within 48 hours of the time of making a demand.
• Passing of resolution by Postal Ballot [section 110]

Introduction:
'Postal Ballot' means voting by post or through any electronic mode.
The concept of postal ballot is a welcome step. Usually, at an AGM,
attendance is by a few hundred members. The AGM of some companies
are held in remote places, where the registered offices of such companies
are situated. This makes it inconvenient for the members to attend in large
number. Further, members do not evince much interest in attending EGM.
The postal ballot brings the voting at the doorsteps of members. Hence, a
very large number of members can conveniently participate in voting on the
resolutions of the company.
Provisions :
Transaction of business through postal ballot: According to section 110, the
following items of business shall be transacted only by means of voting
through a postal ballot-
(a) alteration of the objects clause of the memorandum and in the
case of the company in existence immediately before the
commencement of the Act, alteration of the main objects of the
memorandum;
(b) alteration of articles of association in relation to insertion or removal
of provisions which, under section 2(68), are required to be included in
the articles of a company in order to constitute it a private company;
(c) change in place of registered office outside the local limits of any
city, town or village as specified in section 12(5);
(d) change in objects for which a company has raised money from
public through prospectus and still has any unutilized amount out of
the money so raised under section 13(8);
(e) issue of shares with differential rights as to voting or dividend or
otherwise under section 43;
(f) variation in the rights attached to a class of shares or debentures
or other securities as specified under section 48;
(g) buy-back of shares by a company under section 68;
(h) election of a director under section 151 of the Act;
(i) Sale of the whole or substantially the whole of an undertaking of a
company as specified under section 180;
(j) giving loans or extending guarantee or providing security in excess
of the limit specified under section 186:
It is mandatory for a company to pass resolution by postal ballot
in respect of such items of business as the Central Government
may, by notification, declare to be transacted only by means of

postal ballot. It is, however, discretionary for a company to pass
any resolution by way of postal ballot other than -
(i) Ordinary business items; and
(ii) Any business in respect of which directors or auditors have
a right to be heard at any meeting.
It may be noted that One Person Company (OPC) and other
companies having members up to 200 are not required to
transact any business through postal ballot.
• MINUTES OF PROCEEDINGS OF MEETINGS [SECTIONS 118 & 119]

Important Provisions [Section 118]:
The minutes are a record of business transacted at meetings. Every
company muse keep minutes containing a fair and correct summary of all
proceedings of general meetings (including the resolutions passed by postal
ballot) and those of Board meetings or those of meetings of Committee of
the Board or meeting of the Creditors, in books kept for that purpose.
The minutes books must have their pages consecutively numbered, and the
minutes must be recorded therein within 30 days of the meeting, along
with the date of such recording. They have to be written directly on the
numbered pages. Pasting or attaching of papers is not allowed.

CHAPTER 1
UNIT 8: DECLARATION AND PAYMENT OF DIVIDEND
• MEANING AND TYPES
Meaning A dividend is a payment made by a company to its shareholders,

usually as a distribution of profits i.e. a portion of profits earned and
allocated as payable to the shareholders yearly or whenever declared.
Section 2(35) of the Companies Act, 2013, simply states that “dividend”
includes any interim dividend.
Types I. Dividend payable on the basis of Time (When declared)
1. Interim Dividend: When the Board of Directors declare dividend
between two annual general meetings of the company, such
dividend is known as Interim dividend.
2. Final Dividend: When the dividend is declared at the annual
general meeting of the company, it is known as Final dividend.
All the provisions applicable on dividend are also applicable on
interim dividend.
II. Dividend payable on the basis of Nature of shares
1. Equity Shares – as per the dividend policy of the company
and availability of profits.
2. Preference shares
a) Cumulative Preference shares
b) Non – Cumulative Preference Shares

• DECLARATION OF DIVIDEND [SECTION 123]

Dividend (a) Out of the profits of the company for that year arrived at after
shall be providing for depreciation in accordance with the provisions of
declared or section 123(2), Or
paid by a (b) Out of the profits of the company for any previous financial year
company for or years arrived at after providing for depreciation in accordance
any with the provisions of that sub-section and remaining
financial undistributed,
year — Or
(c) Out of both (a) and (b);
Or
(d) Out of money provided by the Central Government or a State
Government for the payment of dividend by the company in
pursuance of a guarantee given by that Government.
☻ Provided that in computing profits any amount representing
unrealised gains, notional gains or revaluation of assets and any
change in carrying amount of an asset or of a liability on
measurement of the asset or the liability at fair value shall be
excluded (Amended as per Notification dated 3rd Jan,2018)
Transfer to A company may, before the declaration of any dividend in any
reserves financial year, transfer such percentage of its profits for that
financial year as it may consider appropriate to the free
reserves of the company. Therefore, the company may transfer
such percentage of profit to reserves before declaration of dividend
as it may consider necessary. Such transfer is not mandatory and
the percentage to be transferred to reserves is to be decided at
the discretion of the company.
Declaration Dividend shall be declared or paid by a company only from its free
of dividend reserves. No other reserve can be utilized for the purposes of
from free declaration of such dividend.
reserves
Declaration Where a company, owing to inadequacy or absence of profits in any
of dividend financial year, proposes to declare dividend out of the accumulated
out of profits earned by it in previous years and transferred by the company
accumulate to the reserves, such declaration of dividend shall be made only
d profits : in accordance with following prescribed rules.
Exemption: The above shall not apply to a Government Company.
Declaration Company shall not declare dividend unless carried over previous
of dividend losses and depreciation not provided in previous year or years are
by set off of set off against profit of the company for the current year.
previous The following conditions shall be fulfilled before declaring dividend
losses and out of reserves:
depreciation (a) The rate of dividend declared shall not exceed the average of
against the the rates at which dividend was declared by it in the 3 years
profit of the immediately preceding that year
company for However, this rule will not apply if a company has not declared
the current any dividend in each of the 3 preceding financial years.
year (b) The total amount to be drawn from such accumulated profits

shall not exceed one-tenth of the sum of its paid-up share

capital and free reserves as appearing in the latest audited
financial statement.
(c) The amount so drawn shall first be utilised to set off the losses
incurred in the financial year in which dividend is declared before
any dividend in respect of equity shares is declared.
(d) The balance of reserves after such withdrawal shall not fall
below 15% of its paid up share capital as appearing in the
latest audited financial statement.
Depositing The amount of the dividend, including interim dividend, shall be
of amount deposited in a scheduled bank in a separate account within 5
of dividend days from the date of declaration of such dividend.
This sub-section shall not apply to a Government Company
Payment of
dividend
Prohibition A company which fails to comply with the provisions of section 73

on (Prohibition on acceptance of deposits from public) and section 74
declaration (Repayment of deposits, etc., accepted before the commencement of
of dividend this Act) shall not, so long as such failure continues, declare any
dividend on its equity shares.
Prohibition Companies having licence under Section 8 (Formation of companies
on section 8 with Charitable Objects, etc.] of the Act are prohibited from paying
companies any dividend to its members. Their profits are intended to be applied
only in promoting the objects of the company.

• UNPAID DIVIDEND ACCOUNT [SECTION 124]
(Section 125)
• INVESTOR EDUCATION AND PROTECTION FUND [SECTION 125]

The Central Government shall establish a Fund to be called the Investor Education
and Protection Fund (herein referred to as the Fund).
• There shall be credited to the Fund—
(a) The amount given by the Central Government by way of grants after due
appropriation made by Parliament by law in this behalf for being utilised for
the purposes of the Fund;
(b) Donations given to the Fund by the Central Government, State
Governments, companies or any other institution for the purposes of the
Fund;
(c) The amount in the Unpaid Dividend Account of companies transferred to
the Fund under sub-section (5) of section 124;
(d) The amount in the general revenue account of the Central Government
which had been transferred to that account under sub-section (5) of section
205A of the Companies Act, 1956 (1 of 1956), as it stood immediately
before the commencement of the Companies (Amendment) Act, 1999 (21
of 1999), and remaining unpaid or unclaimed on the commencement of this
Act;
(e) The amount lying in the Investor Education and Protection Fund
under section 205C of the Companies Act, 1956;

(f) The interest or other income received out of investments made from the
Fund;
(g) The amount received under sub-section (4) of section 38;
(h) The application money received by companies for allotment of any
securities and due for refund;
(i) Matured deposits with companies other than banking companies;
(j) Matured debentures with companies;
(k) Interest accrued on the amounts referred to in clauses (h) to (j);
(l) Sale proceeds of fractional shares arising out of issuance of bonus shares,
merger and amalgamation for seven or more years;
(m) Redemption amount of preference shares remaining unpaid or unclaimed
for seven or more years; and
(n) Such other amount as may be prescribed:
Provided that no such amount referred to in clauses (h) to (j) shall form part of
the Fund unless such amount has remained unclaimed and unpaid for a period of
seven years from the date it became due for payment.
• The Fund shall be utilised for—

(a) The refund in respect of unclaimed dividends, matured deposits, matured
debentures, the application money due for refund and interest thereon;
(b) Promotion of investors' education, awareness and protection;
(c) Distribution of any disgorged amount among eligible and identifiable
applicants for shares or debentures, shareholders, debenture-holders or
depositors who have suffered losses due to wrong actions by any person, in
accordance with the orders made by the Court which had ordered
disgorgement (The disgorged amount refers to the amount received through
disgorgement or disposal of securities);
(d) Reimbursement of legal expenses incurred in pursuing class action suits
under sections 37 and 245 by members, debenture-holders or depositors as
may be sanctioned by the Tribunal; and
(e) Any other purpose incidental thereto,in accordance with such rules as may
be prescribed:
Provided that the person whose amounts referred to in clauses (a) to (d) of
sub-section (2) of section 205C transferred to Investor Education and
Protection Fund, after the expiry of the period of seven years as per
provisions of the Companies Act, 1956 (1 of 1956), shall be entitled to get
refund out of the fund in respect of such claims in accordance with rules
made under this section.
Constitution of IEPF
• The Central Government shall constitute, by notification, an authority for
administration of the Fund consisting of a chairperson and such other members,
not exceeding seven and a chief executive officer, as the Central Government
may appoint.
• The manner of administration of the Fund, appointment of chairperson, members
and chief executive officer, holding of meetings of the authority shall be in
accordance with such rules as may be prescribed.
• The Central Government may provide to the authority such offices, officers,
employees and other resources in accordance with such rules as may be
prescribed.

• The authority shall administer the Fund and maintain separate accounts and
other relevant records in relation to the Fund in such form as may be prescribed
after consultation with the Comptroller and Auditor-General of India.
• It shall be competent for the authority constituted to spend money out of the Fund
for carrying out the objects specified above.
• The accounts of the Fund shall be audited by the Comptroller and Auditor-
General of India at such intervals as may be specified by him and such audited
accounts together with the audit report thereon shall be forwarded annually by
the authority to the Central Government.
• The authority shall prepare in such form and at such time for each financial year
as may be prescribed its annual report giving a full account of its activities during
the financial year and forward a copy thereof to the Central Government and the
Central Government shall cause the annual report and the audit report given by
the Comptroller and Auditor-General of India to be laid before each House of
Parliament.
• PUNISHMENT FOR FAILURE TO DISTRIBUTE DIVIDENDS [SECTION 127]

Where a dividend has been declared by a company but has not been paid or the
warrant in respect thereof has not been posted within 30 days from the date of
declaration to any shareholder entitled to the payment of the dividend, every
director of the company shall, if he is knowingly a party to the default, be
punishable with imprisonment which may extend to two years and with fine
which shall not be less than one thousand rupees for every day during
which such default continues and the company shall be liable to pay simple
interest at the rate of 18 % p.a. during the period for which such default
continues.

CHAPTER 1
UNIT 9: ACCOUNTS OF COMPANIES
• BOOKS OF ACCOUNT, ETC., TO BE KEPT BY COMPANY

[SECTION 128]
General Every company shall prepare “books of account” and other
requirement relevant books and papers and financial statement for every
financial year.
These books of accounts should give a true and fair view of the
state of the affairs of the company, including that of its branch
office(s). These books of accounts must be kept on accrual basis
and according to the double entry system of accounting.
Accrual concept is one of the four principles or accounting
concepts, which involves recording income and expenses as they
accrue, as distinct from when they are received or paid.
Double entry book-keeping is a method of recording any
transactions of a business in a set of accounts, in which every
transaction has a dual aspect of debt and credit and therefore,
needs to be recorded in at least two accounts.
Company have the option of keeping such books of account or
other relevant papers in electronic mode.
Definitions “Books of account” as defined in Section 2(13) includes records
maintained in respect of—
(i) all sums of money received and expended by a company
and matters in relation to which the receipts and
expenditure take place;
(ii) All sales and purchases of goods and services by the
company;
(iii) the assets and liabilities of the company; and
(iv) The items of cost as may be prescribed under section 148
in the case of a company which belongs to any class of
companies specified under that section.
“Book and paper” and “book or paper” as defined in Section
2(12) include books of account, deeds, vouchers, writings,
documents, minutes and registers maintained on paper or in
electronic form;
Place of Every company to prepare and keep the books of account and
Keeping other relevant books and papers and financial statements at its
Books of registered office.
Account Provided all or any of the books of accounts may be kept at such
other place in India as the Board of directors may decide.
Where such a decision is taken by the Board the company shall
within 7 days thereof file with the registrar a notice in writing
giving full address of that other place.
Books of Proper books of account relating to the transactions effected at the
Account - branch office are to be kept at that office and proper summarized
Branch returns periodically are sent by the branch office to the company

Office at its registered office and are kept open for inspection at the
registered office of the company or at such other place in India by any
director during business hours.
Inspection Any director can inspect the books of accounts and other books and
by directors papers of the company during business hours.
Period for The books of account of every company relating to a period of atleast
preservation 8 financial years immediately preceding a financial year, or where
of books the company had been in existence for a period less than eight years,
in respect of all the preceding years together with the vouchers
relevant to any entry in such books of account shall be kept in good
order.
Persons The person responsible to take all reasonable steps to secure
responsible compliance by the company with the requirement of maintenance of
to maintain books of accounts etc. shall be :
books (i) Managing Director,
(ii) Whole-Time Director, in charge of finance
(iii) Chief Financial Officer
(iv) Any other person of a company charged by the Board with
duty of complying with provisions of section 128.
Penalty Imprisonment for a term which may extend to one year or with fine
provisions which shall not be less than 50,000 rupees but which may extend to
500,000 rupees or both.
• FINANCIAL STATEMENT [SECTION 129]
Definition As per section 2(40), financial statement in relation to a company,

includes—
(i) a balance sheet as at the end of the financial year;
(ii) a profit and loss account, or in the case of a company carrying on
any activity not for profit, an income and expenditure account for the
financial year;
(iii) cash flow statement for the financial year;
(iv) a statement of changes in equity, if applicable; and
(v) any explanatory note annexed to, or forming part of, any document
referred to in sub-clause (i) to sub-clause (iv):
Provided that the financial statement, with respect to One Person
Company, small company and dormant company, may not include the
cash flow statement;
Note: Students may note that ‘Profit and Loss Account’ may also be
referred as ‘Statement of Profit and Loss’ under the Act at some places.
True and Fair The financial statements shall give a true and fair view of the state of
view affairs of the company or companies. It shall comply with the
accounting standards notified under section 133 and shall be in the
form or forms as may be provided for different class or classes of
companies in Schedule III.

Non
Applicability
Consolidation The consolidation of financial statements of the company shall be

of financial made in accordance with the provisions of Schedule III of the Act
statements and the applicable accounting standards.
Prepare a consolidated financial statement of the company and of
all the subsidiaries and associate companies in the same form and
manner as that of its own
Laying of At every annual general meeting of a company, the Board of Directors
financial of the company shall lay before such meeting financial statements for
Statements the financial year.
Exemptions (i) It is a wholly-owned subsidiary, or is a partially-owned subsidiary of
from another company and all its other members, having been intimated
preparation of in writing do not object to the company not presenting consolidated
CFS : financial statements
(ii) It is a company whose securities are not listed or are not in the
process of listing on any stock exchange, whether in India or outside
India; and
(iii) Its ultimate or any intermediate holding company files consolidated
financial statements with the Registrar which are in compliance with
the applicable Accounting Standards.
Penal Imprisonment for a term which may extend to one year or with fine
provisions which shall not be less than fifty thousand rupees but which may
extend to five lakh rupees, or with both.

• RE-OPENING OF ACCOUNTS ON COURT’S OR TRIBUNAL ORDERS

[SECTION 130]
No order shall be made in respect of re-opening of books of account relating to a

period earlier than eight financial years immediately preceding the current
financial year:
Provided that where a direction has been issued by the Central Government for
keeping of books of account for a period longer than eight years, the books of
account may be ordered to be re-opened within such longer period.
(As amended by notification dated 3rd Jan, 2018)

• VOLUNTARY REVISION OF FINANCIAL STATE- MENTS OR

BOARD’S REPORT [SECTION 131]
• FINANCIAL STATEMENT, BOARD’S REPORT, ETC [SECTION 134]

(i) Authentication of Financial statements:
(a) The financial statements, including consolidated financial statement, if any,
shall be approved by the Board of Directors before they are signed on
behalf of the Board at least by the following:
(1) The chairperson of the company where he is authorised by the
Board; or
(2) By two directors out of which one shall be managing director and
other the Chief Executive Officer, if he is a director in the company,
(4) The Chief Executive Officer, wherever he is appointed;
(3) The Chief Financial Officer, wherever he is appointed; and
(4) The company secretary of the company, wherever he is appointed.
(b) In the case of a One Person Company, the financial statement shall be
signed by only one director, for submission to the auditor for his report
thereon.
(c) The auditors’ report shall be attached to every financial statement.
(d) A signed copy of every financial statement, including consolidated financial
statement, if any, shall be issued, circulated or published along with a copy
each of— (1) Any notes annexed to or forming part of such financial
statement; (2) The auditor’s report; and (3) The Board’s report.
(ii) Signing of Board’s Report: The Board’s report and any annexures thereto shall
be signed by its chairperson of the company if he is authorised by the Board
and where he is not so authorised, shall be signed by at least two directors,
one of whom shall be a managing director, or by the director where there is one
director.

(iii) Contravention:
• CORPORATE SOCIAL RESPONSIBILITY [SECTION 135]
The Companies Act, 2013 lays down the provisions requiring corporate to mandatorily
spend a prescribed percentage of their profits on certain specified areas of social
upliftment in discharge of their social responsibilities. Broadly, CSR implies a concept,
whereby companies decide voluntarily to contribute to a better society and a cleaner
environment – a concept, whereby the companies integrate social and other useful
concerns in their business operations for the betterment of its stakeholders and society
in general in a voluntary way.
(i) Which Company is required to constitute CSR committee:

(a) Every company including its holding or subsidiary, and a foreign company
defined under section 2(42) of the Companies Act, 2013 having its branch
office or project office in India, having
(1) Net worth of rupees 500 crore or more, or
(2) Turnover of rupees 1000 crore or more or
(3) a net profit of rupees 5 crore or more during the immediately preceding
financial year shall constitute a Corporate Social Responsibility
Committee of the Board.
(ii) Amount of contribution towards CSR:

(a) The Board of every company shall ensure that the company spends, in
every financial year, at least two per cent. of the average net profits of the
company made during the three immediately preceding financial years, in
pursuance of its CSR Policy.
(b) The company shall give preference to the local area and areas around it
where it operates, for spending the amount earmarked for CSR activities.
(iii) Activities which may be included by companies in their CSR Policies

Activities as specified under Schedule VII are as follows:
(1) eradicating hunger, poverty and malnutrition, promoting health care
including preventive health care and sanitation including contribution to the
Swach Bharat Kosh set-up by the Central Government for the promotion of
sanitation and making available safe drinking water;

(2) promoting education, including special education and employment

enhancing vocation skills especially among children, women, elderly, and
the differently abled and livelihood enhancement projects;
(3) promoting gender equality, empowering women, setting up homes and
hostels for women and orphans; setting up old age homes, day care centres
and such other facilities for senior citizens and measures for reducing
inequalities faced by socially and economically backward groups;
(4) ensuring environmental sustainability, ecological balance, protection of flora
and fauna, animal welfare, agro forestry, conservation of natural resources
and maintaining quality of soil, air and water including contribution to the
Clean Ganga Fund set up by the Central Government for rejuvenation of
river Ganga;
(5) protection of national heritage, art and culture including restoration of
buildings and sites of historical importance and works of art; setting up
public libraries; promotion and development of traditional arts and
handicrafts;
(6) measures for the benefit of armed forces veterans, war widows and their
dependents;
(7) training to promote rural sports, nationally recognised sports, paralympic
sports and Olympic sports;
(8) contribution to the Prime Minister’s National Relief Fund or any other -fund
set up by the Central Government for socio-economic development and
relief and welfare of the Scheduled Castes, the Scheduled Tribes, other
backward classes, minorities and women;
(9) contributions or funds provided to technology incubators located within
academic institutions which are approved by the Central Government;
(10) rural development projects;
(11) slum area development. [For the purposes of this item, the term ‘slum area’
shall mean any area declared as such by the Central Government or any
State Government or any other competent authority under any law for the
time being in force.]
(iv) Exceptions to CSR Activities:

The Companies (CSR Policy) Rules, 2014 provides for some activities which are
not considered as CSR activities:
1) The CSR projects or programs or activities undertaken outside India.
2) The CSR projects or programs or activities that benefit only the
employees of the company and their families.
3) Contribution of any amount directly or indirectly to any political party under
section 182 of the Act.

• RIGHT TO MEMBERS TO COPIES OF AUDITED FINANCIAL

STATEMENT [SECTION 136]

• COPY OF FINANCIAL STATEMENT TO BE FILED WITH REGISTRAR

[SECTION137]

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CAFCINTER CAFINAL CA

HAS COMPANY A NATIONALITY AND RESIDENCE?

:1: REVISION NOTES – MAY ‘19

Company limited by guarantee:

:2: REVISION NOTES – MAY ‘19

Law with respect to formation of OPC provides that—

Provided that nothing in this clause shall apply to--

Following are some of the important relaxations provided to a small company:

Holding & Subsidiary Company

:4: REVISION NOTES – MAY ‘19

3. Company not for profit/Non-Profit companies

(ii) Power of Central government to issue the license :

"Significant accounting transaction" means any transaction other than—

:5: REVISION NOTES – MAY ‘19

:6: REVISION NOTES – MAY ‘19

UNIT 2: INCORPORATION OF COMPANY AND MATTERS

:7: REVISION NOTES – MAY ‘19

Definition and Meaning of "Memorandum" means memorandum

The memorandum of association is a document, which contains the fundamental

Form of • Table A is applicable to companies limited by shares;

Printing and Signing of Memorandum [Sections 3 & 4]: The memorandum of

:8: REVISION NOTES – MAY ‘19

Contents of Memorandum: Section 4 of the Companies Act provides that the

Change of Name [Section 13] :

Rectification of Name (Sec. 16)

:9: REVISION NOTES – MAY ‘19

: 10 : REVISION NOTES – MAY ‘19

• Change from one State to another State [Sec.13]

Apply to Central Government for approval

File following documents with Registrar of both states:

: 11 : REVISION NOTES – MAY ‘19

• CAPITAL CLAUSE (ONLY IN THE CASE OF A COMPANY HAVING A SHARE

Reduction of share capital (Section 66)

Difference between diminution of share capital and reduction of share capital

Diminution of share capital Reduction of share capital

• ASSOCIATION CLAUSE AND SUBSCRIPTION CLAUSE

• SUCCESSION CLAUSE (ONLY IN THE CASE OF OPC)

: 12 : REVISION NOTES – MAY ‘19

Form and Schedule I

: 13 : REVISION NOTES – MAY ‘19

• ISSUE OF SECURITIES BY THE COMPANY

PUBLIC COMPANY PRIVATE COMPANY

'Public offer' Private placement Rights or bonus Private Rights or bonus

Matters to be stated in prospectus[Section 26]

General Information Financial Information Statutory Information

• Notice of resolution to shareholders:

• Exit offer to dissenting shareholders:

Shelf Prospectus (Section 31)

• Filing of shelf prospectus with registrar:

(ii) In respect of a second or subsequent offer of such securities issued

• Filing of an information memorandum containing all material facts with the

• Shelf prospectus with information memorandum deemed to be prospectus:

Red Herring Prospectus (Section 32)

: 15 : REVISION NOTES – MAY ‘19

REMEDIES FOR MISREPRESENTATION IN THE PROSPECTUS

Remedies against Company Remedies against Directors/

4. Sue the company for damages

: 16 : REVISION NOTES – MAY ‘19