Company law

Presentation on Incorporation of Companies

Exemptions to certain types

OVERVIEW OF COMPANIES ACT, 2013
•Total 470 sections / 29 Chapters and 7 Schedule
•Governed by Rules [“As may be prescribed”]
•Chapter II [Sec 3 to Sec 22] – deals with
Incorporation of Companies and matters related
thereto
•The Companies (Incorporation) Rules, 2014 having
41 Rules
Section 8 Company is a special type of Company where a person
or an association of persons proposed to be registered under this

Act as a limited company—

(a) has in its objects the promotion of commerce, art, science,

sports, education, research, social welfare, religion, charity,

protection of environment or any such other object;

(b) intends to apply its profits, if any, or other income in promoting

its objects; and

(c) intends to prohibit the payment of any dividend to its members,

The Central Government may allow such company to be registered

as Public Limited or Private Limited Company without the

addition to its name of the word "Limited” or the words "Private

Limited"

Chapter XXI Companies

[Sec 366 to Sec 374]
366. (1) For the purposes of this Part, the word “company”

includes any partnership firm, limited liability partnership,

cooperative society, society or any other business entity formed

under any other law for the time being in force which applies for

registration under this Part.

there shall be two or more members for the purposes of registration of a

company under this Chapter.

a company with less than seven members shall be registered as Private

Limited Company only.

the provision relating to incorporation of company and matters incidental

thereto shall be applicable mutatis mutandis for such registration.

After obtaining name approval, it shall file docs & info in form URC-

1. The Registrar shall issue Certificate of Incorporation.

RESERVE UNIQUE NAME
DOUBT
Process of Incorporation
OPC INCORPORATION

 Minor can not be a Member or Nominee

 DSC, DIN, Name application in form SPICE +

 Filing of form INC-2 [Incorporation form] along with form

INC-3 [Consent of Nominee]. Other docs such as MOA/AOA,

INC-9, Deposit Declaration, DIR-2, Registered Office proof,

NOC etc with SPICE 32 form.

 Nominee to be mentioned in MOA also.

 OPC can not be incorporated or converted into Section 8

company; can not carry out NBFC, Investment activities.

OPC CONVERSION

• OPC may voluntarily convert itself into Private or Public company.

Cessation of OPC status due to exceeding TO [> 2Crs] / Cap [>50

lakh] criterion removed w.e.f. 1st Apr, 2021.

• Conversion by alteration of Memorandum & Articles, Filing of Reso,

Consent of Members & Creditors, Audited Financials, form INC-6

(Min 2 dir & 2 members [Private] OR 3 dir & 7 members [Public])

• Private Limited can convert itself into OPC subject to meeting of

Capital & Turnover criterion. [amended w.e.f. 1st Apr, 2021]

• NOC from Members & Creditors, Special resolution, Affidavit by

Directors

• File form MGT-14 and form INC-6 with ROC for conversion

SECTION 8 COMPANY
• Has in its objects the promotion of commerce, art, science, sports,

education, research, social welfare, religion, charity, protection of

environment or any such other object;

• intends to apply its profits, or other income in promoting its

objects; and

• intends to prohibit payment of any dividend to its members

Process of Incorporation – Special points

➢MoA must be in form INC-13

➢Declaration by professional in form INC-14

➢Estimate of future annual income & expenditure for next 3 years

➢Declaration by each subscriber in form INC-15

➢Application in form INC-12 for license u/s 8 to ROC prior to Incorporation

➢After License, incorporation through SPICE + forms.

Companies Incorporated Outside India

Every foreign company within 30 days from date of establishment

of its business in India shall file form FC-1 for registration with ROC

along with Copy of RBI / other regulatory approvals; Certified copy of its

Charter, Statutes or Memorandum in English [or translated in English with

original foreign language] ; List of Directors & secretary of Company; Name

& full address of Authorized Representative resident in India; Full address of

its Principal place of business in India and Other offices, if any

Any change in docs filed with ROC shall be intimated to ROC within

30 days of such change in form FC-2

Provisions of Debentures, Annual Return, Registration of Charges,

Books of Accounts, Audit & Auditors apply mutatis mutandis to a

foreign company

File Return of Places of business and Audited Financial Statements

within 6 months from close of FY in form FC-3 & FC-4

Major Exemptions to Private Limited Companies

[Notification dated 5th June, 2015]

Sec 43 : Kinds of Share Capital } If provided in their

Sec 47 : Voting Right } MoA / AoA

Sec 62 : Further issue of capital

clause (a) sub clause 1 & sub sec (2) relating to notice period not

applicable provided 90% of members have given consent.

clause (b) sub clause 1 - Ordinary reso in place of Special reso

Sec 67 : Restrictions on Purchase of its own Shares [sub to

conditions]

Sec 73 (2) clauses (a) to (e) : Acceptance of Deposits from Public

provided Pvt Co accept from Members deposits < 100 % of paid up

cap + res and file return [form DPT-1] with ROC.

Sec 101 to 107, Sec 109 : Not Applicable if the Article contains

specific provisions [Notice of Meeting, Statement to be annexed to

Notice, Quorum, Chairman, Proxies, Voting by show of hands,

Demand of Poll]

Sec 117 (3) (g) : Filing of resolutions pursuant to sec 179 (3)

Sec 141 (3) (g) : For counting Limit as auditor of 20 companies, OPC, dormant,

small & private companies with paid up captial of less than Rs 100 Cr. shall

be excluded.

Sec 160 : Right of person other than retiring director to stand for Directorship

Sec 162 : Appointed of Directors to be voted individually

Sec 180: Restrictions on Powers of Board [Sell, lease or disposal, to invest, to

borrow money etc on with Special reso]

Sec 184 (2): Interested Director can participate in BM provided he has

disclosed his interest.

Sec 188 (1) second proviso : Voting on reso to approve Related Party

transactions.

Sec 196 (4) & (5) : Appointment of MD, WTD sub to Sec 197 and Sch V,

approval by members & approval by Central Govt in certain cases [Ceiling on

Remuneration]

Major Exemptions to Section 8 Companies

[Notification dated 5th June, 2015]

Appoint any person as Company Secretary, need not be member

of ICSI – Sec 2(24)

No prescribed Paid Up Share capital, Free to have any amount of

Capital – Sec 2(68) & 2 (71)

Shareholders can direct Board to fix time, date & place of next

AGM – Sec 96 (2) proviso

Notice period for calling General Meeting is 14 clear day instead

of 21 days, Financial Statements to be served before 14 days of

AGM – Sec 101 (1) / Sec 136 (1)

Exempted to comply with Sec 118 – Minutes of meetings of

General meetings, Board Meetings, Reso passed by Postal ballot

No stipulation on Min & Max no of Directors, No need to appoint

Independent Directors – Sec 149 / Sec 150

Consent to Act as Director [DIR-2] not required – Sec 152 (5)

Directorship of Sec 8 Co exempted while counting No of

Directorships held – Sec 165 (1)

Board Meeting once every Six months, Quorum 8 members or 25%

of total, Min 2 – Sec 174 (1)

No need to have Nomination Remuneration Comm, Stakeholder

Relation Comm – Sec 178 Audit Comm w/o Ind Dir

Exercise certain powers by Circulation instead of BM [Borrow

money, Invest Funds, Grant Loans] – Sec 179

Exempted from Disclosure of Int by Dir [Sec 184 (1)] and Register

of Contracts where RPT < Rs 1 Lakh

Mr. Sumit, an officer of the Corporate Secretarial Department of the Executive Limited
has called the meeting of the members of the board of the director on 25th April, 2019,
and served the notice on 17th April, 2019 on email as well as through Registered post,
later on Mr. Ashok, one of the directors of the company has challenged the validity of the
meeting on the following grounds.

(a) Mr. Sumit was not authorised person to call the meeting.

(b) The Notice was not sent on the letter head of the company.

(c) The Notice is not served as per the statutory requirements.

(d) The notice does not to inform about the facility of the video conferencing being
provided by the company.
In this back drop answer the following:

i. Whether Mr. Sumit was authorised person to call the meeting? If so give reasons.

ii. Whether it is mandatory to send Notice of the meeting on the letter head of the
company?

iii. What are the statutory requirements for serving of notice of board meeting through
emails and registered post?

iv. Whether the facility of the video conferencing is mandatorily required to be provided
by the company?

1- Mr. Sumit was authorised person to call the meeting. As a best practice and a
measure of good governance, the Director desirous of summoning a Meeting for any
purpose should send his requisition in writing to convene such Meeting, along with
the agenda proposed by him for discussion at the Meeting, either to – the Chairman
or in his absence, to the Managing Director or in his absence, to the Whole-time
Director, or the Company Secretary or in his absence, to any other person
authorised by the Board in this regard.
"any person authorised by the Board", whether an officer of the company or any
person other than the officer of the company, should be clearly identifiable. It is
advised to check whether Mr. Sumit fits under the criteria of the any person
authorised by the board.

2- As per the secretarial standard on the meeting of the Board of Director (SS-1) and
guidance note issued Theron, The Notice should preferably be sent on the letter-
head of the company. Where it is not sent on the letter-head or where it is sent by
e-mail or any other electronic means, there should be specified, whether as a
header or footer, the name of the company and complete address of its registered
office together with all its particulars such as Corporate Identity Number (CIN) as
required under Section 12 of the Act, date of Notice, authority and name and
designation of the person who is issuing the Notice, and preferably the phone
number of the Company Secretary or any other designated officer of the company
who could be contacted by the Directors for any clarifications or arrangements.

3- In case the company sends the Notice by speed post or by registered post, an
additional two days shall be added for the service of Notice. Addition of two days
in case the company sends the Notice by speed post or by registered post is in line
with Rule 35(6) of the Companies (Incorporation) Rules, 2014 which provides that in
case of delivery of Notice of a Meeting by post, the service shall be deemed to
 have been effected at the expiration of forty eight hours after the letter
containing the same is posted. However, the requirement of adding two days is
applicable only if the Notice is sent to any of the Directors solely by speed post or
by registered post and not by facsimile or by e-mail or any other electronic means.
In case the Notice is sent by facsimile or by e-mail or by any other electronic
means to the Directors,and it is additionally sent by speed post or by registered
post to all or any of the Directors, whether pursuant to their request or otherwise,
the additional two days need not be added.

4- The notice does not inform about the facility of video conferencing being provided
by the company. The Director who desires to participate through Electronic Mode
may intimate his intention of such participation at the beginning of the Calendar
Year and such declaration shall be valid for one Calendar Year [Clause 3(e) read
with Clause 3(d) of Rule 3 of the Companies (Meetings of Board and its Powers)
Rules, 2014].
The Notice shall also contain the contact number or e-mail address (es) of the
Chairman or the Company Secretary or any other person authorised by the Board,
to whom the Director shall confirm in this regard. In the absence of an advance
communication or confirmation from the Director as above, it shall be assumed that
he will attend the Meeting physically.

Case study 1
Mr. Z is a director of XYZ Limited which failed to repay matured deposits from
1st April, 2012 onwards and the default continues. But ABC Limited is regular in
filing annual accounts and annual returns. Mr. A is also a director of PQR Limited
and XYZ Limited.
Answer the following questions with reference to the relevant provisions of the
Companies Act,
1956:
(i) Whether Mr. A is disqualified under section 274(1)(g) of the Companies Act,
1956 and if so,
whether he is required to vacate his office of director in PQR Limited and XYZ
Limited.
(ii) Is it possible for Board of directors of DEF Limited to appoint Mr. A as an
additional director at
the Board meeting to be held on 15th May, 2013?
 Would your answer be different if Mr. A ceased to be a director of ABC Limited by
resignation on 1st March, 2013? State also the auditor's liability with regard to
reporting of disqualification under section 274(1)(g).

Answer-
1- No person who is or has been a director of a company which— (a) has not filed
financial statements or annual returns for any continuous period of three
financial years; or

has failed to repay the deposits accepted by it or pay interest thereon or to redeem any
debentures on the due date or pay interest due thereon or pay any dividend declared and
such failure to pay or redeem continues for one year or more, shall be eligible to be re-
appointed as a director of that company or appointed in other company for a period of five
years from the date on which the said company fails to do so.

Provided that where a person is appointed as a director of a company which is in default of

clause (a) or clause (b), he shall not incur the disqualification for a period of six months
from the date of his appointment.

CASE STUDY 2

In ABC Ltd. three Directors were to be appointed. The item was included in agenda for the

Annual General Meeting scheduled on 30th September, 2013, under the category of
‘Ordinary Business'. All the three persons as proposed by the Board of Directors were
elected as Directors of the company by passing a ‘single resolution' avoiding the repetition
(multiplicity) of resolution. After the three directors joined the Board, certain members
objected to their appointment and the resolution. Examine the provisions of Companies
Act, 1956 and decide

(i) Whether the contention of the members shall be tenable and whether both the
appointment of Directors and the single resolution passed at the Company's Annual
General Meeting shall be void.

(ii) What would be your answer in case the company in question is an “Association not for
Profit” incorporated under Section 25 of the Companies Act, 1956?

1- Appointment will be void u/s 263, unless the motion is preceded by a unanimous

resolution, authorizing appointment of two or more Directors by a single resolution.

 2- Sec. 263 is not applicable for Companies incorporated u/s 25. Hence, appointment
is valid in such case.

Case study 3

Madhurima Ltd is a Public Limited Company. It has a Paid Up Share Capital of `11 Crores.
It is engaged in software development for export. It was promoted by Mr. Sharat, who is
an NRI (a Foreign Resident of Indian origin), and his friend Mr. Mohan, who is an Indian
Citizen resident in India. Currently, Mr. Mohan is heading the Company in India as the
President. However, Mr. Sharat is the main business strategy formulator, and also
actively renders several services outside India to the Company, and also advises the Board
of Directors of the Company. But he is stationed in the USA and visits India for hardly
15 days a year.

The Company desires to know from you, whether they can appoint Mr. Sharat, as the

“Managing Director”, to comply with Sec. 269 of the Companies Act, and pay him a salary
inexchange. They also desire that you advise them as to whether the said appointment can
be made in terms of FEMA, 1999. Give a reasoned answer, duly supported by analysis of
the relevant legal provisions applicable to the issue in question.

Under the Companies Act, 2013:

In this case, since Mr. Sharat is an NRI (a Foreign Resident of Indian origin), the
appointment as Managing Director would be permissible under the Companies Act, provided
that the company's articles of association allow for such an appointment, and the
shareholders approve it through a special resolution.

Under FEMA, 1999:

FEMA, 1999 regulates foreign exchange transactions in India. It is primarily concerned

with foreign exchange transactions, capital accounts, and the movement of funds in and
out of India.

FEMA does not explicitly govern the appointment of Managing Directors in Indian
companies. However, it does have implications for the remuneration or salary paid to NRIs.

When it comes to payment of salary to an NRI, FEMA, 1999 permits Indian companies
to pay remuneration to NRI directors or employees for services rendered in
india, subject to certain conditions and limits. The remuneration should be reasonable,
and tax should be withheld at the applicable rates.

In Mr. Sharat's case, since he is an NRI, the company can pay him a salary for the services
he renders in India as long as it complies with FEMA's provisions, including the
requirement to withhold taxes.

However, FEMA does not prohibit an NRI from holding the position of Managing Director
in an Indian company.

In conclusion, Madhurima Ltd can appoint Mr. Sharat as the Managing Director, provided
that the company's articles of association allow for such an appointment, and the
shareholders approve it through a special resolution, in accordance with the Companies
Act, 2013. Additionally, the company can pay Mr. Sharat a salary for the services he
renders in India, subject to compliance with FEMA, 1999, including the withholding of
taxes on his remuneration.

Case study 4
Mr. J, Mr. B, Mr. V and Mr. R are the directors of John Brown and Company Limited. Mr. V
and Mr. R did not attend the board meeting which was properly convened. At the said
board meeting two additional directors were appointed. They are wives of Mr. J and Mr.
B respectively, the directors who attended the Board meeting. Explain with reference to
the relevant provisions of the Companies Act, 1956 whether the directors who attended
the Board meeting are entitled to vote on the subject matter and whether the
appointment of additional directors is valid.

answers
Under the Companies Act, 1956 (please note that this is an outdated law, and the
Companies Act, 2013 is the current legislation in India), the appointment of additional
directors by the directors who attended the board meeting in the absence of Mr. V and
Mr. R needs to be examined in light of the relevant provisions. The specific sections of
the Companies Act, 1956 that govern the appointment of directors are Sections 252 and
255.

Section 252 of the Companies Act, 1956:

Section 252 deals with the appointment of additional directors. It states that the
board of directors of a company may appoint additional directors if the company's articles
of association permit such appointments. These additional directors hold office only until
the next annual general meeting (AGM) of the company, where their appointment must
be regularized by the shareholders.
Section 255 sets out the rules regarding the appointment of a director to fill a casual
vacancy. A casual vacancy occurs when a director resigns or vacates office for any reason
other than the expiration of their term. The appointment of a director to fill a casual
vacancy must be approved by the board of directors.

Case study 5
M/S Aman Hospital Private Ltd. has two groups of Directors. A dispute arose between
the two groups out of which one group controlled the majority of shares. A very serious
situation arose in the administration of the company's affairs when the minority group
ousted the lawful Board of Directors from the possession and control of the management
of the company's factory and workshop. Books of account and statutory records were
held by the minority group and consequently the annual accounts could not be prepared
for two years. The majority group applied to the CLB under sections 397 and 398 of the
Companies Act. You are required to decide with reference to the provisions of the said
Act, the following issues:

(i) Can majority of shareholders apply to the Company Law Board for relief against the

oppression by the minority shareholders?

(ii) Whether Company Law Board can grant relief in such circumstances.

Case study 6
M/s Kia Overtrading Ltd. was ordered to be wound up compulsorily by an order dated 15th
October, 2012 of the Delhi High Court. The official liquidator who has taken control of
the assets and other records of the company has noticed the following:

(i) The Managing Director of the company has sold certain properties belonging to
the company to a private company in which his son was interested causing
loss to the company to the extent of `60 lakhs. The sale took place on
10th May, 2012.
a liability to a creditor which relates to the company's assets as a whole
and may become fixed in particular circumstances (such as liquidation).
(ii) The company created a floating charge on 1st January, 2012 in favour of a
private bank for the overdraft facility to the extent of `5 crores, by
hypothecating the current assets viz., stocks and book debts.
an asset is pledged as collateral to secure a loan

Examine what action the official liquidator can take in this matter having regard to the
provisions of the Companies Act, 1956.

Ans- Under the provisions of the Companies Act, 1956, the official liquidator has
certain powers and responsibilities when dealing with the assets, liabilities, and
transactions of a company being wound up compulsorily. Let's examine the actions the
official liquidator can take in the specific situations described:

(i) Sale of Company's Properties by the Managing Director:

In this case, the official liquidator can take the following actions:

Examine the Transaction: The official liquidator should conduct a thorough investigation
into the sale of company properties to determine whether it was conducted at fair market
value and in the best interests of the company. Any irregularities or fraudulent activities
should be identified.

Recover the Loss: If it is found that the Managing Director engaged in a transaction
that caused a loss to the company, the official liquidator can initiate legal proceedings to
recover the loss from the Managing Director personally. This may involve filing a suit
against the Managing Director for mismanagement or fraudulent conduct.

Report to the Court: The official liquidator should prepare a report on the transaction
and submit it to the court handling the company's winding-up proceedings. The court will
consider the report and take appropriate action, which may include ordering the Managing
Director to repay the company or face legal consequences.

(ii) Creation of a Floating Charge in Favor of a Private Bank-

The company created a floating charge in favor of a private bank for an overdraft facility
of ₹5 crores by hypothecating current assets, including stocks and book debts. The
action the official liquidator can take in this matter depends on the circumstances:

Priority of the Charge: The official liquidator should review the terms and conditions of
the floating charge and assess its priority. In case the charge was created before the
order for compulsory winding up on 15th October, 2012, it may have priority over other
unsecured creditors. The official liquidator should ensure that the bank's interest is
properly secured.

Preservation of Assets: The official liquidator is responsible for preserving and

realizing the assets of the company for the benefit of creditors.

Case study 7
A company increased the authorized share capital by a special resolution. However, the
notice in Form No. 5 was not filed with the Registrar of Companies nor the requisite fee
paid on the increase. After 2 years, the earlier resolution raising the share capital was
rescinded and share capital brought back to its original level. Whether the company
committed any offence and, if so, was it a continuing offence?

Ans- Under the provisions of the Companies Act, a company that has increased
its authorized share capital by a special resolution is required to file Form No. 5,
along with the requisite fee, with the Registrar of Companies (RoC) to confirm
and notify the increase in authorized share capital. The failure to file the Form
No. 5 and pay the requisite fee within the prescribed time frame can result in non-
compliance with the statutory requirements.

Non-Compliance with Statutory Requirements: The failure to file Form No. 5 and
pay the requisite fee within the prescribed time frame is a non-compliance with
the statutory requirements under the Companies Act.

Offence under the Companies Act: Under the Companies Act, this non-compliance
is generally treated as an offense, and the company may be subject to penalties
and consequences for failing to meet these obligations.
Continuing Offence: Non-compliance with the Companies Act can be considered a
continuing offense. A continuing offense is an offense that continues to be
committed over time as long as the non-compliance persists.

. The nature of this offense can be considered a continuing one until the
necessary filings are made and the non-compliance is rectified. The company
should take steps to address this issue to avoid potential legal consequences .

Case study 8
ACE Automobiles Limited is a company engaged in the manufacture of Cars. The
company's investment in the shares of other bodies corporate and the loans made
to other bodies corporate exceed 60 percent of its paid up share capital and
free reserves and also 100 percent of its free reserves. The company has
obtained a term loan from the Industrial Credit and Investment Corporation of
India Limited. The company proposes to increase its investment in the equity
shares of ACE Forgings Limited from 60 percent to 70 percent of the equity
share capital of ACE Forgings Limited purchase of shares from the Foreign
Collaborator. State the legal requirements to be complied with by ACE Automobiles
Limited under the Companies Act to give effect to the above proposal. Will your
answer be different if the company has defaulted in repayment of matured
deposits accepted from the public?

Ans-

In conclusion, ACE Automobiles Limited should first address any defaults in the
repayment of matured deposits and take corrective actions to comply with Section
73 of the Companies Act, 2013. Subsequently, it should obtain shareholder
approval through a special resolution in accordance with Section 186 for the
proposed increase in its investment in ACE Forgings Limited. The company must
ensure that it complies with all legal requirements and resolves any existing
compliance issues before proceeding with its investment proposal.

Case study 9
Mantop is a London based company having several business units all over the world.
It has a manufacturing unit called Laptop with headquarters in Bengaluru. It has a
branch in Seoul, South Korea which is controlled by the headquarters in Bengaluru.
What would be the residential status under FEMA 1999 of Laptop in Bengaluru and
that of Seoul branch?

Ans- doubt

Case study 10
The Board of Directors of Mahi Limited propose to donate `4,00,000 to a school
established exclusively for the benefit of children of employees and also donate
`60,000 to a political party during the Financial year ending 31st March, 2012.
The average net profits determined in accordance with the provisions of Sections
349 and 350 of the Companies Act, 1956 during the three immediately preceding
financial years is `50,00,000. Examine with reference to the provisions of the
Companies Act, 1956 whether the proposed donations are within the powers of the
Board of Directors of the Company.

Ans -:

1. Donation to a School for Employees' Children:

Section 293A of the Companies Act, 1956, sets certain limits on the amount that a
company can donate to charitable and other institutions. In this case, the donation
to a school for the benefit of employees' children would likely fall under the
category of a charitable donation.

According to Section 293A, the limit for such donations is 5% of the average net
profits of the company determined in accordance with Sections 349 and 350 of
the Companies Act, 1956, over the three immediately preceding financial years.

In your case, the average net profits are mentioned as ₹50,00,000 over the three
immediately preceding financial years. Therefore, the maximum limit for charitable
donations is 5% of this amount, which is ₹2,50,000 (5% of ₹50,00,000).

The proposed donation to the school is ₹4,00,000, which exceeds the permissible
limit of ₹2,50,000. As a result, the donation to the school would not comply
with the provisions of Section 293A.

2. Donation to a Political Party:

Section 293B of the Companies Act, 1956, deals with political contributions. This
section restricts companies from making contributions to political parties
exceeding 5% of their average net profits during the three immediately preceding
financial years.

In this case, the proposed donation to a political party is ₹60,000.

The permissible limit for political contributions, based on 5% of the average net
profits mentioned as ₹50,00,000, is ₹2,50,000 (5% of ₹50,00,000).

The proposed donation to the political party is within the permissible limit of
₹2,50,000.

CHAPTER 33 WINDING UP
“Winding up is a means by which the dissolution of a company is brought about and
its assets realized and applied in payment of its debts, and after satisfaction of
the debts, the balance, if any, remaining is paid back to the members in proportion
to the contribution made by them to the capital of the company.” “The liquidation
or winding up of a company is the process whereby its life is ended and its
property is administered for the benefit of its creditors and
members. An Administrator, called a liquidator, is appointed and he takes control
of the company, collects its assets, pays its debts and finally distributes any
surplus among the members in accordance with their rights.” Thus, winding up
ultimately leads to the dissolution of the company. In between winding up and
dissolution the legal entity of the company remains and it can be sued in a court of
law/Tribunal.

Dissolution A company is said to be dissolved when it ceases to exist as a

corporate entity. On dissolution, thecompany’s name shall be struck off by the
Registrar from the Register of companies and he shall also get this fact
published in the Official Gazette. The dissolution thus puts an end to the
existence of the company. Dissolution of a company may be brought about in any of
the following ways:Through transfer of a company’s undertaking to another under
a scheme of reconstruction or amalgamation. In such a case the transferor
company will be dissolved by an order of the Tribunal without being wound
up.Through the winding up of the company, wherein assets of the company are
realized and applied towards the payment of its liabilities. The surplus, if any is
distributed to the members of the company, in accordance with their rights.

Difference between Winding up and Dissolution

Modes of Winding up
A company may be wound up in any of the following two ways:

1. Winding up by the Tribunal. Compulsory winding up Section 270,271 272)

2. Insolvency and Bankruptcy Code 2016 (previously Voluntary Winding up

section 304-323)

1. Compulsory Winding up
Winding up a company by an order of the Tribunal is known as compulsory winding
up.

Ground of Compulsory Winding up

As per section 271, Tribunal may order for the winding up of a company on a
petition submitted to it

under section 272 on any of the following grounds:

1. Passing of special resolution for the winding up. When a company has
by passing a special resolution resolved to be wound up by the Tribunal, winding up
order may be made by the Tribunal. The resolution may be passed for any cause
whatever. Tribunal may not order for the winding up if it finds it to be opposed to
public interest or the interest of the company as a whole.

2. Inability to pay debts. As per section 271(2), a company shall be deemed

to be unable to pay its debts under the following circumstances:

a) Notice for payment. If a creditor to whom the company owes a sum

exceeding one lakh rupees has served on the company a demand for payment and
the company has for three weeks thereafter neglected to pay the sum or
otherwise satisfy the creditor, it shall be deemed that the company hasbecome
unable to pay its debt. It is essential that the debt is payable presently.
Negligence in paying a debt on demand is omitting to pay without reasonable cause.
Mere omission by itself will not amount to negligence. Further, where a debt is
bonafide disputed, there is no negligence to pay. Failure to pay public deposits on
their due dates amount to inability to pay debts. A dividend when declared
becomes a debt due by the company and the shareholder can also apply for

company’s liquidation if the company is unable to pay his dividend.

b) Decree in fav of creditor. If a decree or order issued by a Tribunal/court

in favour of a creditor of the company on execution remains unsatisfied on its
execution.

c) Commercial Insolvency. It is proved to the satisfaction of the Tribunal that

the company cannot pay its debts. This implies commercial insolvency (when
company’s assets are insufficient to meet its existing liabilities) of the company
as is disclosed by its balance sheet. The mere fact that the company is incurring
losses does not mean that it is unable to pay its debts, for its assets may be more
than its liabilities. Liabilities for this purpose will include all contingent and
prospective liabilities and even if the debt relied upon in the petition is disputed
bona fide, the company may be wound up if the applicant can prove the insolvency
of the company. However, non-payment of a bona fide disputed claim is no proof of
insolvency.

3. Just and equitable. The Tribunal may order for the winding up of a company
if it thinks that thereare just and equitable grounds for doing so. The Tribunal has
very large discretionary power in this case. This power has been given to the
Tribunal to safeguard the interests of the minority and the weaker group of
members. Tribunal, before passing such an order, will take into account the
interest of the shareholders, creditors, employees and also the general public.
Tribunal may alsorefuse to grant an order for the compulsory winding up of the
company if it is of the opinion that some other remedy is available to the
petitioner to redress his grievances and that the demand for the winding up of
the company is unreasonable. A few of the examples of ‘just and equitable’grounds
on the basis of which the Tribunal may order for the winding up of the company are
given:

(i) Oppression of minority. In cases where those who control the company abuse
their power to such an extent that it seriously prejudices the interests of minority
shareholders, the Tribunal may order for the winding up of the company.

(ii) Deadlock in management. Where there is a complete deadlock in the

management of the company, the company may be ordered to be wound up.

(iii) Loss of substratum. Where the objects for which a company was constituted
have either failed or become substantially impossible to be carried out, i.e.,
‘substratum of the company’ is lost.

(iv) Losses. When the business of a company cannot be carried on except at a loss,
the company may be wound up by an order of the Tribunal on just and equitable
grounds. But mere apprehension on the part of some shareholders that the
company will not be able to earn profits cannot be just and equitable ground for
the winding up order.

(v) Fraudulent / illegal object. If the business or the objects of the company are
fraudulent or illegal, or have become illegal with the changes in the law, the
Tribunal may order the company to be wound up on just and equitable grounds.
However, the mere fact of having been a fraud in the promotion or fraudulent
misrepresentation in the prospectus will not be sufficient ground for a winding up
order, for the majority of shareholders may waive the fraud.

4. If the company has made a default in filing with the Registrar its financial
statements or annual returns for immediately preceding five consecutive financial
years.

5. If the company has acted against the interests of the sovereignty and integrity
of India, the security of the State, friendly relations with foreign States, public
order, decency or morality.

6. If on an application made by the Registrar or any other person authorized by

the Central Government by notification under this Act, the Tribunal is of the
opinion that the affairs of the company have been conducted in a fraudulent
manner or the company was formed for fraudulent and unlawful purpose or the
persons concerned in the formation or management of its affairs have been guilty
of fraud, misfeasance or misconduct in connection therewith and that it is proper
that the company be wound up.

Who may file petitionAn application for the winding up of a company has to
be made by way of petition to the Court. A petition may be presented under
Section 272 by any of the following persons:

(a) the company; or

(b) any creditor or creditors;

(c) any contributory or contributories;

(d) all or any of the parties specified above in clauses (a), (b), (c) together

(e) the Registrar;

(f) any person authorized by the Central Government in that behalf;

(g) by the Central Government or State Government in case of company acting

against the interest of the sovereignty and integrity of India
Section 272 provides that the petition for compulsory winding up of a company
may be filed in the

tribunal by any of the following persons:

1. Company. A company can make a petition to the Tribunal for its winding up by
an order of the Tribunal, when the members of the company have resolved by
a special resolution to wind up the affairs of the company. Managing
passing
director or the directors cannot file such a petition on their own account
unless they do it on behalf of the company and with the proper authority of the
members in the general meeting. (Section 272(5))

2. Creditors. A creditor may make a petition to the Tribunal for the winding up of
the company, when he is able to prove that the company is unable to pay off his
debts exceeding Rs. 1, 00,000 within three weeks of the notice of
demand or where a decree or any other process issued by the Tribunal in favour of
Law doesnot
a creditor of a company is returned unsatisfied in whole or in part.
recognize any difference between the secured and unsecured
creditors for this purpose. ‘A secured creditor is as much entitled as of right to
file a petition as an unsecured creditor.’ But in case of secured creditor’s petition,
winding up order shall not be made where the security is adequate and no other
creditor supports the petition. Secured- collateral

A contingent or prospective creditor can also file a winding up petition if he

obtains the prior consent of the Tribunal. The Tribunal shall grant the permission
only when:

(i) It is satisfied that there is a prima facie case for the winding up of the
company; and

(ii) The creditor provides such security for costs as the Tribunal thinks
reasonable. The Tribunal may, before passing a winding up order, on a creditor’s
petition, ascertain the wishes of other creditors. If the majority of the creditors
in value oppose, and the Tribunal having regard to the company’s assets and
liabilities considers the opposition reasonable, it may refuse to pass a winding up
order.

3. Contributories. A contributory3 shall be entitled to present a petition for the

winding up of a company, notwithstanding that he may be the holder of fully paid-
up shares, or that the company may have no assets at all or may have no surplus
assets left for distribution among the shareholders after the satisfaction of its
liabilities, and shares in respect of which he is a contributory or someof them were
either originally allotted to him or have been held by him, and registered in his
name, for at least six months during the eighteen months immediately
before the commencement of the winding up or have devolved on him through the
death of a former holder. (Section 272(3))

4. Registrar. Registrar may with the previous sanction of the Central Government
make petition to the Tribunal for the winding up the company only in the following
cases:

a) when it appears that the company has become unable to pay debts from the
accounts of the company or from the report of the inspectors appointed by the
Central Government under section 210; or

b) If the company has made a default in filing with the Registrar its financial
statements or annual returns for immediately preceding five consecutive financial
years.

c) if the company has acted against the interests of the sovereignty and integrity
of India, the security of the State, friendly relations with foreign States, public
order, decency or morality.

d) if on an application made by the Registrar or any other person authorized by the

CentralGovernment by notification under this Act, the Tribunal is of the opinion
that the affairs of the company have been conducted in a fraudulent manner or the
company was formed for fraudulent and unlawful purpose or the persons concerned
in the formation or management of its affairs have been guilty of fraud,
misfeasance or misconduct in connection therewith and that it is proper thatthe
company be wound up.
2. The Insolvency and Bankruptcy Code 2016
The Insolvency and Bankruptcy Code passed by the Parliament is a welcome
overhaul of the existing framework dealing with insolvency of corporates,
individuals, partnerships and other entities. It paves the way for much needed
reforms while focusing on creditor driven insolvency resolution.

BACKGROUND

At present, there are multiple overlapping laws and adjudicating forums dealing
with financial failure and insolvency of companies and individuals in India. The
current legal and institutional framework does not aid lenders in effective and
timely recovery or restructuring of defaulted assets and causes undue
strain on the Indian credit system. Recognizing that reforms in the bankruptcy and
insolvency regime are critical for improving the business environment and
alleviating distressed credit markets, the Government introduced the
Insolvency and Bankruptcy Code Bill in November 2015, drafted by a specially
constituted 'Bankruptcy Law Reforms Committee' (BLRC) under the
Ministry of Finance. Trilegal worked with the BLRC to assist with the drafting
of the bill. After a public consultation process and recommendations from a joint
committee of Parliament, both houses of Parliament have now passed the
Insolvency and Bankruptcy Code, 2016 (Code). While the legislation of the Code is a
historical development for economic reforms in India, its effect will be seen in due
course when the institutional infrastructure and implementing rules as envisaged
under the Code are formed.

THE CODE

The Code offers a uniform, comprehensive insolvency legislation encompassing all

companies, partnerships and individuals (other than financial firms). The
Government is proposing a separate framework for bankruptcy resolution in
failing banks and financial sector entities. One of the fundamental features of the
Code is that it allows creditors to assess the viability of a debtor as
a business decision, and agree upon a plan for its revival or a speedy liquidation.
The Code creates a new institutional framework, consisting of a regulator,
insolvency professionals, information utilities and adjudicatory mechanisms, that
will facilitate a formal and time bound insolvency resolution process and liquidation.

Insolvency Resolution Process, during which financial creditors assess

whether the debtor's business is viable to continue and the options for its rescue
and revival; and Liquidation, if the insolvency resolution process fails or financial
creditors decide to wind down and distribute the assets of the debtor.
(a) The Insolvency Resolution Process (IRP)
The IRP provides a collective mechanism to lenders to deal with the overall
distressed position of a corporate debtor. This is a significant departure from the
existing legal framework under which the primary onus to initiate a
reorganization process lies with the debtor, and lenders may pursue
distinct actions for recovery, security enforcement and debt
restructuring. The Code envisages the following steps in the IRP:
(i) Commencement of the IRP- creditor

A financial creditor (for a defaulted financial debt) or an operational

creditor (for an unpaid operational debt) can initiate an IRP against a corporate
debtor at the National Company Law Tribunal (NCLT). The defaulting
corporatedebtor, its shareholders or employees, may also initiate voluntary
insolvency proceedings.
(ii)Moratorium

The NCLT orders a moratorium on the debtor's operations for the period of
the IRP. This operates as a 'calm period' during which no judicial
proceedings for recovery, enforcement of security interest, sale or transfer of
assets, or termination of essential contracts can take place against the debtor.

(iii) Appointment of Resolution Professional

The NCLT appoints an insolvency professional or 'Resolution Professional' to
administer the IRP. The Resolution Professional's primary function is to take over
the management of the corporate borrower and operate its business as a going
concern under the broad directions of a committee of creditors. This is similar
to the approach under the UK insolvency laws, but distinct from the "debtor in
possession" approach under Chapter 11 of the US bankruptcy code. Under the US
bankruptcy code, the debtor's management retains control while the bankruptcy
professional only oversees the business in order to prevent asset stripping on
the part of the promoters. Therefore, the thrust of the Code is to allow a shift
of control from the defaulting debtor's management to its creditors, where the
creditors drive the business of the debtor with the Resolution
Professional acting as their agent.
(vi) Creditors Committee and Revival Plan
The Resolution Professional identifies the financial creditors and constitutes a
creditors committee.Operational creditors above a certain threshold are
allowed to attend meetings of the committee but do not have voting power.
Each decision of the creditors committee requires a 75% majority vote.
Decisions of the creditors committee are binding on the corporate debtor
and all its creditors. The creditors committee considers proposals for the revival
of the debtor and must decide whether to proceed with a revival plan or
liquidation within a period of 180 days (subject to a one-time extension by 90
days). Anyone can submit a revival proposal, but it must necessarily provide for
payment of operational debts to the extent of the liquidation
waterfall(how existing shareholders are reimbursed). The Code does not
elaborate on the types of revival plans that may be adopted, which may include
fresh finance, sale of assets, haircuts(lower than mkt value of asset when its used
as collateral for loan), change of management etc.

(b) Liquidation
Under the Code, a corporate debtor may be put into liquidation in the following
scenarios: (i) A 75% majority of the creditor's committee resolves to liquidate
the corporate debtor at any time during the insolvency resolution process;
(ii)The creditor's committee does not approve a resolution plan within 180 days
(or within the extended 90 days);

(iii) The NCLT rejects the resolution plan submitted to it on technical grounds;

(vii) The debtor contravenes the agreed resolution plan and an affected person
makes an application to the NCLT to liquidate the corporate debtor.

Once the NCLT passes an order of liquidation, a moratorium is imposed on the

pending legal proceedings against the corporate debtor, and the assets of the
debtor (including the proceeds of liquidation) vest in the liquidation estate.

Priority of Claims
The Code significantly changes the priority waterfall for distribution of liquidation
proceeds. After the costs of insolvency resolution (including any interim finance),
secured debt together with workmen dues for the preceding 24 months rank
highest in priority. Central and state Government dues stand below the claims of
secured creditors, workmen dues, employee dues and other unsecured financial
creditors. Under the earlier regime, Government dues were immediately below the
claims of secured creditors and workmen in order of priority. Upon liquidation, a
secured creditor may choose to realise his security and receive proceeds from
the sale of the secured assets in first priority. If the secured creditor
enforces his claims outside the liquidation, he must contribute any excess
proceeds to the liquidation trust. Further, in case of any shortfall in recovery,
the secured creditors will be junior to the unsecured creditors to the extent of
the shortfall.

2. Insolvency Resolution Process for Individuals/Unlimited

Partnerships automatic fresh start, insolvency resolution
For individuals and unlimited partnerships, the Code applies in all cases where the
minimum default amount is INR 1000 (USD 15) and above (the Government May
later revise the minimum amount of default to a higher threshold). The Code
envisages two distinct processes in case of insolvencies: automatic fresh start
and insolvency resolution. Under the automatic fresh start process, eligible
debtors (basis gross income) can apply to the Debt Recovery Tribunal (DRT) for
discharge from certain debts not exceeding a specified threshold, allowing them
to start afresh. The insolvency resolution process consists of preparation of a
repayment plan by the debtor, for approval of creditors. If approved, the DRT
passes an order binding the debtor and creditors to the repayment plan. If the
plan is rejected or fails, the debtor or creditors may apply for a bankruptcy order.

3. Institutional Infrastructure

(a) The Insolvency Regulator

The Code provides for the constitution of a new insolvency regulator i.e., the
Insolvency and Bankruptcy Board of India (Board). Its role includes: (i) overseeing
the functioning of insolvency intermediaries i.e., insolvency professionals,
insolvency professional agencies and information utilities; and (ii) regulating the
insolvency process.

(b) Insolvency Resolution Professionals

The Code provides for insolvency professionals as intermediaries who would play a
The Code
key role in the efficient working of the bankruptcy process.
contemplates insolvency professionals as a class of regulated but
private professionals having minimum standards of professional and
ethical conduct.In the resolution process, the insolvency professional verifies
the claims of the creditors,

constitutes a creditors committee,

runs the debtor's business during the moratorium period and helps

the creditors in reaching a consensus for a revival plan. In liquidation, the

insolvency professional acts as a liquidator and bankruptcy trustee.

(c) Information Utilities

A notable feature of the Code is the creation of information utilities to collect,
collate, authenticate and disseminate financial information of debtors in
centralised electronic databases. The Code requires creditors to provide financial
information of debtors to multiple utilities on an ongoing basis. Such information
would be available to creditors, resolution professionals, liquidators and other
stakeholders in insolvency and bankruptcy proceedings. The purpose of this is to
remove information asymmetry and dependency on the debtor's
management for critical information that is needed to swiftly resolve insolvency.

(d) Adjudicatory authorities- NCLT

The adjudicating authority for corporate insolvency and liquidation is the NCLT.
Appeals from NCLT orders lie to the National Company Law Appellate Tribunal and
thereafter to the Supreme Court of India. For individuals and other persons, the
adjudicating authority is the DRT, appeals lie to the Debt Recovery Appellate
Tribunal and thereafter to the Supreme Court. In keeping with the broad
philosophy that insolvency resolution must be commercially and professionally
driven (rather than court driven), the role of adjudicating authorities is limited to
ensuring due process rather than adjudicating on the merits of the insolvency .

Introduction to Company Law

Structure:

 Development of Company Law in India- Objects of the Act.

 Meaning and definition of Company,
 Definition of Subsidiary and Joint Venture Company. Special features, -
 Kinds of Companies – Features of various types of companies – Differences
between Private and Public companies, Producer Company Punishment for
 improper use of “Limited” or “Private Limited”, Associate company- Small
Company.

1. Introduction:
 Industrial revolution
 Big investments/ High risk
 Limited resources/ unlimited liability of partners
 JSC overcome the limitations of partnership business.

Development of Company Law in India-Objects of the Act

 Kautilya’s Arthashastra (4th Century BC) - Corporations

 The English Parliament, passed Bubbles Act of 1720
 Company Law in India- child of the English parents.
 English Acts
 JSC Act, 1844 in England- the first Companies Act was passed in India in
1850.
 The Amending Act of 1857 conferred the right of registration with or
without limited liability

 Further amended in 1860, 1882, 1913, 1936

 1951- Indian Companies (Amendment) Ordinance
 The Companies Act, 1956- recommendations of the Company Law Committee
(Bhabha Committee)
 The Companies Act, 1956 consisted of 658 Sections and 15 Schedules.
 Amendments in 1960, 1962, 1963, 1964, 1965, 1966, 1967, 1969, 1971,
1977, 1985, 1988, 1996, 1999, 2000, 2002 (Amendment), 2002 (Second
Amendment), and 2006.
Companies Bill 2012

 The Government considered the recommendations of Irani Committee and

also had detailed discussions and liberations with various stakeholders viz
Industry Chambers, Professional Institutes, Government Departments, Legal
Experts and Professionals etc. Thereafter, the Companies Bill, 2009 was
introduced in theLok Sabha on 3rd August, 2009, The Bill laid greater
emphasis on self regulation and minimization of regulatory approvals
in managing the affairs of the company. The Bill promised greater
shareholder democracy, vesting the shareholders with greater powers,
containing stricter corporate governance norms and requiring greater
disclosures.

The objectives of the Bill were:

 Revising and modifying the Act in consonance with the changes in the National
and International economy,
 Bringing about compactness of company law by deleting the provisions that had
become redundant and by re-grouping the scattered provisions,
 Re-writing of various provisions of the Act to facilitate easy interpretation,
 Delinking the procedural aspects from the substantive law and provide greater
flexibility in rule making to enable adoption to the changing economic and
technical environment.
 Enabling the corporate sector to operate in a regulatory environment of best
international practices that fosters entrepreneurship, investment and growth.

The Companies Act, 2013

The Companies Act, 2013 (the ‘2013 Act’) received the assent of the President
of India on 29 August 2013, and has now become law. The 2013 Act is the
culmination of several years of effort to enact a new legislation governing
companies to replace the Companies Act, 1956 (the ‘1956 Act’).
  Dr. J J Irani, Director, Tata Sons- Expert Committee
 Companies Bill, 2012
 Companies Act 2013 (Highlights)

The New Concepts Introduced

The Companies Act 2013 has introduced new concepts supporting enhanced disclosure,
accountability, better board governance, better facilitation of business and so on
Highlights of Companies Act, 2013

 Concept of one person company

 More than 30 new definitions
 Prescribes uniform financial year
 Private companies- maximum 200 members
 Object clause of MOA- main, ancillary, other objects
 Unspent money (public issue)- cannot be used unless a special resolution
 Requirement of a detailed prospectus
 Empowered SEBI to prescribe classes of companies can file shelf prospectus
(ROC)
 GDR- a special resolution
 Buy back of shares- fairly liberalized provisions
 NBFCs- governed by RBI
 Switching over to electronic media- documents
 NACAS(National Advisory Committee on ASs) – NFRA (National Financial
Reporting Authority)
 CSR
  One woman director
 1/3rd – independent directors
 Resignation copy of director-ROC
 At least 4 meetings in a year (gap between 2 not exceed 120 days)
 Political contribution limit- from 5% to 7.5%
 Loan – not include debentures

Needs government approval for;

Loan to directors by company

To enter RPT related party transactions

Appointment of any director

 Definition for fraud- punishment

 Fraud by director, KMP, officer- government can file it to tribunal (it can not be
stopped or stayed)
 Submission of auditors certificate-mandatory A nidhi company is a type of
 Company law board- NCLT company in the Indian non-
banking finance sector,
 class action suit – initiated by shareholders against company
recognized under section 406
 Registered valuer- evaluate company’s assets of the Companies Act, 2013.
 Revival and rehabilitation of sick companies Their core business is
 Nidhi companies – borrowing/lending money b/w their members borrowing and lending money
 Mediation or conciliation panel between their members. They
are also known as Permanent
 Insider trading & price sensitive information
Fund, Benefit Funds, Quasi
 Dormant company
Bank, Mutual Benefit Funds
 Electronic filing and Mutual Benefit Company.

Meaning and definition of Company

 ‘company’ -Latin word (Com – with or together, panis – bread), it originally

referred to an association of persons who took their meals together.
 ‘corporation’ -Latin word ‘corpus’- body
 Companies Act, 1956 – “company means a company formed and registered under
the companies Act, 1956 or under the previous laws relating to companies” [Section
3(1)(ii)]
 It is a means of co-operation and organization in the conduct of an enterprise
  It is an intricate, centralized, economic and administrative structure run by
professional managers who hire capital from the investor/s
 Lord Justice James- “an association of many persons who contribute money or
money’s worth to a common stock and employ it in some trade or
business and who share the profit and loss arising there from

 ”Chief Justice Marshall of USA, “A company is a person, artificial,

invisible, intangible, and existing only in the contemplation of the law. Being a
mere creature of law, it possesses only those properties which the character of its
creation confers upon it either expressly or as incidental to its very existence”

 Lord Justice Lindley, “A company is meant an association of many persons who

contribute money or money’s worth to a common stock and employ it in some trade
or business, and who share the profit and loss (as the case may be) arising there
from. The common stock contributed is denoted in money and is the capital of the
company. The persons who contribute it, or to whom it belongs, are members. The
proportion of capital to which each member is entitled is his share. Shares are
always transferable although the right to transfer them is often more or less
restricted”

 Haney, “Joint Stock Company is a voluntary association of individuals for

profit, having a capital divided into transferable shares. The ownership of which
is the condition of membership”

NATURE AND CHARACTERISTICS OF A COMPANY

1. Corporate personality : Has its own name, has a seal of its own and its assets
are separate and distinct from those of its members

Therefore it is capable of owning property, incurring debts borrowing money, having a

bank account, employing people, entering into contracts and suing or being sued in the same
manner as an individual. Its members are its owners however they can be its creditors
simultaneously.
The shareholders are not the agents of the company and sothey cannot bind it by
their acts. The company does not hold its property as an agent or trustee for its
members and they cannot sue to enforce its rights, nor can they be sued in respect of its
liabilities.

The case of Salomon v. Salomon and Co. Ltd., (1897) A.C. 22

 In the case, Salomon had, for some years, carried on a prosperous business

as a leather merchant and boot manufacturer. He formed a limited company

consisting of himself, his wife, his daughter and his four sons as the

shareholders, all of whom subscribed to 1 share each so that the actual cash

paid as capital was £7. Salomon sold his business (which was perfectly

solvent at that time), to the Company formed by him for the sum of £38,782.
The company’s nominal capital was £40,000 in £1 shares. In part payment of

the purchase money for the business sold to the company, debentures of

the amount of £10,000 secured by a floating charge on the company’s assets

were issued to Salomon, who also applied for and received an allotment of
20,000 £ 1 fully paid shares. The remaining amount of £8,782 was paid to

Salomon in cash. Salomon was the managing director and two of his sons

were other directors

 The company soon ran into difficulties and the debenture holders appointed
a debenture is
a receiver and the company went into liquidation. The total assets of the the document
that grants
company amounted to £6050, its liabilities were £10,000 secured by lenders a charge
over a
debentures, £8,000 owing to unsecured trade creditors, who claimed the borrower’s
assets, giving
whole of the company’s assets viz., £6,050, on the ground that, as the
them a means of
collecting debt if
the borrower
defaults
company was a mere ‘alias’ or agent for Salomon, they were entitled to

payment of their debts in priority to debentures. They further pleaded that

Salomon, as a principal beneficiary, was ultimately responsible for the debts

incurred by his agent or trustee on his behalf.

The case of Lee v. Lee’s Air Farming Ltd. (1961) A.C. 12 (P.C.),

. In this case, a company was formed for the purpose of aerial

top-dressing. Lee, a qualified pilot, held all but one of the shares in

the company. He voted himself the managing director and got

himself appointed by the articles as chief pilot at a salary. He was

killed in an air crash while working for the company. His widow

claimed compensation for the death of her husband in the course

of his employment. The company opposed the claim on the ground

that Lee was not a worker as the same person could not be the

employer and the employee. The Privy Council held that Lee and

his company were distinct legal persons which had entered into

contractual relationships under which he became the chief pilot, a

servant of the company. In his capacity of managing director he

could, on behalf of the company, give himself orders in his other

capacity of pilot, and the relationship between himself, as pilot and

the company, was that of servant and master. Lee was a separate

person from the company he formed and his widow was held

entitled to get the compensation. In effect the magic of corporate

personality enabled him (Lee) to be the master and servant at the

same time and enjoy the advantages of both.

Company as a person
A Company is an artificial person created by law.

It is not a human being but it acts through human

beings.

It is considered as a legal person which can enter

into contracts, possess properties in its own

name, sue and can be sued by others etc. It is

called an artificial person since it is invisible,

intangible, existing only in the contemplation of

law.

Union Bank of India v. Khader International Construction and Other

[(2001) 42 CLA 296 SC]

 In this case, the question which arose before the Court was whether

a company is entitled to sue as an indigent (poor) person under

Order 33, Rule 1 of the Civil Procedure Code, 1908. The aforesaid

Order permits persons to file suits under the Code as

pauper/indigent persons if they are unable to bear the cost of

litigation. The appellant in this case had objected to the contention

of the company which had sought permission to sue as an indigent

person. The point of contention was that, the appellant being a

public limited company, it was not a ‘person’ within the purview of

Order 33, Rule 1 of the Code and the ‘person’ referred to only a

natural person and not to other juristic persons. The Supreme Court

held that the word ‘person’ mentioned in Order 33, Rule 1 of the

Civil Procedure Code, 1908, included any company as association or

body of individuals, whether incorporated or not. The Court

observed that the word ‘person’ had to be given its meaning in the

context in which it was used and being a benevolent provision, it was

to be given an extended meaning. Thus a company may also file a

suit as an indigent person.

2 Limited Liability: “The privilege of limited liability

for business debts is one of the principal advantages

of doing business under the corporate form of

organisation.”

Buckley, J. in Re. London and Globe Finance Corporation, (1903) 1 Ch.D. 728
at 731, has

observed: ‘The statutes relating to limited liability

have probably done more than any legislation of the

last fifty years to further the commercial prosperity

of the country. They have, to the advantage of the

investor as well as of the public, allowed and

encouraged aggregation of small sums into large

capitals which have been employed in undertakings

of “great public utility largely increasing the wealth of

the country”.

Exceptions to the principle of limited liability

 Where a company has been got incorporated by furnishing

any false or incorrect information or representation

 Further under section 339(1), where in the course of winding

up it appears that any business of the company has been

carried on with an intent to defraud creditors of the

company or any other persons or for any fraudulent purpose

 When the company is incorporated as an Unlimited Company

under Section 3(2)(c) of the Act

 Under Section 35(3), where it is proved that a prospectus has

been issued with intent to defraud the applicants for the

securities of a company or any other person or for any

fraudulent purpose

 Section 224(5) states that where the report made by an

inspector states that fraud has taken place in a company and

due to such fraud any director, key managerial personnel,

other officer of the company or any other person or entity,

3. Perpetual Succession
An incorporated company never dies, except

when it is wound up as per law.

A company, being a separate legal person is

unaffected by death or departure of any member

and it remains the same entity, despite total

change in the membership.

A company’s life is determined by the terms of its

Memorandum of Association

4. Separate Property

A company being a legal person and entirely

distinct from its members, is capable of owning,

enjoying and disposing of property in its own

name. The company is the real person in which

all its property is vested, and by which it is

controlled, managed and disposed off.

5. Transferability of Shares

The shares are said to be movable property and,

subject to certain conditions, freely transferable,

so that no shareholder is permanently or

necessarily wedded to a company.

6. Common Seal

The Common Seal acts as the official signature of

a company. The name of the company must be

engraved on its common seal. A rubber stamp

does not serve the purpose.

7. Capacity to Sue and Be Sued

A company being a body corporate, can sue and

be sued in its own name.

[TVS Employees Federation v. TVS and Sons Ltd.,

(1996) 87 Com Cases 37]. The company is not

liable for contempt committed by its officer.

8. Contractual Rights

A company, being a legal entity different from its

members, can enter into contracts for the

conduct of the business in its own name.

9. Limitation of Action

A company cannot go beyond the power stated

in its Memorandum of Association. The

Memorandum of Association of the company

regulates the powers and fixes the objects of the

company
10. Separate Management

11. Voluntary Association for Profit Only a

Section 8 company can be formed with no profit

motive.

12. Termination of Existence

Test your knowledge:

State whether the following statement is “True” or “False”

1. A shareholder cannot be held liable for the acts of the company

even if he holds virtually the entire share capital

a. True

b. False

Answer: True.

2. A common seal acts as the official signature of a company.

True
False

Answer: True

Kinds of Company
Classification on the basis of Incorporation:

Statutory Companies: These are constituted by a

special Act of Parliament or State Legislature.

The provisions of the Companies Act, 2013 do not

Apply to them. Examples of these types of companies

are Reserve Bank of India, Life Insurance

Corporation of India, etc.

(b) Registered Companies: The companies which are

incorporated under the Companies Act, 2013 or under
any previous company law, with ROC

(ii) Classification on the basis of Liability:

(a) Unlimited Liability Companies: In this type of company, the

members are liable for the company's debts in proportion to their

respective interests in the company and their liability is unlimited.

They may be either a public company or a private company.

(b) Companies limited by guarantee: A company that has the

liability of its members limited to such amount as the members

may respectively undertake, by the memorandum, to contribute to

the assets of the company in the event of its being wound-up, is

known as a company limited by guarantee.

(c) Companies limited by shares: A company that has the

liability of its members limited by the memorandum to the

amount, if any, unpaid on the shares respectively held by

them is termed as a company limited by shares.

Companies Limited by Shares may be Public or Private

(On the Basis of Number of Members)

(i) Private Companies

According to Sec. 3(1) (iii) of the Indian Companies Act,

1956, a private company is that company which by its

articles of association :

i) limits the number of its members to fifty

ii) restricts the right of transfer of shares,

iii) prohibits any invitation to the public to subscribe.

Sec 12 of the CA- minimum number of members two.

Use of word “Pvt” after its name.

ii. Public company

According to Section 3 (1) (iv) of Indian

Companies Act. 1956 “A public company which is

not a Private Company”,

i) No restriction to transfer of shares of the company

ii) No restriction on the maximum number of the

members on the company.

iii) It invites the general public to subscribe

On the basis of Ownership of companies

a) Government Companies.
Not less than 51% of the paid up capital- By

CG/SG. The share capital of a government company may

be wholly or partly owned by the government,

but it would not make it the agent of the

government

b) Non-Government Companies.

All other companies, except the

Government Companies, are called

non-government companies.

On the basis of Nationality of the

Company

a) Indian Companies :
 Registered in India under the Companies Act.

1956 / 2013

 Registered office in India.

 Nationality of the members in their case is

immaterial.

b) Foreign Companies :

 Incorporated outside India

 Place of business in India

On the basis of Control

i. Holding Company [Sec. 4(4)].
 Control over the other company
 A company may become a holding company of

another company in either of the following three ways

a) by holding more than 50% equity interests

b) by holding more than fifty per cent of its voting rights

c) by right to appoint, the majority of the directors of the other company , directly or
indirectly.

ii. Subsidiary Company. [Sec. 4 (I)]

A company is know as a subsidiary of another

company when its control is exercised by the

latter (called holding company) over the former

called a subsidiary company.

Other form of Companies

 Investment Companies
 Dormant Companies
 Associate companies
 Producer companies
 Small Companies

Test your knowledge:

State whether the following statement is “True” or “False”

1. The number of members of the private company is limited to 50

a. True

b. False

Answer: True.

2. The voting power of a guarantee company having share capital is

determined by the guarantee.

a. True

b. False
Answer: False.

3. The members of an unlimited company are not directly to the creditors

of the company

a. True

b. False

Answer: True.

4. A subsidiary company can be a member of the holding

company also,

a. True

b. FalseAnswer: False
Definition:
One Person Company (Section 2 (62)) - means a

company which has only one person as a Member

What is a One Person Company?

As the name suggests, it means a company which has only

one person as a member and where legal and financial

liability is limited to the company only and not to that

person (i.e. liability is limited)

By virture of section 3(2), an OPC may be formed either as

a company limited by shares or a company limited by

guarantee; or an unlimited liability company.

Benefits & Other provisions

1. Cash flow statement not required
2. Nominee Clause in MOA - to maintain perpetual succession
3. Annual Returns to be signed by CS, or where there is no CS, by a director
4. Need not hold AGM
5. Inform ROC about every contract entered and recorded in the BOD’s
meeting minutes within 15 days of approval by BOD
6. OPC shall be mentioned in brackets below the name of such company,
wherever its name is printed, affixed or engraved
7. Individual deemed to be 1st director until directors are duly appointed by
the member
 Unit-3

Introduction
The Directors are defined under section 2(34) of the Companies Act, 2013

as “a director appointed to the board of a company”. A director is a natural

person appointed by Company to give directions to Company in which he

is appointed. Such directors are also called officers of the Company.

Composition of Directors

 All public companies should have a minimum of 3 directors maximum of

15 directors, and 1/3 of them must be independent directors

 All private companies must have a minimum of 2 directors and a

maximum of 15 directors

 To have more than 15 directors, a special resolution must be passed by

Section 114.

Eligibility of Directors

Any person other than the following would be eligible to be a director

1. Auditory of the company.

2. A previously banned director.
3. A person of unsound mind and A person who is minor under
4. 18 years of age.
5. Any person declared to be bankrupt or insolvent.

Responsibilities Of Directors
Primarily, the board of Director is responsible and accountable for the followings:
 1. Appointment of the senior management
2. Deciding the Company’s strategies and objectives and also shaping them.
3. Guiding the Company towards achieving its aim of it.
4. The Company’s accounts and finances, etc.

Types of Directors

Executive directors are internal professionals i.e. they are internal to the

organization and are involved in the daily functions of the company. Any

person who is a full-time employee of the company (i.e. whole-time director)

or who is responsible for the day-to-day operations of the company (i.e.

managing director) will be called an Executive Director.

Managing Director –

He is an executive director. When considerable power of

managing the affairs of a company is given to a director either by

way of –

Articles of Association of the Company (AOA) or

An agreement with the Company, or

A resolution passed in its general meeting, or

By its Board of Directors.

Then he will be a Managing Director of that Company.

Whole Time Director –

Director + Whole Time Employee of the company = Whole Time

Director. As per Clause 2(94) of Companies Act, 2013 –

“whole-time director includes a Director in the whole-time

employment of the company. He is also an executive director of

the company.

Non-Executive Director

Non-executive directors are external professionals. The

Companies Act, 2013 does not define non-executive

directors but we can understand the meaning from the

definition of executive directors. Directors who are not

involved in the day-to-day functions or activities of the

Company are called non-executive directors.

. Nominee Directors:- They can be appointed by certain

shareholders, third parties through contracts, lending public
financial institutions or banks, or by the Central Government in case

of oppression or mismanagement.

. Independent Director:- As per section 149(6) an independent director in

relation to a company, means a director other than a Managing Director, Whole Time Director Or

Nominee Director. Companies which have to appoint Independent Director:- As per Rule 4 of

Companies (Appointment and Qualification of Directors) Rules,2013 the following class of

companies have to appoint at least two independent directors:-

A} Public Companies having Paidup Share Capital-Rs.10 Crores or More;

B} Public Companies having Turnover- Rs.100 Crores or More;

C} Public Companies have total outstanding loans, debenture and deposits of Rs. 50 Crores or

More.

Additional Director

Provisions of Section 161(1) of the Companies Act, 2013

deal with the Additional Director. Where there is heavy

pressure of work on the Board of directors then the Board

of directors can appoint an additional director, if authorized

by the Articles of Association of that company.

Alternate Directors:- As per Section 161(2) A

company May appoint, if the articles confer such power on

company or a resolution is passed (if an Director is absent from

India for at least three months). An alternate Director cannot hold

the office longer than the term of the Director in whose place he

has been appointed. Additionally, he will have to vacate the office, if

and when the original Director returns to India. Any alteration in the

term of office made during the absence of the original Director will

apply to the original Director and not to the Alternate Director

Casual Vacancy Director

Provisions of Section 161(4) of the Companies Act, 2013 deal

with a casual vacancy director. Before understanding who is a

casual vacancy director, it is important to understand the

meaning of casual vacancy. Casual vacancy means a vacancy in

the office due to the reasons of death, resignation,

disqualification, incapacity, and removal. Thus, a director

assuming office due to any of these reasons will be considered

as a casual vacancy director. The vacancy arising in the office

of the director shall be considered as a casual vacancy if such a

director was appointed by a shareholder in a general meeting

Residential Director:- As per Section 149(3) of Companies Act,2013 every company

shall have at least one director who has stayed in India for a total Period of not less than 182 days

in the Previous calendar year.

Small Shareholders Directors:- A listed Company may have one director elected by
small shareholders. May appoint upon notice of not less than 1000 Shareholders or 1/10th of the
total shareholders, whichever is
lower have a small shareholder director which elected form small shareholder.

Women Director:- As per Section 149 (1) (a) second proviso requires certain categories of
companies to have At Least One Woman director on the board. Such companies areAny listed
company, Any public company having- Paid Up Capital of Rs. 100 crore or more, or Turnover of Rs.
300 crore or more.

Shadow Director:- A person, who is not appointed to the Board, but on whose directions
the Board is accustomed to act, is liable as a Director of the company, unless he or
she is giving advice in his or her professional capacity.

https://blog.ipleaders.in/types-of-directors-under-the-companies-act-2013/

Liabilities of a director

Since a company and its Director are two separate entities, a

Director does not have personal liabilities on behalf of a company.

Though, under certain scenarios (mentioned below), a Director

might be held liable:

Liability for Tax

Under the Indian Income Tax Act, where there’s tax due from

any private company with respect to an income of any

previous year which isn’t recovered from the private company,

every director of such company during the relevant previous

financial year is liable, severally and jointly, for payment of

such tax.

Misstatement in company’s prospectus

Civil liability could be imposed on the directors for any false

statement in the company’s prospectus if he was the Director while

issuing the prospectus.

Debts of the Company

Usually, a director isn’t liable personally for any of the debt of a

company until and unless fraud on part of the Director could be

established.

Share application money refund

Directors of a company are personally liable together with the

company for repaying the share application money or the surplus

share application money received if it is not repaid within the

specified time period.

A share of common stock that a
Liability to pay for qualification shares candidate for a company's Board
of Directions (BOD) is required to
In case the Director hasn’t acquired the qualification shares within
own
the stipulated time frame and such company goes into the

liquidation after the expiry of this period, such Director would be

called upon by Official liquidator for paying for such shares he was

supposed to acquire.

https://blo5+jp[jpl-g.ipleaders.in/types-of-directors-under-the-companies-ac

t-2013/........0.

https://cleartax.in/s/independent-directors-applicability-roles-and-duties

Committees for Board of Directors

 At the core of corporate governance practices is the Board of Directors

 which oversees how the management serves and protects the long term

interests of all the stakeholders of the company.

 The position of board of directors is that of trust as the board is entrusted

with the responsibility to act in the best interests of the company.

 Committees appointed by the Board focus on specific areas and take

informed decisions within the framework of delegated authority, and make

specific recommendations to the Board on matters in their areas or purview

VARIOUS COMMITTEES OF THE BOARD

The following are some of the important committees of the Board-

1. Audit Committee
2. Shareholders Grievance Committee
3. Remuneration Committee
4. Risk Committee
5. Nomination Committee
6. Corporate Governance Committee
7. Corporate Compliance Committee
8. Ethics Committee

AUDIT COMMITTEE

The Audit Committee shall assist the Board of Directors in the

oversight of

(1) The integrity of the financial statements of the Company,

(2) The effectiveness of the internal control over financial reporting,

(3) The independent registered public accounting firm’s qualifications and independence,

(4) The performance of the Company’s internal audit function and independent registered public
accounting firms,

(5) The Company’s compliance with legal and regulatory

requirements,

SHAREHOLDERS GRIEVANCE COMMITTEE

This committee looks after :

1. Efficient transfer of shares;

2. Redressal of shareholder and investor complaints like transfer of shares,
3. non-receipt of balance sheet, non-receipt of declared dividends etc;
4. Issue of duplicate / split / consolidated share certificates;
5. Allotment and listing of shares;
6. Review of cases for refusal of transfer / transmission of shares and debentures;
7. Ensure proper and timely attendance and redressal of investor queries and grievances.

REMUNERATION COMMITTEE

 The role of a Remuneration Committee is: Remuneration payable to the Directors and
matters related thereto.,
 To recommend to the Board, the remuneration packages of the Company’s Managing/Joint
Managing/ Deputy Managing/Whole time / Executive Directors, including all elements of
remuneration package (i.e. salary, benefits, bonuses, perquisites, commission, incentives,
stock options, pension, retirement benefits, details of fixed component and performance
linked incentives along with the performance criteria, service contracts, notice period,
severance fees etc.);
 to review the overall compensation policy, service agreements and other employment
conditions to Executive Directors and senior executives just below the Board of Directors
and make appropriate recommendations to the Board of Directors;
 to review the overall compensation policy for Non-Executive Directors and Independent
Directors and make appropriate recommendations to the Board of Directors;
 to make recommendations to the Board of Directors on the increments in the remuneration
of the Directors;

RISK COMMITTEE
  Review and approve for recommendation to the board a risk management policy and plan

developed by management. The risk policy and plan are reviewed annually.

 Monitor implementation of the risk policy and plan, ensuring an appropriate enterprise-

wide risk management system is in place with adequate and effective processes that include

strategy, ethics, operations, reporting, compliance, IT and sustainability.

 Make recommendations to the board on risk indicators, levels of risk tolerance and
appetite.
 Monitor that risks are reviewed by management, and that management’s responses to
identified risks are within board-approved levels of risk tolerance.
 Ensure risk management assessments are performed regularly by management.
 Issue a formal opinion to the board on the effectiveness of the system and process of risk
management.
 Review reporting on risk management that is to be included in the integrated annual report.

NOMINATION COMMITTEE

The primary role of the Nomination Committee of the board is to

assist the board by identifying prospective directors and make

recommendations on appointments to the board and the senior most

level of executive management below the board. The committee also

clears succession plans for these levels.[xv] The Nomination

Committee is responsible for making recommendations on board

appointments and on maintaining a balance of skills and experience on

the board and its committees.

CORPORATE GOVERNANCE COMMITTEE

It plays a critical role in overseeing matters of corporate governance for

the board, including formulating and recommending governance

principles and policies. As its name implies, this committee is charged

with enhancing the quality of nominees to the board and ensuring the integrity of the nominating
process.

CORPORATE COMPLIANCE COMMITTEE

The primary Objective of the Compliance Committee is to review, oversee

and monitor:

 The company’s compliance with applicable legal and regulatory requirements.

 The company’s policies, programs, and procedures to ensure compliance

with relevant laws, the company’s code of conduct, and other relevant

standards

 The company’s efforts to implement legal obligations arising from

settlement agreements and other similar documents

 Perform any other duties as are directed by the board of directors of the

company.

ETHICS COMMITTEE

 Contribute to the continuing definition of the organization’s ethics and compliance

standards and procedures.

 Assume responsibility for overall compliance with those standards and procedures.
 Oversee the use of due care in delegating discretionary responsibility.
 Communicate the organization’s ethics and compliance standards and procedures, ensuring
the effectiveness of that communication.
 Monitor and audit compliance.
 Oversee enforcement, including the assurance that discipline is uniformly applied.
 Take the steps necessary to ensure that the organization learns from its experiences.

Meetings
Meeting is not defined under any provisions of Companies Act of

2013, but taking references from common business and market

parlance and also from some of the decided case laws like Sharp

vs. Dawes, as decided in 1971, and through citations of various

renowned authors, we can gather that a ‘Company Meeting’ is

basically coming together of at least two persons to either transact

any ordinary or special business for lawful purposes.

https://taxguru.in/company-law/kinds-meetings-companies-act-2013.html

1. Shareholders Meeting:
a. Annual General Meeting – This is defined u/s 96 of CA’13, wherein every company,

whether public or private, except One Person Company, is required to convene first AGM

within 9 months from the end of first Financial Year to decide the overall progress of

the company as well as to plan future courses of action.

Place: Such meeting is called at Registered Office of the Company or any other such
place in the city where such Reg. Office is situated.

Time Hours: Between 9.00 am – 6:00 pm., and not on any public holiday as so
declared by Central or State Government.

Quorum:

In case of Public Company–

5 if members are less than 1000

15 if between 1000-5000

30 if more than 5000 members

In case of Private Company,

then only 2 that are present will be the quorum.

Conduction of AGM
All companies except one person company (OPC) should hold an

AGM after the end of each financial year. A company must hold its

AGM within a period of six months from the end of the financial year.

However, in the case of a first annual general meeting, the company

can hold the AGM in less than nine months from the end of the first
financial year.

In such cases where the first AGM is already held, there is no need to

hold any AGM in the year of incorporation. Do note that the time gap

between two annual general meetings should not exceed 15 months.

Procedure to Hold an AGM

https://cleartax.in/s/annual-general-meeting-companies-act-2013#:~:text=

Companies%20Required%20to%20Hold%20an%20AGM,-All%20companie

s%20except&text=In%20such%20cases%20where%20the,should%20not%2

0exceed%2015%20months.

Procedure to Hold an AGM

The company must give a clear 21 days’ notice to its members for
calling the AGM. The notice should mention the place, the date and

day of the meeting, and the hour at which the meeting is scheduled.
The notice should also mention the business to be conducted at the

AGM. A company should send the notice of the AGM to:

All members of the company including their legal representative of

a deceased member and assignee of an insolvent member. a person appointed to

act for another
The statutory auditor(s) of the company.

All director(s) of the company.

Agenda of an AGM
The matters discussed or business transacted in an AGM consists

of:

 Consideration and adoption of the audited financial statements.

 Consideration of the Director’s report and auditor’s report.
 Dividend declaration to shareholders.
 Appointment of directors to replace the retiring directors.
 Appointment of auditors and deciding the auditor’s remuneration.
 Apart from the above ordinary business, any other business may be conducted as a special
business of the company.

Statutory Meeting
Statutory Meeting is the first meeting of the shareholders of a public company.

It must be held within a period of not less than one month nor more

than 6 months from the date at which the company is entitled

to commence business.

It is held only once in the lifetime of a company.

A private company and a company limited by guarantee and not

having a share capital need not hold such a meeting.

The purpose of the statutory meeting with its statutory report is to put the shareholders of the
company in possession of all the important facts relating to the new company, what shares have
been taken up, what moneys received etc.
This also provides an opportunity to the shareholders of meeting to discuss the whole situation, the
management and prospects of the company.

The Board of Directors must, atleast 21 days before the day on

which the meeting is to be held, forward a report, called the

‘statutory report’ to every member of the company. This report

contains all the necessary information relating to formational

aspects of the company for the information of the shareholders

Contents of Statutory Report

1. The total number of shares allotted, distinguishing those allotted as fully or partly paid up
otherwise than in cash, the extent to which they are partly paid up, the consideration for
which they have been allotted and total amount received in cash;
2. An abstract of the receipts and payments under distinctive heads upto a date within seven
days of the date of report;
3. An account of estimate of the preliminary expenses of the company.
4. The names, addresses and occupations of the managing director, director, and also its
secretary and auditors of the company;
5. The particulars of underwriting contracts any contract which, and the modification or
proposed modification of which, are to be submitted to the meeting for approval;
6. The extent to which, if any, have not been carried out and the reason therefor;
7. The arrears, if any, due on calls from directors, managing director or manager; and
8. The particulars of any commission or brokerage paid, or to be paid, in connection with the
issue or sale of shares to any director, managing director or manager.

Extraordinary General Meeting EGM

An Extraordinary General Meeting (EGM) is a meeting held by a

company to deliberate upon matters that require the urgent attention of

senior executives, the board of directors, and all shareholders and cannot
be deferred till the next scheduled annual general meeting.
The act of calling an EGM shows that Comapny want to deal with important business in good time,
rather than waiting until the annual general meeting (AGM)

An EGM might be called to deal with any of the following:

1. matter on whom approval of members is/are required

2. Removal of Director
3. Removal of Auditor
4. Related party transactions
5. Any matter that can’t wait until the next shareholders meeting
Procedure of an EGM
1. before calling an EGM, the board of directors finalizes the resolutions to
be deliberated by members and/or shareholders in the meeting.

2. at least five members must be personally present in an EGM in case of

a public company, and at least two in case of any other company.

3. Usually, the EGM is conducted by the chairman who reads out the
resolutions. The board, expected to possess a thorough knowledge of the

situation, appraises the members of the benefits of the resolution and addresses their questions

4. Votes are cast by the members in the interest of the shareholders and the

company, and the result is declared. Members who are unable to attend the

EGM may delegate their voting power to another member, known as a

“ proxy.” The rules regarding proxy votes vary from one organization to
another.
Examples of EGM
1. A July 2022 EGM of Polish oil and gas group PKN Orlen gave the

green light for a merger with its rival, Lotos Group. The company

used the EGM to gain approval for share swaps and the sale of some

of the organisation’s bases. 98.3 per cent of those in attendance

voted in favor of the deal.

2. Dutch insurance company ASR held a fully virtual EGM in

November 2021. There were no voting items on the agenda, but

instead, the company used it as an opportunity to introduce

shareholders to its new board member and CFO, Ewout Hollegien.

a.s.r. used the EGM to allow shareholders to interact with Hollegien

and ask him questions.

3. European digital contractor Econocom held an EGM in November

2021. The purpose was to ask shareholders to support changes to

the company’s Articles of Association that allow the board of directors

to purchase the company’s own shares.

Board of Directors Meeting

Board of Directors are the most essential Personnel of a company who are entrusted with the
fiduciary duty to carry on objectives of the company in the manner profitable to its stakeholders.

CONVENING A MEETING
Any Director of a company may, at any time, call a Meeting of the Board where the

Company Secretary or if there is no Company Secretary, any person authorized by

the Board in this behalf, on the direction of a Director, shall convene a Meeting of

the Board, in consultation with the Chairman or in his absence, the Managing
Director or in his absence, the Whole-time Director, where there is any, unless

otherwise provided in the Articles.

NOTICE OF MEETINGS
 The Notice shall be sent to all the Directors of the company on their postal
address or e-mail address, registered by the Director with the company or in the

absence of such details or any change thereto, any of such addresses

appearing in the Director Identification Number registration of the Director.

 Notice convening a Meeting shall be given at least seven days before the date

of the Meeting, unless the Articles prescribe a longer period. In case the

company sends the Notice by speed post or by registered post, an additional

two days shall be added for the service of Notice.

 Notice of the Meeting shall clearly mention a venue, whether registered office or
otherwise, to be the venue of the Meeting and all the recordings of the

proceedings of the Meeting, if conducted through Electronic Mode, shall be

deemed to be made at such place.

FREQUENCY OF MEETINGS

The company shall hold first Meeting of its Board within thirty days of the

date of incorporation.
 For One Person Company, Small Company or Dormant Company These

Companies shall hold one Meeting of the Board in each half of a

Calendar Year and the gap between the two Meetings of the Board is not less than ninety
days.

 For all other Companies The company shall hold at least four Meetings

of its Board in each Calendar Year with a maximum interval of one

hundred and twenty days between any two consecutive Meetings.

QUORUM
 The Quorum for a Meeting of the Board shall be

 One-third of the total strength of the Board,

 or two Directors,
whichever is higher.

Agenda of the Meeting

Agenda for the First Meeting of the Board of the company.

1. To appoint the Chairman of the Meeting.

2. To note the Certificate of Incorporation of the company, issued by

the Registrar of Companies.

3. To take note of the Memorandum and Articles of Association of

the company, as registered.

4. To note the situation of the Registered Office of the company and

ratify the registered document of the title of the premises of the

registered office in the name of the company or a Notarized copy of

lease / rent agreement in the name of the company.

5. To note the first Directors of the company.

6. To read and record the Notices of disclosure of interest given by the Directors.

7. To consider appointment of Additional Directors.

8. To consider appointment of the Chairman of the Board.

9. To consider appointment of the first Auditors.

10. To adopt the Common Seal of the company, if any.

https://taxguru.in/company-law/meeting-board-directors-company.html
Questions

ANSWER

i) Mr. Sumit was authorised person to call the meeting.

As a best practice and a measure of good governance, the Director desirous of

summoning a Meeting for any purpose should send his requisition in writing to convene

such Meeting, along with the agenda proposed by him for discussion at the Meeting,

either to –

 the Chairman or in his absence, to the Managing Director or in his absence, to the

Whole-time Director, or the Company Secretary or in his absence, to any other person

authorised by the Board in this regard.

 "any person authorised by the Board", whether an officer of the company or any person

other than the officer of the company, should be clearly identifiable.

 It is advised to check whether Mr. Sumit fits under the criteria of the any person
authorised

by the board.
ii) The Notice was not sent on the letter head of the company.

 As per the secretarial standard on the meeting of the Board of Director (SS-1) and
 guidance note issued Theron, The Notice should preferably be sent on the letter-head of
 the company. Where it is not sent on the letter-head or where it is sent by e-mail or any
 other electronic means, there should be specified, whether as a header or footer, the
 name of the company and complete address of its registered office together with all its
 particulars such as Corporate Identity Number (CIN) as required under Section 12 of the
 Act, date of Notice, authority and name and designation of the person who is issuing the
Notice,
 and
 preferably the phone number of the Company Secretary or any other designated officer of
the
 company who could be contacted by the Directors for any clarifications or arrangements.

iii) The Notice is not served as per the statutory requirements.

 In case the company sends the Notice by speed post or by registered post, an additional

two days shall be added for the service of Notice. Addition of two days in case the

company sends the Notice by speed post or by registered post is in line with Rule 35(6) of

the Companies (Incorporation) Rules, 2014 which provides that in case of delivery of

Notice of a Meeting by post, the service shall be deemed to have been effected at the

expiration of forty eight hours after the letter containing the same is posted.

 However, the requirement of adding two days is applicable only if the Notice is sent to any

of the Directors solely by speed post or by registered post and not by facsimile or by

e-mail or any other electronic means.

 In case the Notice is sent by facsimile or by e-mail or by any other electronic means to the

Directors,and it is additionally sent by speed post or by registered post to all or any of the

Directors, whether pursuant to their request or otherwise, the additional two days need not

be added.
iv) The notice does not inform about the facility of video conferencing being provided by

the company.

 The Director who desires to participate through Electronic Mode may intimate his intention

of such participation at the beginning of the Calendar Year and such declaration shall be

valid for one Calendar Year [Clause 3(e) read with Clause 3(d) of Rule 3 of the

Companies (Meetings of Board and its Powers) Rules, 2014].

 The Notice shall also contain the contact number or e-mail address (es) of the Chairman

or the Company Secretary or any other person authorised by the Board, to whom the

Director shall confirm in this regard. In the absence of an advance communication or

confirmation from the Director as above, it shall be assumed that he will attend the

Meeting physically.

DOUBT- QUESTIONS

Unit-4
Special Resolution:
 If the Company has agreed, by a special resolution that it will

wind up by the Tribunal then the said winding up is at the discretion of the Tribunal.

This exempts the Tribunal’s ability to wind up a corporation if it is contrary to the

public interest or the company’s interest.

Just and equitable to wind up:

Section 271(1) (g) of the Act states that if the Tribunal believes that it is just and
equitable that the company be wind up, it must consider the interests of the

company, its employees, creditors, shareholders, and the general public interest.

Tribunal, before passing such an order, will take into account the interest of the

shareholders, creditors, employees and also the general public. Tribunal may also

refuse to grant an order for the compulsory winding up of the company if it is of

the opinion that some other remedy is available to the petitioner to redress his
grievances and that the demand for the winding up of the company is

unreasonable.

Procedure for compulsory winding up

The following is the procedure for compulsory winding up of company by tribunal:

 Appointment of a Liquidator to the Company under Section 275 to examine the

Company’s debts and credits in order to verify the Company’s eligibility for forced winding
up by the Tribunal.
 Following the appointment, Liquidators as per section 281 of the Act to make a report to
the Tribunal.
 The Tribunal issues orders to the liquidators in dissolving the Company under Section 282
of the Act. And according to which, the company’s property undergo shift into
custody in order to satisfy the creditors and contributors first .
 Finally, the Court issues the order for dissolution under Section 302 of the Act, after
carefully reviewing the audits and reports provided by the liquidator to the Court in the
interest of resolving the obligations owed to creditors and other contributors.

Voluntary winding up by members or Member’s

Voluntary Liquidation (MVL)
Introduction
The insolvency and Bankruptcy Code,2016 is one of the major laws under which
the winding up or voluntary liquidation of corporate persons may occur.

Liquidation or Voluntary winding up of the company under IBC occurs when all the
company’s board members mutually agree not to continue the business and

dissolve the company of its assets and pay off the debts.

Steps For Winding Up A Company Under IBC 2016

 Section 59 of the IBC has laid down the procedure for step by

step winding up of a company or voluntary liquidation. The

Section has been summarized below to guide you through the

process of winding up of a company under IBC, 2016:

 Step 1: Directors/Partners of the company submit

a declaration
 The designated partners/majority of directors of the company have to submit a

declaration along with an affidavit stating that:

 The company does not have any debts. If so, the company can settle all the debts
with the proceeds of the assets sold during the liquidation process

 The winding up is not initiated to defraud any individual or a corporate person

 The declaration must be annexed with the audited financial statements and record
of the company’s business operations for the previous two years or since its

incorporation (If it is a newly incorporated company).

Step 2: Convene a general meeting and pass a special

resolution.
The designated partners are required to convene a general meeting.
They pass a special resolution to

 Appoint an Insolvency Professional(IP) registered with the IBBI

(Insolvency and Bankruptcy Board of India) to act as a Liquidator

 A resolution to liquidate the company voluntarily due to expiration of time

(If mentioned in the Articles of Association) or due to mutual decision by
the members.

Note: This must be done within Four weeks of submitting the declaration
as mentioned in Step 1.

Step 3: File with the Registrar of Company (ROC) and

IBBI
The Company shall then notify the ROC or the IBBI regarding the resolution passed by the board

members to liquidate the company. Notification to the Board and ROC must be done within

seven days of passing the resolution.

Step 4: The Liquidator takes over the company

Once the Authority passes an order for winding up of the company/liquidation and appoints

the liquidator, the liquidator takes complete charge of the company, and the powers of the

board of directors are suspended. The company shall extend full cooperation to the

liquidator . The liquidator shall proceed further to take possession of all the assets and determine
their

realizable value.

Step 5: Make a Public announcement and verify all the claims.

During the winding up of the company, the liquidator, after being appointed, must make

a public announcement in one local language newspaper and an English newspaper .

Post-publication, the liquidator must consolidate all the claims received by financial

(secured and unsecured) creditors, Operational creditors, workmen and employees, and

other stakeholders.
The liquidator must verify all the claims and either accept or reject the same within 30

days of receiving the claim’s last date. The liquidator shall inform the claimant regarding

the decision within seven days of verifying the claim.

Step 6: Prepare a list of stakeholders

As per Regulation 30[1] of the Insolvency and Bankruptcy Board of India (Voluntary

Liquidation) Regulations, 2017, The Liquidator, after verifying all the claims, must prepare

a list of all the stakeholders to the liquidation process based on the claims verified within

45 days from the last date of receipt of claims.

Step 7: Form an opinion on all Preferential, Undervalued,

Extortionate, and Fraudulent Transactions

 The liquidator at th e relevant stage of liquidation/ winding up of the company

avoidance transactions. The liquidator can appoint a

must form an opinion on the

transaction or Forensic auditor to determine the company’s Preferential,Undervalued,

Extortionate, and Fraudulent Transactions.

 Post Examination of the report from the transaction auditor

or forensic auditor, the liquidator must file an application
with the Authority stating all the avoidance transactions made by the Corporate
Debtor (If any)

 The liquidator must establish that the transaction made was within one year of
the commencement date.

Step 8: Realization and distribution of assets

 The liquidator may value and sell the property/assets of the corporate person in any manner

approved by him. The liquidator must recover and realise all available assets at the

maximum value.
  The money realised from the sale of assets shall be distributed accordingly to all the

stakeholders within six months of realising the amounts. The costs incurred by the
liquidator during the winding up of the company/liquidation will be deducted before

distributing the amounts. The distribution shall be made as per Section 53 of IBC,2016.

Step 9: Timelines for Completion of liquidation while

winding up of the company
The Liquidation process must be completed within a year of the
commencement of the winding up of the company/liquidation.

If the process exceeds 12 months, then the

liquidator shall:
1. Convene a meeting with all the contributors/stakeholders within 15
days from the last date of winding up of the company/liquidation

2. The liquidator shall present a progress report of the current

stage of the liquidation/ winding up of the company. This includes:
  Settlement List of stakeholders
 Details of properties or assets which are yet to be sold and realised
 Distribution made to the stakeholders to date
 Update on the development of any material litigations against the
company (If any)
 Status of the applications filed by the liquidator before the Adjudicating
Authority

3. The progress report shall be annexed with the audited accounts of all the
receipts and payments
made by the liquidator for and during the winding up of the company/liquidation process

Step 10: Submission of the Final report after the

completion

When the company is wound up, the liquidator shall prepare and submit a final report
of the process containing the following:

 Audited accounts of all the receipts and payments made by the liquidator for and

during the winding up of the company/liquidation process

 A statement containing a list of all assets sold/realised and the money distributed to

all the stakeholders. It should also show that there are no pending litigations against

the corporate person

 An independent sale statement concerning all assets shows the realised value and the
mode and method of selling the asset

 Details of the buyer to whom the assets are sold

https://legalvision.com.au/creditors-voluntary-winding-up-liquidation/
Creditors Voluntary Liquidation (CVL)

Creditors are the people who the company owes money to for providing goods, services or loans
to the company. Customers who have not received goods they have already paid for and
employees who have outstanding wages may also be considered creditors.

 A creditors’ voluntary winding up is the winding up of a company by a special

resolution of the shareholders under the scrutiny of the
company’s creditors. This occurs when the company is insolvent. If the directors
of the company are unable to provide a declaration of solvency, the company can proceed
with the creditors winding up.

The situations where a company cannot be wound up through a creditors

voluntary winding up are when:
1. a court has already ordered that a company be wound up; or

2. an administrator has already been appointed.

Process of a Creditors Voluntary Winding Up

1. The holding of the meeting of the members and creditors
First of all, a meeting of all members shall be held and a special resolution shall be passed for

winding up of the company. The meeting of the creditors should also be conducted on the same day

as the General Meeting or on the very next of it.

2. Provisions of the creditors meeting

The provisions for the creditors meeting are as follows-

(a) The notice of the Wind-up Meeting shall be sent to all the creditors by way of the post at
the same time as the notice for the general meeting.
(b) The notice for General Meeting should also be published in two famous local newspapers in
the area where the company is registered office is situated.

(c) A list of creditors, the amount due to them and a statement of affairs should be prepared
before the meeting and placed at the meeting of the creditors.

(d) A copy of the resolution passed in the creditors meeting if any, should

be filed with the Registrar within ten days from the passing date of

resolution.

3. Appointment of Liquidators
At the respective meetings of members and creditors, they should appoint

one or two Liquidators. They can also appoint the same person as the
liquidator and no problem will arise out of it. But when creditors and

members appoint different liquidators then the person nominated by

creditors is alone entitled to act as Liquidator. If no liquidator is

appointed by the creditors then the person appointed by the members at

the meeting will be considered as Liquidator and vice versa.

4. Appointing a Committee of Inspection

A committee of inspection shall be appointed by the creditors at their

meeting and that committee shall consist of a maximum of six

members. The members can also appoint five more members to the
committee appointed by the creditors at their meeting. When, if

creditors do not want the members appointed by the shareholders of the

company shall act as members of the committee of inspection, then

those members can’t act as such members of the committee of

inspection.
Liquidator

A liquidator refers to an officer who is specially appointed

to wind up the affairs of a company when the company is

closing—typically when the company is

going bankrupt. Assets of a company are sold by the

liquidator and the resulting funds are used to pay off the

company's debts.

Liquidator and Receiver

The main differences between a liquidator and an official receiver are not the roles themselves, but
the insolvency procedures that they administer and manage. In a compulsory liquidation or
court liquidation, the court appoints the liquidator who is known as Receiver. At the
same time, it is different in the case of Creditors’ Voluntary Liquidation (CVL) and Members’
Voluntary Liquidation (MVL). For exawmple, in Creditors’ Voluntary Liquidation (CVL), the
directors decide to close the business and start afresh. In this scenario, the

directors initiate the process, not the company’s creditors or court. Hence
the directors or shareholders will appoint and pay for an authorized
insolvency practitioner to act as the liquidator, and creditors have the right to vote on the
same appointment.

Duties of Liquidator
1. " to carry on the business of the company so far as may be necessary
for the beneficial winding up of the company"

2. "to sell the immovable and movable property and actionable claims of the

company by public auction or private contract, with power to transfer such property

to any person or body corporate, or to sell the same in parcels“.

3. "to invite and settle claim of creditors, employees or any other claimant
and distribute sale proceeds in accordance with priorities established under this Act“.

4. "to inspect the records and returns of the company on the files of the
Registrar or any other authority"

5. "to draw, accept, make and endorse any negotiable instruments

including cheque, bill of exchange, hundi or promissory note in the name

and on behalf of the company, with the same effect with respect to the liability of the company as

if such instruments had been drawn, accepted, made or endorsed by or on behalf of the

company in the course of its business“

6. "to take all such actions, steps, or to sign, execute and verify any paper,
deed, document, application, petition, affidavit, bond or instrument as may be

necessary for winding up of the company;

a. for distribution of assets;

b. in discharge of his duties and obligations and functions as Company

Liquidator"
 The Grounds For Removal And Replacement Of
Liquidator

The Companies Act, 2013, under Section 276 provides for the grounds for Removal

and Replacement of Liquidator. Section 276 of Companies Act, 2013, states the

following grounds:

 Misconduct
 Fraud and Misfeasance
 Failure in exercising Due Care and Diligence in performing his
Powers and Duties
 Professional Incompetence
 Inability to act as Company Liquidator or Provisional Liquidator
 Lack of Independence Conflict of Interest during his/her term
of Appointment which would justify Removal

How The Removal And Replacement Of

Liquidator Are Done In Company?
1. Removal By Resignation Under the Companies Act, 2013, the Company
Liquidator can be removed if he/she resigns from the position. To resign the Company
Liquidator can summon up a meeting and submit his/her

resignation in the meeting. The Tribunal can transfer the assigned work of the earlier Liquidator to

another Company liquidator.

2. Removal By Creditors
The creditors when thinks that the Company liquidator is guilty of any of the grounds
mentioned in Section 276 of the Companies Act, 2013, can go for the Removal and
Replacement of Liquidator. In case of Removal of Company Liquidator, the Tribunal can assign
the work of earlier

Liquidator to another Company Liquidator.

3. Removal By Death
The Death of Company Liquidator will vacate the office of the Liquidator in the Company. The

Tribunal in case of death of Company Liquidator can transfer the work assigned to him/her to

another Company Liquidator.

4. Removal By Central Government

According to Section 275 of Companies Act, 2013, the Central Government can
appoint a Company Liquidator. The Central Government on account of any of grounds mentioned
in Section 276 of the Companies Act, 2013, can remove the Company Liquidator. The
Central Government before the Removal of Liquidator should provide him/her a reasonable
opportunity of being heard.

Appointment of Company Liquidator

1. In case of compulsory winding up by court the tribunal then appoints a liquidator

who is made in charge of the liquidation proceedings.

2. The company in its general meeting, where a resolution of voluntary winding up is

passed, shall appoint a Company Liquidator from the panel prepared by the Central

Government for the purpose of winding up its affairs and distributing the assets of the
company and recommend the fee to be paid to the Company Liquidator.

3. Where the creditors have passed a resolution for winding up the company under

sub-section (3 ) of section 306, the appointment of the Company Liquidator under this

section shall be effective only after it is approved by the majority of creditors in value
of the company:

Preferential Payments (u/s 327)

1) In a winding up, subject to the provisions of section 326, there shall be paid

in priority to all other debts,—

(a) all revenues, taxes, and rates due from the company to the
Central Government or a State Government or to a local authority at the

relevant date, and having become due and payable within the twelve months

immediately before that date;

(b) all wages or salary including wages payable for time or piece work
and salary earned wholly or in part by way of commission of any employee in
respect of services rendered to the company and due for a period not exceeding

four months within the twelve months immediately before the relevant date,

subject to the condition that the amount payable under this clause to any

workman shall not exceed such amount as may be notified;

(c) all accrued holiday remuneration becoming payable to any employee, or

in the case of his death, to any other person claiming under him, on the

termination of his employment before, or by the winding up order, or, as the

case may be, the dissolution of the company;

d) all sums due to any employee from the provident fund, the
pension fund,the gratuity fund or any other fund for the
welfare of the employees, maintained by the company; and

(e) the expenses of any investigation held in pursuance of sections 213 and
216,(related to non resident) in so far as they are payable by the company.

Consequences of wind-up
The following consequences shall ensue upon the voluntary winding-up of a Company;

(1) The Property of the Company shall be applied in satisfaction of its

liabilities, and, subject thereto, shall, unless it be other wise provided by the Articles of
Association, be distributed amongst the shareholders in proportion to their share:

(2) Liquidators shall be appointed for the purpose of winding-up the affairs of
the Company and distributing the property :

(3) The Company in general meeting may appoint such person or persons as it
thinks fit to be a Liquidator or Liquidators, and may fix the remuneration be paid to
them:

(4) If one person only is appointed, all the provisions herein contained in reference

to several Liquidators shall apply to him :

(5) When several Liquidators are appointed, every power hereby given may be
exercised by any two of them

(6) The Liquidators may, at any time after the passing of the resolution for

winding-up the Company, and before they have ascertained the sufficiency of the
assets of the Company, or the debts and liabilities in respect of which the

contributories are liable, call on all or any of the contributories to the extent of

their liability to pay all or any sums they deem necessary to satisfy the debts and

liabilities of the Company and the costs of winding it up ; and they may, in making

a call, take into consideration the probability that some of the contributories upon

whom the same is made may partly or wholly fail to pay their respective portions

of the same :

7))The Liquidators shall have all powers hereinbefore vested in Official

Liquidators, and may exercise the same without the intervention of the Court :

(8) All books, papers, and documents in the hands of the Liquidators shall at all

reasonable times be open to the inspection of the shareholders :

9) When the creditors are satisfied, the Liquidators shall proceed to adjust the rights
of the contributories amongst themselves ; and for the purposes of such adjustment they
may make calls on all the contributories to the extent of their liability for any sums they

may deem necessary ; and they may, in making a call, take into consideration the

probability that some of the contributories upon whom the same is made may partly or

wholly fail to pay their respective portions of the same :

(10) As soon as the affairs of the Company are fully wound-up, the Liquidators
shall make up an account showing the manner in which such winding-up has
been conducted, and the property, of the Company disposed of ; and such account, with the
vouchers thereof, shall be laid before such person or persons as may be appointed by

the Company to inspect the same ; and upon such inspection being concluded the

Liquidators shall proceed to call a general meeting of the shareholders for the purpose

of considering such account ; but no such meeting shall be deemed to be duly held
unless two months previous notice, specifying the time, place, and object of such

meeting, has been published in the manner specified in Section XCIV of this Act :

(11) If, within one year after the passing of a resolution for winding-up the
affairs of the Company, such affairs are not wound-up, the Liquidators shall
immediately thereafter make up an account showing the state of the affairs
and the progress which has been made in winding-up down to that date , and they
shall add thereto a report stating the reason why the winding-up has not been completed ; and a
general meeting shall be called to consider the same, and so on from year to year until the winding-
up of the affairs of the Company is

completed.

12. All costs, charges, and expenses properly incurred in the voluntary winding-
up of a Company, including the remuneration of the Liquidators, shall be
payable out of the assets of the Company in priority to all other claim s.

Audit of Company Liquidator's accounts

1) The Company Liquidator shall maintain proper and regular books of

account including accounts of receipts and payments made by him in such form
and manner as may be prescribed.

(2) The Company Liquidator shall, at such times as may be prescribed but not less

than twice in each year during his tenure of office, present to the Tribunal an
account of the receipts and payments as such liquidator in the prescribed form in

duplicate, which shall be verified by a declaration in such form and manner as

may be prescribed.

(3) The Tribunal shall cause the accounts to be audited in such manner as it thinks

fit, and for the purpose of the audit, the Company Liquidator shall furnish to the

Tribunal with such vouchers and information as the Tribunal may require , and
the Tribunal may, at any time, require the production of, and inspect, any books
of account kept by the Company Liquidator.

(4) When the accounts of the company have been audited, one copy thereof
shall be filed by the Company Liquidator with the Tribunal, and the other copy shall
be delivered to the Registrar which shall be open to inspection by any

creditor, contributory or person interested.

(5) Where an account referred to in sub-section (4) relates to a Government company , the

Company Liquidator shall forward a copy thereof—

(a) to the Central Government, if that Government is a member of the

Government company; or

(b) to any State Government, if that Government is a member of the

Government company;

or

(c) to the Central Government and any State Government, if both the
Governments are members of the Government company.

(6) The Company Liquidator shall cause the accounts when audited, or a
summary thereof,

to be printed, and shall send a printed copy of the accounts or

summary thereof by post to every creditor and every contributory:
Provided that the Tribunal may dispense with the compliance of the
provisions of this sub-section in any case it deems fit.

https://www.dokmart.com/companies-act/sections/act-2013-
section-318-final-meeting-and-dissolution-of-company
 Unit-5

Conceptual Framework of
Corporate Governance

Corporate Governance

Corporate governance is the combination of rules, processes and

laws by which businesses are operated, regulated and controlled.

The term encompasses the internal and external factors that affect

the interests of a company's stakeholders, including shareholders,

customers, suppliers, government regulators and management.

Governance refers specifically to the set of rules, controls,

policies, and resolutions put in place to direct corporate behavior.

A board of directors is essential in governance. Proxy advisors

and shareholders are important stakeholders who can affect

governance.
Following are cited a few popular definitions of corporate
governance:
(1) “Corporate governance means that company managers its

business in a manner that is accountable and responsible to the

shareholders. In a wider interpretation, corporate governance

includes company’s accountability to shareholders and other

stakeholders such as employees, suppliers, customers and local

community.” – Catherwood.

(2) “Corporate governance is the system by which companies are

directed and controlled.” – The Cadbury Committee (U.K.)

Benefits of Corporate Governance

 Good corporate governance creates transparent rules and controls, provides guidance to
leadership, and aligns the interests of shareholders, directors, management, and employees.

 It helps build trust with investors, the community, and public officials
 Corporate governance can provide investors and stakeholders with a clear idea of a
company's direction and business integrity.
 It promotes long-term financial viability, opportunity, and returns.
 It can facilitate the raising of capital.
 Good corporate governance can translate to rising share prices.
 It can lessen the potential for financial loss, waste, risks, and corruption.
 It is a game plan for long-term success.

The Principles of Corporate Governance

Fairness
The board of directors must treat shareholders, employees, vendors, and communities fairly

and with equal consideration.

Transparency
The board should provide timely, accurate, and clear information about such things as

financial performance, conflicts of interest, and risks to shareholders and other stakeholders.

Risk Management
The board and management must determine risks of all kinds and how best to control them.

They must act on those recommendations to manage them. They must inform all relevant

parties about the existence and status of risks.

Responsibility
The board is responsible for the oversight of corporate matters and management activities. It
must be aware of and support the successful, ongoing performance of the company. Part of its

responsibility is to recruit and hire a CEO. It must act in the best interests of a company and its
investors.

Accountability
The board must explain the purpose of a company's activities and the results of its
conduct. It and company leadership are accountable for the assessment of a company's capacity,

potential, and performance. It must communicate issues of importance to shareholders.

How to Assess Corporate Governance

One can research certain areas of a company to determine whether or not it's practicing good

corporate governance. These areas include:

 Disclosure practices
 Executive compensation structure (whether it's tied only to
performance or also to other
metrics)
 Risk management (the checks and balances on decision-making)
  Policies and procedures for reconciling conflicts of interest (how the
company approaches
business decisions that might conflict with its mission statement)
 The members of the board of the directors (their stake in profits or
conflicting interests)
 Contractual and social obligations (how a company approaches areas such
as climate change)
 Relationships with vendors
 Complaints received from shareholders and how they were addressed
 Audits (the frequency of internal and external audits and how issues have
been handled)

Examples of Companies having Good Governance

Infosys
Points for Good Governance as per “Asiamoney”
 Corporate Governance - 17.74
 Disclosure and Transparency - 20.90
 Responsibilities of management and the board of directors - 18.75
 Shareholder’s right and equitable treatment - 20.93

HDFC
HDFC sets a good example of corporate governance. It has introduced a corporate governance

scheme that aims to manage and regulate the bank according to corporate governance policies.

HDFC even received Corporate Governance and Value Creation rating by CRISIL.

CRISIL is a leading, agile and innovative global analytics company

driven by its mission of making markets function better.
Examples of Company having bad governance
volkswagen AG:
 Volkswagen AG, a German company, was and still is one of the biggest vehicle manufacturers

in the world. It resorted to unfair means to profit off the environment. Volkswagen was involved

in an emissions scandal, popularly known as “Dieselgate”.

 The United States Environmental protection Agency (EPA) issued a notice of the violation
of the Clean Air Act in September 2015 to Volkswagen, which is when the scandal
began.
 Further investigation revealed that Volkswagen had deliberately equipped engine
emission equipment in its cars to manipulate pollution test results in America and
Europe. As of 1st June 2020, the Dieselgate scandal has cost Volkswagen $33.3 billion.

Satyam Computer Services,

Satyam Computer Services, which once won the Golden Peacock Global Award for corporate

governance in 2008, also became a case of bad corporate governance. The company’s former

chairman Ramalinga Raju misled investors and the public by portraying a positive image

of financials.The management overstated revenue, profits and assets and understated

debts. Consequently, the World Bank prohibited the company from conducting any business for

eight years.

Types of bad governance practices include:

Companies that do not cooperate sufficiently with auditors or do not select auditors with the
appropriate scale, resulting in the publication of spurious or noncompliant financial documents.
Bad executive compensation packages that fail to create an optimal incentive for corporate
officers. Poorly structured boards that make it too difficult for shareholders to get rid of
ineffective official.
https://www.scconline.com/blog/post/2019/11/13/evolution-of-corporate-governance-
in-india/

Theories of Corporate Governance

There are many theories of corporate governance which addressed the challenges of governance

of firms and companies from time to time. There are various theories which describe the

relationship between various stakeholders of the business while carrying out the activity of the

business.

Theories of Corporate Governance

 Agency Theory
 Stewardship Theory
 Resource Dependency Theory
 Stakeholder Theory
 Transaction Cost Theory
 Political Theory

Agency theory
 Agency theory defines the relationship between the principals (such as shareholders of
company) and agents (such as directors of company).
 According to this theory, the principals of the company hire the agents to perform work.
The principals delegate the work of running the business to the directors or managers, who
are agents of shareholders.
 The shareholders expect the agents to act and make decisions in the best interest of
principal. On the contrary, it is not necessary that agent make decisions in the best
interests of the principals.
 The agent may be submitted to self-interest, opportunistic behavior and fall short of
expectations of the principal.
 The key feature of agency theory is separation of ownership and control. The
theory prescribes that people or employees are held accountable in their tasks and
 responsibilities. Rewards and Punishments can be used to correct the priorities
of agents.

Stewardship Theory
 The steward theory states that a steward protects and maximises shareholders wealth
through firm Performance.
 Stewards are company executives and managers working for the shareholders,
protects and make profits for the shareholders.
 The stewards are satisfied and motivated when organizational success is attained.
 It stresses on the position of employees or executives to act more autonomously so that
the shareholders’ returns are maximized. The employees take ownership of their jobs
and work at them diligently.
Stakeholder Theory
Stakeholder theory incorporated the accountability of management to a broad range of
stakeholders. It states that managers in organizations have a network of relationships to
serve –this includes the

 suppliers,
 employees and
 business partners.

 This theory suggest that corporate managers (officers and directors) should take into
consideration the interests of each stakeholder in its governance process. This includes
taking efforts to reduce or mitigate the conflicts between stakeholder interests. It looks
further than the traditional members of the corporation (officers, directors, and
shareholders) and also focuses on the interests of any third party that has some level of
dependence upon the corporation. Stakeholders are generally divided into internal and
external stakeholders.
 Internal Stakeholders - Are the corporate directors and employees, who are actually
involved in corporate governance process.
 External Stakeholders - May include creditors, auditors, customers, suppliers,
governmentagencies, and the community at large.
 These stakeholders exert influence but are not directly involved in the process. Key to
the stakeholder theory is the realization that all stakeholders engage in some manner with
the corporation with the hope or expectation that the corporation will deliver the type of
 value desired or expected. The benefits may include dividends, salary, bonuses,
additional orders, new jobs, tax revenue, etc.

Issues in Corporate Governance

Although, there exists many guidelines about corporate governance but still many issues are arising
about the compliance. The major challenges to effective corporate governance are:

Non-coverage of unlisted corporates

This is one of the major hindrance caused to effective corporate governance as the applicability of
rules and regulations are restricted to the listed entities only as per the clause 49 of the
listing agreement which leads to small and mid-sized firms to perform activities which are legal
in nature but are not ethical

Disclosure of off-balance sheet transactions

There are many transactions which cannot be disclosed in the balance sheet and even if they can be
they cannot be displayed in monetary terms. What transactions are to be disclosed and how to be
disclosed is entirely on the discretion of management. Corporate governance has a basic principle of
transparency but it fails to provide a provision for its compliance.

Family owned business

In India, the majority of the businesses are family owned which means there is no provision
regarding the dilution of powers. Ranging from directors to employees all key positions are held
by family members. Also, the company’s and family’s relationship is very ambiguous in reference to
that the assets of the company and the family are not separated legally.

Multiplicity of regulations

In India there are many regulatory bodies such as Companies act 2013, Securities and
Exchange Board of India (SEBI), Reserve Bank of India, Insurance Regulatory
Development Authority, etc. and they have no coordination with each other which leads to
multiple provisions for a single type of event/transaction. This creates confusion and leads to
chaos. This duplicity provides companies a loophole to escape from responsibility. These regulatory
bodies are reactive but not proactive which means they only take action when there is a scam.

Corporate social responsibility

It is mandatory for companies to allocate a minimum of 2% of the profits in the last 3 years
for CSR. The small and the mid-sized firms do not have the resources to allocate separate funds to
CSR from its profit.

Challenge of existing practices

Some of the existing corporate governance practices are faulty in themselves and have many
loopholes in them such as:

 The incompetence of the board of directors to understand the type of risk they are
taking. Lack of independent directors
 Presence of corporate culture which does not promote asking questions
 Problems in whistleblowing- whistleblowing was introduced to put the guilty into
limelight but are often wrong in their accusations and can cause serious harm to
the person wrongly accused.

Problems in transparency Management often argues that everything cannot be disclosed

in a business as this information can be used by the competitors. However how much enough or
what it should be disclosed and what shouldn’t be is with the discretion of the management who
often abuse this power.

Audit Committee
Composition
As Per The SEBI Regulations, 2015:—

 The Committee must have a minimum of 3 directors as members of the Audit Committee.
Two-thirds of the members shall be independent directors. Also, the chairperson of the audit

committee shall be an independent director.

 The Company Secretary shall work as the secretary to the audit committee.
 All the Committee shall be financially literate, and at least one member shall have
accounting or related financial management expertise.

Meeting And Quorum Of Audit Committee Of Board

Of A Company
Under Companies Act, 2013
The Companies Act, 2013[1] does not have any provision that mandate the inclusion of frequency of

meeting for the Audit Committee. However, under Secretarial Standard – 1, the Audit
Committee must meet as often as necessary subject to requirements prescribed by any other
law.

Under SEBI Regulation,2015

The audit committee shall meet at least 4 times a years. However, not more than one hundred
and twenty days 120 shall pass between two meetings.

The quorum for this committee meeting shall

Either be 2 members

Or 1/3 of the audit committee’s members,

whichever is greater, with at least two independent directors.

Purpose Of Appointing The Audit Committee Of The Board Of

Company

The primary purpose of the Audit Committee of the Board of a Company is to:

A. Help the Board in its mistake to responsibilities to shareholders, specifically concerning:

1. To keep a check on the Company’s financial statements,

2. To examine the Company’s compliance with legal and regulatory requirements,

3. To check the qualifications and independence of the independent auditor and internal audit

function,

4. To review the performance of the Company’s internal audit function and independent
auditor, and

B. Draft audit committee report required by the SEC’s (Security exchange commission) proxy
rules to be included in the Company’s annual proxy statement.

Duties and responsibilities of the Audit Committee

of the Board of a Company
A. Examine the reliability of the Company’s internal controls for financial reporting.

B. Examine the competence, independence, and the work of the Company’s

independent auditors and the Internal Audit function.

C. Establish a method for communication between the Board and the independent

auditor , internal auditor, the Management, and other affected individuals.

D. As an advisory committee of the Board, assists Board in fulfilling its

fiduciary obligations to shareholders and the Company.

The Committee can conduct or authorize inquiries into any issue that fall within the

Committee’s responsibility, according to the terms of the Charter. In addition, it

shall be able to directly communicate with the independent auditor and anyone within the Company.

https://onlinedegrees.und.edu/blog/audit-committee-
responsibilities/
1.The audit committee assesses the analysis of important issues and judgments made by
management in the financial reports. The effects of accounting and regulatory initiatives
on the financial statements are also reviewed by the audit committee.

2.The audit committee ensures that appropriate policies and processes are in place for the
prevention and identification of fraud, such as asset misappropriation, corruption, and
financial statement fraud. The audit committee works with management to make sure that
necessary steps are taken on the detection of fraud.

3.The audit committee should understand the responsibilities of management regarding

laws governing anti-corruption and determine whether appropriate policies and controls
are in place for the detection and mitigation of risks related to corruption.

4. The audit committee meets with management and the independent auditor to discuss
the quarterly and audited annual financial statements of the company. They also review
the news releases on earnings, along with the financial details and recommendations given
to external rating agencies and analysts.

5. The management team assesses and manages the risk a company is exposed to. The
audit committee should not be overburdened with the responsibility of risk oversights.
They are only responsible for discussing and reviewing the related policies. The audit
committee in some organizations may also be given the responsibility of cyber risk
oversight.

6. In an M&A merger n acquisitions transaction, the insights provided by the

audit committee on a company’s financials, internal controls, and risk analysis provide
confidence about the accuracy and completeness of the financial information.

7. Some national securities exchanges may require the audit committee to oversee
internal auditors, evaluate their performance, and include any performance-related
issues in the report presented to the board

8. The audit committee administers compliance with rules and legislation. They work
with management to ensure that the company’s policies on the code of conduct and ethics
satisfy the requirements.

9. The audit committee must coordinate with other committees to understand the risks
and responsibilities and the effect on financial reporting. It needs to understand and
address the impact of-GAAP (Generally Accepted Accounting Principles) metrics used for
compensation on risk assessment.

Remuneration and Nomination Committee

Remuneration committee is a committee of a company‘s board of directors that is resp

onsible for setting the salaries and other forms of compensation for the company‘s exe

cutives, including the CEO and the senior leadership team. It is being said that
reward is essential for motivating such executives to achieve a positive outcome for

shareholders.

Which companies are required to constitute Remuneration

Committee?
Section 178 of the Companies Act, 2013 talks about the Nomination and
Remuneration Committee. The following classes of companies are to constitute a
Nomination and Remuneration Committee of the Board:

Listed companies;
 All public companies with a paid-up capital of 10 crore rupees or more;
  All public companies having a turnover of 100 crore or more;
 All public companies, having in aggregate, outstanding loans or borrowings or
debentures or deposits exceeding 50 rupees or more.

Scope of the Remuneration Committee

The scope of the Nomination and Remuneration Committee (“the Committee”)
would include:

 To identify persons who are qualified to become Directors and who may
be appointed in senior management in accordance with the criteria laid
down, recommend to the Board their appointment and/or removal.
 To carry out the evaluation of every Director’s performance.
 To formulate the criteria for determining qualifications, positive
attributes and independence of a director.
 To recommend to the Board a policy, relating to the remuneration for
the Directors, Key Managerial Personnel and other employees. Such
Remuneration policy shall be disclosed in the Annual Report of the
Company.
 To review and recommend, subject to the Shareholders’ approval, the
remuneration of the Managing Director and other Whole-time/Executive
Directors.

Composition of the committee

Members
The Committee will consist of at least 3 members who shall be appointed by the

Board. The members of the Committee shall be Non-Executive Directors and of

which not less than 1/2 shall be Independent Directors.

Chairman
The Chairman of the said Committee shall be an Independent Director. If the

Chairman of the Committee is not present at a meeting of the Committee, the

members present may elect another Independent Director to act as Chairman for that

meeting. The Chairman shall not have a casting vote on any matter in the event of
any equality of votes. In such a case the matter will be presented to the board for
approval.

Secretary

The company secretary shall act as Secretary to the Committee.

Quorum

The quorum of meetings of the Committee shall be a minimum of 2

independent members.

Role of Remuneration Committee

 Reviews the compensation of executive directors and senior managers.
 Sets detailed compensation for executive directors and the chairperson, including
any payments required in the case of termination.
 Assures shareholders the remuneration of executive directors is free of bias and
personal interest.
 Establishes the targets for performance-related pay.
 Determines the company’s remuneration policy and philosophy.

Nomination Committee
A nomination committee evaluates a firm's board of directors and examines the skills and
characteristics required of board candidates.

Membership of the committee

 There shall be a minimum of 3 non-management (Independent) directors on the
committee.
 The committee reviews and approves membership each year with the board, which
also designates a chair.
 The board appoints all committee members and chairs.

The purpose of the Nominations committee

 Conduct general oversight of the board of directors.
 Propose candidates for election to the board of directors based on their
qualifications.
 Identify and recommend appropriate corporate governance practices to the board.
  Examine the framework for assessing board performance and the board’s self-
evaluation.
 Committee members oversee reputation and conduct risks that fall within their
responsibility.

The duties and responsibilities of the nominations

committee
The committee should consider the size and composition of the board and the tenure of

directors.

Nominate candidates to fill vacancies on the board and recommend candidates to stand

for election as directors at the next annual meeting of shareholders (or, if necessary, a

special meeting of shareholders).

 Identify and hire director candidates, and approve the search firm’s fees and other

retention terms.

 Recommend director compensation to the board.

 Examine shareholder proposals and their proposed responses.
 The committee is expected to review and recommend any changes to the Corporate

Governance Principles to the board.

 Evaluate the board’s performance framework and the board’s self-evaluation

process regularly.

Unit-6

Internal Control
  Internal controls are intended to prevent errors and irregularities, identify
problems and ensure that corrective action is taken.
 Internal control refers to the set of principles, procedures, and practices
companies define to ensure they keep a check on risk-causing factors and rectify
the same to avoid losses or frauds.

Objectives of Internal Control

[1] Improving Operational Effectiveness and Efficiency The Nihon Unisys Group
shall establish a mid-term management plan and specific management

targets, and shall strive to develop systems that will improve operational

effectiveness and efficiency.

[2] Ensuring the Reliability of Financial Reports The Group shall establish a

“Basic Policy for Appropriate Financial Reporting” and strive to foster a

sincere corporate culture of rule compliance, in order to ensure the reliability

of financial reporting.
[3] Compliance with Laws and Regulations pertaining to Business Activities

The Group shall, in recognition of compliance as one of the most critical

issues to execution of business operation, establish the “Nihon Unisys Group

Charter of Corporate Behavior” and “Group Compliance Basic Regulations”,

based on which all of the Group’s employees shall act ethically in compliance

all with laws and regulations, social norms and in-house regulations.

[4] Preservation of company Assets (Risk Management) The Group is faced

with various types of risks in connection with its business activities. It shall

develop a common risk classification system for the Group to share and

centralize the management of risks throughout the entire Group. It shall also

develop preventive measures and countermeasures against the occurrence of

risk events in order to safeguard its assets.

Internal Control Machanism

Control environment – The control environment sets the tone of an

organization influencing the control consciousness of its people. Control environment
factors include (1) the integrity, ethical values and competence of the entity's people; (2)

management's philosophy and operating style; (3) the way management assigns authority

and responsibility and organizes and develops its people; and (4) the attention and

direction provided by the University. Additional examples are:

 Tone from the top

 University policies
 Organizational authority

Risk assessment – Risk assessment is the identification and analysis of relevant

risks to achievement of the objectives, forming a basis for determining how the risks

should be managed. Examples include:

 Monthly meetings to discuss risk issues

 Internal audit risk assessment
 Formal internal departmental risk assessment

Control activities – Control activities are the policies and procedures that help

ensure management directives are carried out. They include a range of activities as
diverse as approvals, authorizations, verifications, reconciliations, reviews of operating
performance, security of assets and segregation of duties. Additional examples are:

 Purchasing limits
 Approvals
 Security
 Specific policies

Information and communication – Pertinent information must be

identified, captured and communicated in a form and timeframe that enable people to
carry out their responsibilities. Information systems produce reports containing
operational, financial and compliance-related information that makes it possible to run and
control the organization. Effective communication also must occur in a broader sense,
flowing down, across and up the organization. Examples include:
  Vision and values or engagement survey
 Issue resolution calls
 Reporting
 University communications (e.g., emails, meetings)

Monitoring – Internal control systems need to be monitored, a process that assesses

the quality of the system's performance over time. This is accomplished through

ongoing monitoring activities, separate evaluations or a combination of the two.

Ongoing monitoring occurs in the course of operations. Internal control deficiencies

should be reported upstream, with serious matters reported to top management and the

Regents. Examples include:

 Monthly reviews of performance reports

 Internal audit function

Corporate Governance and Internal Control

https://reciprocity.com/blog/the-importance-of-internal-controls-
in-corporate-governance-mechanisms/