COMPANY LAW

Sumit Tak
Assistant Professor
 MODULE - 1

CONCEPT, NATURE AND MEANING OF COMPANY

Mr. Sumit Tak

 Historical origin of company law in India and
important definitions under the Company Act, 2013
Historical Origin of Company Law in India
Colonial Era (Pre-Independence)
◦ East India Company
◦ The first concept of a "company" in India emerged with the East India Company, established
under a Royal Charter in 1600.
◦ It operated with sovereign powers, blending corporate and administrative roles.
◦ Joint Stock Companies Act, 1850
◦ India’s first company law legislation was modeled after the UK’s Joint Stock Companies
Act, 1844.
◦ It introduced the concept of registering companies.
◦ Indian Companies Act, 1866
◦ Replacing earlier legislations, this act consolidated provisions and made it mandatory for
companies to register.
◦ Indian Companies Act, 1913
◦ Based on the English Companies Act, 1908, this act governed companies in India for several
decades and introduced the concept of private and public companies, directors' duties, and
shareholder rights.
Post-Independence Era
◦ Indian Companies Act, 1956
◦ After independence, this comprehensive legislation replaced the 1913 act.
◦ It regulated the formation, functioning, and dissolution of companies.
◦ The act underwent several amendments over the years to address the evolving business
environment.
◦ Companies Act, 2013
◦ The Companies Act, 2013, replaced the 1956 Act to address modern business needs.
◦ It introduced several new provisions, including mandatory CSR (Corporate Social
Responsibility), the concept of a one-person company, enhanced disclosure requirements,
and strict compliance mechanisms.
Characteristics of Company
◦ Company as a Legal Person
◦ A company is considered a "legal person" in the eyes of the law.
◦ It can own property, enter into contracts, sue, and be sued in its name.
◦ A company exists independent of its members or shareholders.
◦ Salomon v Salomon & Co. Ltd. (1897)
◦ Salomon v Salomon & Co. Ltd. is a landmark decision in corporate law that established a
company as a separate legal entity from its shareholders.
◦ Shoe manufacturer Aaron Salomon incorporated his business under the UK Companies Act
1862, transferring it to a company in which he held most of his shares and debentures.
◦ When the company faced insolvency, the liquidator argued that the company was merely
Salomon’s agent, seeking to hold him personally liable for its debts.
◦ However, the House of Lords ruled in Salomon's favour, stating that once incorporated, a
company becomes a separate legal entity regardless of its ownership structure.
◦ The decision reinforced the doctrine of corporate personality and limited liability, ensuring
that shareholders' personal assets are protected from the company's liabilities.
◦ It also established the precedent that courts will respect the corporate veil unless there is
evidence of fraud or improper conduct.
◦ The case has had a profound impact on corporate law globally, making incorporation a safe
and attractive business model.
◦ Separate Legal Entity
◦ A company is distinct from its members. This principle means the company's debts and
obligations are its own, not those of its members.
◦ Even if all shareholders die, the company continues to exist.
◦ Shareholders are liable only to the extent of their shares; personal assets are not at risk.
◦ Lee v Lee’s Air Farming Limited (1961)
◦ Lee v Lee’s Air Farming Limited is a landmark decision in corporate law, confirming the
principle that a company is a separate legal entity from its shareholders, even if one person
has significant control.
◦ Lee, the sole shareholder, director and chief pilot of his company, had a contractual
relationship with the company as an employee.
◦ After his death in a workplace accident, his widow sought compensation under the Workers'
Compensation Act.
◦ The court held that Lee was both an employer (as the company's controlling shareholder and
director) and an employee (as the company's pilot), because the company was a separate
legal person capable of contracting with him.
◦ This decision reinforced the doctrine of corporate personality established in Solomon v
Solomon & Co. Ltd., emphasizing that a company and its controlling shareholder are
separate entities, even in terms of sole ownership and management.
◦ Perpetual Succession
◦ Perpetual succession is a defining characteristic of a company, which signifies its continued
existence, regardless of changes in its membership or management.
◦ The death, bankruptcy, or retirement of members does not affect the existence of the
company, as it is a separate legal entity from its members.
◦ This characteristic ensures the continuity and stability of the business, allowing the company
to carry out its operations without interruption.
◦ “Members may come, members may go, but the company continues forever,” is a legal
formula that appropriately describes this principle, emphasizing the enduring nature of the
company despite the turnover of its human elements.
◦ Common Seal
◦ The common seal was traditionally used as the official signature of the company on
documents requiring authentication.
◦ With the Companies (Amendment) Act, 2015, the use of a common seal is no longer
mandatory, as the signature of authorized officials suffices.
◦ Companies that still opt for a common seal use it for legal and official purposes, such as
signing deeds.
◦ Limited Liability
◦ Shareholders' liability is limited to the unpaid amount on their shares (if any).
◦ Creditors cannot claim more than the company’s assets; personal assets of members are
protected.
◦ Types of Limited Liability:
◦ Limited by Shares: Liability is restricted to the amount unpaid on shares held.
◦ Limited by Guarantee: Members' liability is confined to the amount they guarantee to
contribute in the event of liquidation.
Doctrine of Corporate Veil
&
Lifting up of Corporate Veil
The doctrine of corporate veil
◦ The doctrine of corporate veil emerged as part of the broader development of corporate law,
particularly with the recognition of companies as separate legal entities.
◦ Its historical evolution is closely tied to landmark cases and legislative developments, primarily
in England, which influenced corporate jurisprudence worldwide.
◦ In the early days of corporate law, businesses operated primarily as partnerships, where
members had unlimited liability.
◦ The concept of limited liability and separate legal personality began to take shape in the 19th
century with the enactment of statutes like the Joint Stock Companies Act, 1844 and the
Limited Liability Act, 1855 in the UK.
◦ These laws allowed businesses to incorporate and provided a legal framework for recognizing
companies as distinct legal entities.
◦ The doctrine of corporate veil is a fundamental principle of company law in India, derived
from common law jurisprudence and codified through statutory provisions in the Companies
Act, 2013.
◦ It upholds the concept that a company, upon incorporation, becomes a separate legal entity,
distinct from its shareholders, directors, and employees.
◦ This doctrine ensures that the company can own assets, incur liabilities, and sue or be sued in
its own name, while protecting the personal assets of its shareholders through limited liability.
◦ Salomon v. Salomon & Co. Ltd. (1897)
◦ This landmark case established the concept of corporate personality and the sanctity of the
corporate veil.
◦ Lifting the Doctrine of Corporate Veil
◦ The doctrine of corporate veil establishes that a company is a separate legal entity distinct
from its shareholders, directors, and employees.
◦ However, in certain circumstances, courts or statutory provisions allow for lifting the
corporate veil.
◦ This means disregarding the company’s separate legal personality to hold its members,
directors, or controllers personally liable for the company’s actions or debts.
◦ Lifting the corporate veil is an exception to the general rule, applied to prevent misuse of the
corporate structure for fraudulent, illegal, or unjust purposes.
◦ Fraud or Improper Conduct
◦ When a company is used to commit fraud or avoid legal responsibilities, courts may ignore
its separate legal personality.
◦ Tax Evasion
◦ If the corporate structure is employed to evade taxes, authorities can look beyond the
company to its members.
◦ Agency Relationship
◦ When a company is deemed to be acting as an agent for its shareholders.
◦ Statutory Exceptions
◦ Certain laws, like environmental regulations or labour laws, may explicitly allow for lifting
the veil.
◦ Gilford Motor Co. Ltd. v. Horne (1933)
◦ This case is an example of the corporate veil being lifted to prevent the evasion of legal
obligations.
◦ Horne, a former employee of Gilford Motor Co., was contractually prohibited from
soliciting its clients after leaving the company.
◦ To circumvent this restriction, he formed a company to solicit clients indirectly.
◦ The court pierced the corporate veil, ruling that the company was a mere façade to avoid the
contractual obligations, and restrained Horne and his company from soliciting Gilford's
clients.
◦ Daimler Co. Ltd. v. Continental Tyre & Rubber Co. (1916)
◦ During World War I, the corporate veil was pierced to identify the true ownership and
control of a company.
◦ Continental Tyre & Rubber Co., a UK-registered company, was found to be controlled by
German nationals, making it an enemy entity under wartime regulations.
◦ The court ruled that the company’s nationality could be determined by the identity of its
controllers, and its separate legal personality was disregarded in the interest of national
security.
Difference between company and others
forms of business organizations
 LLP (Limited Liability
Aspect Company Sole Proprietorship Partnership
Partnership)

No separate legal entity; Separate legal entity

Separate legal entity, Not a separate legal entity;
Legal Entity the proprietor is the distinct from its
distinct from its members. partners are the business.
business. partners.
Unlimited liability; the Unlimited liability of Limited to the extent of
Limited to the extent of
Liability proprietor is personally partners, unless stated contribution by each
shares held.
liable. otherwise. partner.
Owned by shareholders;
Owned and managed by one Owned and managed by Owned by designated
Ownership managed by a board of
individual. partners. partners.
directors.
Ends with the death,
Continuity/Per Exists independent of
Ends with the death or retirement, or insolvency of Continues irrespective
petual changes in shareholders or
insolvency of the proprietor. partners (unless otherwise of changes in partners.
Succession directors.
stated).

Requires incorporation Easy to establish with Requires a partnership deed; Requires registration
Formation
under the Companies Act. minimal formalities. registration is optional. under LLP Act, 2008.
 LLP (Limited
Aspect Company Sole Proprietorship Partnership
Liability Partnership)
Governed by the Minimal regulation; Governed by the LLP
Governed by the Indian
Regulation Companies Act, 2013, governed by local trade Act, 2008, with
Partnership Act, 1932.
with strict compliance. laws. moderate compliance.
Taxed as individual income Taxed like a
Taxed as individual
Taxation Corporate tax structure. (unless LLP-like provisions partnership but benefits
income.
apply). from LLP status.
Decisions made by
Decision- Sole proprietor makes all Joint decision-making by Joint decision-making
directors and shareholders
Making decisions. partners. by designated partners.
through meetings.
Shares can be easily Not transferable; the Ownership can be
Ease of Transfer of interest requires
transferred in a public business ends with the transferred with
Transferability consent of all partners.
company. owner. moderate effort.
Easier access to funding Relatively limited; depends Moderate access; can
Access to Limited to the proprietor’s
through shares, on the partners’ raise capital from
Funds personal resources.
debentures, or loans. contributions. partners.
Profits distributed as Retained entirely by the Shared among partners as Shared among partners
Profit Sharing
dividends to shareholders. proprietor. per the agreement. as per the agreement.
Thank You…!
 MODULE-2
REGISTRATION AND
INCORPORATION OF COMPANY
Mr. Sumit Tak
Assistant Professor
Types of Company
One Person Company (OPC)
◦ A One Person Company is a type of company where a single individual acts as the sole
member and shareholder.
◦ This structure is designed to provide limited liability protection to individual entrepreneurs,
making it a popular choice for small-scale businesses or startups.
◦ While OPCs offer the benefits of limited liability and separate legal status, they are often
restricted in terms of business activities, such as non-banking financial investments.
◦ OPCs have a distinct legal identity separate from their sole member.
◦ At the time of incorporation, a nominee must be appointed to take over the company in case of
the owner's death or incapacity.
◦ OPCs need to file annual financial statements and comply with other regulatory requirements,
albeit less stringent than for larger companies.
◦ OPCs may face restrictions on turnover and paid-up capital (e.g., in India, annual turnover
cannot exceed ₹2 crores to retain OPC status).
◦ Suitable for freelancers, small businesses, and solo entrepreneurs who want to enjoy the
benefits of a corporate structure.
Company Limited by Shares
◦ A Company Limited by Shares is one in which the liability of shareholders is limited to the
unpaid amount on their shares. This is the most common form of company structure.
Companies in this category are further divided into:
◦ Private Limited Companies: Shares are privately held, with restrictions on their transfer.
These companies cannot invite the public to invest.
◦ Public Limited Companies: Shares are freely traded on stock exchanges, and the company
can raise capital from the public.
Unlimited Company
◦ An Unlimited Company is one where the liability of members is not limited.
◦ This means shareholders may be held personally responsible for the company’s debts, even
beyond their investment.
◦ Unlimited companies are rare and are typically used for specialized purposes where higher
risks are involved.
Private Company
◦ A private company limits the transferability of shares and prohibits the public from subscribing
to its shares.
◦ This structure is suitable for small to medium-sized enterprises and usually has a limited
number of shareholders.
◦ Number of minimum and maximum members:
◦ As per Companies Act, 1956 - Minimum Members 2 and Maximum Members 50 Section
3(1)(iii) of the Companies Act, 1956, defines a private company as one that limits its
membership to a maximum of 50.
◦ As per Companies Act, 2013 - Minimum Members 2 and Maximum Members 200, Section
2(68) of the Companies Act, 2013, increased the maximum number of members for private
companies to 200.
Public Company
◦ In contrast, a public company can freely issue shares to the public and list them on stock
exchanges.
◦ It is subject to stricter regulatory and compliance requirements compared to private companies.
◦ Number of minimum and maximum members:
◦ As per Companies Act, 1956 - Minimum Members 7 and Maximum Members No limit, Public
companies have no restriction on the maximum number of members as per Section 3(1)(iv) of
the Companies Act, 1956.
◦ As per Companies Act, 2013 - Minimum Members 7 and Maximum Members No limit, As
per Section 2(71) of the Companies Act, 2013, there is no upper limit on the number of
members in a public company.
◦
Foreign Company
◦ A Foreign Company is one that is incorporated in one country but operates or conducts
business in another.
◦ Such companies are required to comply with the laws of the host country while maintaining
their legal identity in their country of incorporation.
◦ Foreign companies often establish branches, subsidiaries, or representative offices to manage
their operations in other jurisdictions.
◦ Government Company
◦ A Government Company is a company in which the government holds at least 51% of the
shareholding. These companies are usually set up to handle projects of national interest.
◦ Non-Profit Company (Section 8 Company in India)
◦ These companies are formed for charitable, educational, or social welfare purposes rather than
for profit-making.
Pre-incorporation contracts
◦ Promoter
◦ Promoter is defined in Section 2(69): A
promoter refers to a person who is involved in
the formation of a company and plays a
significant role in its establishment.
◦ Promoters conceptualize the business idea and
take steps to incorporate the company.
◦ Promoters have fiduciary duties and are liable
for any misstatements or wrongful actions
during the pre-incorporation stage.
◦ Pre-incorporation
◦ Pre-incorporation contracts are agreements entered into by promoters or representatives on
behalf of a company that has not yet been incorporated.
◦ These contracts are typically made to secure assets, services, or rights that the company will
require once it is established.
◦ Under the Companies Act, 2013, such contracts carry specific legal implications.
◦ These contracts are executed before the company comes into legal existence.
◦ A company, upon incorporation, cannot automatically ratify pre-incorporation contracts because it was
not a party to the contract when it was made.
◦ Until the company adopts the contract, the promoters are personally liable for fulfilling the obligations
under the contract.
◦ Effect of Pre-Incorporation Contracts under SRA:
◦ Section 15 of the Specific Relief Act, 1963: Allows the company to enforce a pre-
incorporation contract if:
◦ The contract was entered into for the company’s benefit.
◦ The company has accepted or adopted the contract after incorporation.
◦ Section 19 of the Specific Relief Act, 1963: States that a company cannot be sued on a pre-
incorporation contract unless it has explicitly accepted or adopted the contract post-
incorporation.
◦ Adoption of Pre-incorporation Contracts:
◦ To make a pre-incorporation contract binding on the company:
◦ The company must pass a board resolution after incorporation explicitly adopting the
contract.
◦ The terms of the contract must align with the objectives stated in the company’s
Memorandum of Association (MoA).
◦ If the company refuses to adopt or fulfill the terms of a pre-incorporation contract, the
promoters remain personally liable to perform the obligations under the contract.
◦ This emphasizes the importance of careful drafting and negotiation of such agreements.
◦ Examples of Pre-incorporation Contracts:
◦ Lease agreements for office premises.
◦ Contracts for the purchase of machinery or equipment.
◦ Agreements with service providers or employees.
◦ Agreements to acquire intellectual property rights.
Incorporation/ Formation of Company
1. Decide on the Type of Company
2. Choose a Company Name
◦ The company must have a unique name. The name should not be identical or similar to any
existing company or trademark.
◦ A name can be proposed through the RUN (Reserve Unique Name) service on the MCA
portal. The name is subject to approval by the Registrar of Companies (RoC).
◦ Ensure that the name complies with the guidelines under the Companies Act and doesn’t
violate trademark rights.
3. Obtain Digital Signature Certificate (DSC)
◦ All directors or promoters of the company must have a Digital Signature Certificate (DSC).
The DSC is required to sign the electronic documents that are submitted to the Registrar of
Companies (RoC).
◦ The DSC is issued by certifying authorities.
4. Obtain Director Identification Number (DIN)
◦ Every director of the company must have a Director Identification Number (DIN), which is
a unique identification number allotted by the Ministry of Corporate Affairs (MCA).
◦ DIN can be applied through the MCA portal.
5. Draft the Memorandum and Articles of Association
◦ Memorandum of Association (MoA): This is a fundamental document that defines the
company's scope of activities and powers. It contains the company’s name, objectives,
capital, liability, etc.
◦ Articles of Association (AoA): This document defines the rules for the management and
governance of the company, such as the rights of directors, shareholders, and procedures for
meetings.
◦ Both MoA and AoA must be signed by the promoters in the prescribed format.
6. Apply for Company Incorporation
◦ After obtaining DSC and DIN, and preparing the MoA and AoA, the next step is to file for
incorporation with the Registrar of Companies (RoC).
◦ The following forms need to be submitted through the MCA portal:
◦ SPICe+ Form (Simplified Proforma for Incorporating Company electronically): This form is
used to apply for the incorporation of a company.
◦ e-MoA (Electronic Memorandum of Association) and e-AoA (Electronic Articles of
Association).
◦ Other relevant documents: Proof of the registered office address, identity, and address proof
of directors.
7. Payment of Fees
◦ Pay the prescribed incorporation fees and stamp duty to the Registrar of Companies (RoC)
based on the authorized capital of the company.
8. Certificate of Incorporation
◦ Once the documents are filed, and the RoC is satisfied with the submission, a Certificate of
Incorporation is issued.
◦ This certificate confirms that the company is officially registered under the Companies Act,
2013.
◦ The date of incorporation mentioned in this certificate marks the legal birth of the company.
9. Apply for PAN and TAN
◦ After receiving the Certificate of Incorporation, the company needs to apply for:
◦ Permanent Account Number (PAN): Required for tax purposes.
◦ Tax Deduction and Collection Account Number (TAN): Required for deducting and
collecting taxes at source.
10. Open a Bank Account
◦ Open a business bank account in the name of the company, using the Certificate of
Incorporation, PAN, and other documents as proof.
Certificate of Incorporation
◦ The Certificate of Incorporation is a legal document issued by the Registrar of Companies
(RoC) under the Companies Act, 2013, confirming that a company is officially registered and
recognized as a separate legal entity in India.
◦ It serves as proof of the company's existence and signifies the successful completion of the
incorporation process.
◦ The certificate contains crucial details such as the Corporate Identity Number (CIN), which is a
unique 21-digit alphanumeric code assigned to the company, the approved name of the
company, the type of company (e.g., Private Limited, Public Limited), and the date of
incorporation, marking the company’s legal formation.
◦ This document is essential for conducting business and is often required for various legal,
financial, and administrative processes, such as opening a corporate bank account or entering
into contracts.
Commencement of Business
◦ The Commencement of Business refers to the
process by which a company, after its
incorporation, fulfills the legal and regulatory
requirements necessary to start its business
operations.
◦ Under the Companies Act, 2013, a company is
required to meet certain conditions before
commencing business activities or exercising
borrowing powers.
Commencement of Business (Section 10A of Companies
Act, 2013)
Section 10A, introduced by the Companies (Amendment) Ordinance, 2019, mandates that a
company incorporated after November 2, 2018, cannot commence business operations until the
following conditions are satisfied:
◦ Declaration of Paid-up Capital:
◦ The company must file a declaration in Form INC-20A with the Registrar of Companies
(RoC) within 180 days of incorporation, confirming that each subscriber to the
Memorandum of Association (MoA) has paid the value of shares agreed to be taken by
them.
◦ This applies to all companies having a share capital.
◦ Verification of Registered Office
◦ The company must ensure that the verification of its registered office has been completed in
accordance with Section 12 of the Companies Act, 2013.
◦ Obtain Business Licenses or Permits
◦ If the business requires specific licenses, registrations, or permits (e.g., GST registration,
trade licenses), these must be obtained.
◦ Bank Account for Subscription Money
◦ The subscription amount from the shareholders must be deposited in the company’s bank
account and used for the business purpose.
◦ Exceptions:
◦ The requirement under Section 10A does not apply to:
◦ Companies incorporated without share capital (e.g., some Section 8 Companies).
◦ Government companies.
Memorandum of Association
and
Article of Association
Memorandum of Association
◦ The Memorandum of Association is the charter of a company.
◦ It is a document, which amongst other things, defines the area within which the company can
operate.
◦ Section 4(1) states that the memorandum of a company shall state:
◦ (a) The Name of the Company with the last word “Limited” in the case of a public limited
company, or the last words “Private Limited” in the case of a private limited company. (This
clause does not apply to a Section 8 Company).
◦ (b) The State in which the registered office of the company is to be situated.
◦ (c) The Objects for which the company is proposed to be incorporated and any matter
considered necessary in furtherance thereof.
◦ (d) The Liability of Members of the company, whether limited or unlimited, and also state,
◦ (i) in the case of a company limited by shares, that liability of its members is limited to the
amount unpaid, if any, on the shares held by them; and
◦ (ii) in the case of a company limited by guarantee, the amount up to which each member
undertakes to contribute
◦ (A) to the assets of the company in the event of its being wound-up while he is a member
or within one year after he ceases to be a member, for payment of the debts and liabilities
of the company or of such debts and liabilities as may have been contracted before he
ceases to be a member, as the case may be; and
◦ (B) to the costs, charges and expenses of winding-up and for adjustment of the rights of
the contributories among themselves;
◦ As per Section 4(6), the memorandum of a company shall be in respective forms specified in
Tables A, B, C, D and E in Schedule I as may be applicable to such company.
The Doctrine of Ultra Vires
◦ The company does an act, or enters into a contract beyond the powers of the directors and/or
the company itself, then the said act/contract is void and not legally binding on the company.
◦ The term Ultra Vires means ‘Beyond Powers’. In legal terms, it is applicable only to the acts
performed in excess of the legal powers of the doer.
◦ This works on an assumption that the powers are limited in nature. Since the Doctrine of Ultra
Vires limits the company to the objects specified in the memorandum, the company can be:
◦ Restrained from using its funds for purposes other than those specified in the Memorandum
◦ Restrained from carrying on trade different from the one authorized.
◦ The company cannot sue on an ultra vires transaction. Further, it cannot be sued too. If a
company supplies goods or offers service or lends money on an ultra vires contract, then it
cannot obtain payment or recover the loan.
Article of Association
◦ Section 5(1) states that the articles of a company shall contain the regulations for
management of the company.
◦ The articles of a company are subordinate to and subject to the memorandum of
association and any clause in the Articles going beyond the memorandum will be ultra
vires.
◦ But the articles are only internal regulations, over which the members of the company
have full control and may alter them according to what they think fit.
◦ The Companies Act, 2013 defines ‘articles’ as the “articles of association of a company
originally framed, or as altered from time to time in pursuance of any previous company
laws or of the present.”
◦ The Articles of Association of a company are that which prescribe the rules, regulations
and the bye-laws for the internal management of the company, the conduct of its
business, and is a document of paramount significance in the life of a company.
◦ The Articles of a company have often been compared to a rule book of the company’s
working, that regulates the management and powers of the company and its officers.
◦ It prescribes several details of the company’s inner workings such as the manner of
making calls, director’s/employees qualifications, powers and duties of auditors,
forfeiture of shares etc.
◦ Articles of association also establish a contract between the members and between the
members and the company.
◦ This contract is established, governs the ordinary rights and obligations that are
incidental to having membership in the company.
◦ all articles that go beyond the memorandum of association will be deemed ultra vires.
◦ Therefore, there should not be any provisions in the articles that go beyond the
memorandum.
◦ Conflict between the memorandum and the articles, the provisions in the memorandum
will prevail.
◦ If there is any ambiguity or uncertainty regarding details in the memorandum, it should
be read along with the articles.
The Doctrine of Constructive Notice
◦ When the Memorandum and Articles of Association of any company, are registered with the
Registrar of Companies they become “public documents” as per section 399 of the Act.
◦ This implies that any member of the general public may view and inspect these documents at
a prescribed fee.
◦ A member of the public may make a request to a specific company, and the company, in turn,
must, within seven days send that person a copy of the memorandum, the articles and all
agreements and resolutions that are mentioned in section 117(1) of the Act.
◦ If the company or its officers or both, fail to provide the copies of the requisite documents,
every defaulting officer will be liable to a fine of Rs. 1000, for every day, until the default
continues, or Rs. 1,00,000 whichever is less.
◦ Therefore, it is the duty of every person that deals with the company to inspect these public
documents and ensure in his own capacity that the workings of the company are in conformity
with the documents.
◦ Irrespective of whether a person has actually read the documents or not, it is assumed that he
familiar with the contents of these documents, and that he has understood them in their proper
meaning.
◦ The memorandum and articles of association are thus deemed as notices to the public, hence a
‘constructive notice’.
Doctrine of Indoor Management
◦ The doctrine of constructive notice protects the company against the claim of third parties
while the doctrine of indoor management protects the third parties against the company
procedures.
◦ The doctrine originated from the landmark case Royal British Bank V Turquand (1856) 6
E&B 327.
◦ In this case, the Articles of the company provide for the borrowing of money on bonds,
which requires a resolution to be passed in the General Meeting.
◦ The directors did acquire the loan but failed to pass the resolution.
◦ The repayment on loan defaulted, and the company was held liable. The shareholders
refused to accept the claim in the absence of the resolution.
◦ The court held that the company shall be held liable, as individuals dealing with the
company have the right to assume that all necessary internal compliance and management
formalities have been duly adhered to.
◦ The rule was further endorsed by the House of Lords in Mahony V East Holyford Mining
Co. [1875] LR 7 HL 869.
◦ In this case, the Articles of the company provided that the cheque shall be signed by two
directors and countersigned by the secretary.
◦ It later came to light that neither the directors nor the secretary who signed the cheque was
appointed properly.
◦ Held, the person receiving such cheque shall be entitled to the amount since the appointment
of directors is a part of the internal management of the company and a person dealing with
the company is not required to enquire about it.
◦ The doctrine provides the third parties who enter into a contract with the company is protected
against any irregularities in the internal procedure of the company.
◦ The third parties cannot find out internal irregularities that take place in a company, hence the
company will be liable for any loss suffered by them due to these irregularities.
Exceptions to the Doctrine of Indoor Management
◦ The Doctrine of Indoor Management, also known as the "Turquand Rule," protects outsiders
dealing with a company by allowing them to assume that the company’s internal procedures
have been duly followed. However, this doctrine is not absolute and is subject to certain
exceptions.
◦ Knowledge of Irregularity
◦ If the outsider dealing with the company is aware of the internal irregularity, they cannot
claim protection under the doctrine.
◦ A director who participates in a transaction knowing that the board’s resolution authorizing
it was not properly passed cannot later invoke the doctrine to validate the transaction.
◦ Suspicion of Irregularity
◦ If the circumstances are such that a prudent person would suspect irregularities, the outsider
is expected to inquire further. Failing to do so disqualifies them from the doctrine's
protection.
◦ In Anand Bihari Lal v. Dinshaw & Co. 1946 a person accepted a property transfer from the
company's accountant. The court ruled against the transfer as it was suspicious for an
accountant to execute such a transaction.
◦ Forgery
◦ The doctrine does not apply to cases involving forgery, as forged documents are void and
cannot bind the company.
◦ In Ruben v. Great Fingall Consolidated, 1906 a company secretary forged share certificates.
The court held that the doctrine does not protect against forgery since the act itself is invalid.
◦ Lack of Authority
◦ When an official acts without authority or exceeds their delegated powers, the company is
not bound by their actions, and the doctrine cannot be invoked.
◦ In Lakshmi Ratan Cotton Mills v. J.K. Jute Mills, 1956 the court held that a loan taken by
the managing director without proper authorization from the board was not binding on the
company.
◦ Representation by an Unauthorized Person
◦ If a person falsely represents themselves as having authority but does not, the company is
not bound by their actions.
◦ If a person claiming to be a director enters into a contract without actual appointment or
authority, the company cannot be held liable for their actions.
Thank You…!
 MODULE 03
PROMOTERS, SECURITIES (SHARES),
DEBENTURES
Mr. Sumit Tak
Assistant Professor
 Promoter:
◦ A promoter is a person who does the necessary preliminary work for the formation of a
company i.e. someone who takes all the necessary steps to bring into existence an
incorporated company. Therefore, a promoter is the first person who is in charge of a
company’s affairs.
◦ Section 2 (69) of the Companies Act, 2013 (hereafter referred to as “the Act” in this article)
defines a promoter as a person-
◦ A person who has been named as such in the prospectus or identified by the company in the
annual return.
◦ A person who has control over the affairs of the company directly or indirectly, whether as a
Shareholder or a Director.
◦ A person under whose advice, directions or instructions, the company’s Board of Directors are
comfortable to act.
◦ The idea of carrying on a business that can be profitably undertaken is conceived either by
a person or by a group of people who are called promoters.
◦ After the idea is conceived, the promoters conduct detailed investigations to find out the
weaknesses and strong points of the idea, determine the amount of capital required, and
estimate the operating expenses and probable income.
 Concept of Fiduciary Relationship
◦ When we talk about the Fiduciary Relationship, it generally means the relationship in which
a person is supposed to act legally on behalf of another person in his best interests.
◦ It is a relationship of mutual friendship and trust or confidence between the parties.
◦ There are various conducts in the day-to-day life of a company that are executed through its
members and all these members of the company are related to one another under this
relation. But the people who are considered and influenced by this relationship are
promoters
◦ A promoter stands in a fiduciary relation (i.e. a relationship that requires confidence or trust)
with the company he promotes.
◦ He is neither an agent nor an employee of the company and, therefore, has to fulfil specific
duties towards the company that do not resemble any agency or employee-employer
relationship.
 Duties of a Promoter:
◦ Duty of Disclosure:
◦ To an independent Board of Directors, or
◦ In the articles of association of the company, or
◦ In the prospectus, or
◦ To the existing and intended shareholders directly.
◦ Promoters must disclose all material facts, including any personal interest in company
transactions or contracts. For instance, if a promoter sells personal property to the company,
the profit or benefit derived must be disclosed.
◦ Duty to Ensure Compliance:
◦ Promoters must comply with all legal provisions under the Companies Act, 2013, and ensure that
incorporation and related activities adhere to applicable laws.
◦ Duty not to make secret profits:
◦ A promoter is duty-bound to not make any profits directly or indirectly at the company’s expense as
it breaches the fiduciary nature of their relationship and incapacitates such promoter from its legal
definition.
◦ If any secret profit made by a promoter becomes known to the company’s stakeholders, they can
compel him to surrender such profit.
◦ Duty of Good Faith
◦ Promoters must act honestly and in the best interest of the company, refraining from fraudulent or
deceptive practices.
◦ Duty to disclose private arrangements
◦ Duty as regards Prospectus
 Liabilities of Promoter:
◦ Liability to account in profit:
◦ The promoter is liable to account to the company for all secret profits made by him without full
disclosure to the company.
◦ The company may adopt one of the following two courses if the promoter fails to disclose the
profit.
◦ (i)The company can sue the promoter for an amount of profit and recover the same with
interest.
◦ (ii) The company can cancel the contract and recover the money paid.
◦ Criminal Liability:
◦ Under the Companies Act 2013, promoters can face penalties or imprisonment for fraud,
misrepresentation, or failure to comply with statutory requirements.

◦ Liability for Misrepresentation: in the prospectus:

◦ If a promoter makes false or misleading statements in the prospectus or other public
documents, they may be liable under Sections 34 and 35 of the Companies Act 2013 for
untrue or misleading statements.
◦ Liability Under Contract:
◦ Promoters may be personally liable for contracts entered into on behalf of the company
before its incorporation unless the company expressly adopts these contracts post-
incorporation.
PROSPECTUS
 Customers

Products
Capital Marketing

Business Funding

Profit or Loss

Shares
Prospectus
◦ Section 2 (70) Prospectus means any document described or issued as a prospectus and includes
a red herring prospectus referred to in section 32 or shelf prospectus referred to in section 31, or
any notice, circular, advertisement or other document inviting offers from the public for the
subscription or purchase of any securities of body corporate;
◦ In other words, a prospectus is any advertisement, circular, or document that invites public
deposits or offers to subscribe or purchase any shares or debentures of a corporate body.
◦ A prospectus may only be issued by a public company to offer its shares and debentures.
◦ A private company cannot issue a prospectus because they are relatively small; thus, they issue
fewer shares and share transferability is limited, resulting in low liquidity of the private
company’s stocks.
 Contents of a Prospectus
◦ Name of the company,
◦ The registered address of the company,
◦ Objectives and purpose of the company,
◦ Purpose of the issue of prospectus,
◦ Nature and capital structure of the business,
◦ Name, location, and the number of shares that signatories have subscribed,
◦ Qualification shares of the directors,
◦ Details on redeemable preference shares and debentures,
◦ Remuneration of directors and promoters,
◦ Minimum subscription for allotment,
◦ Date of opening and closing of the issue,
◦ Information on underwriting commission and brokerage,
◦ Name and address of the company’s auditor, secretary, banker, and trustee,
◦ Particulars of material documents,
◦ Forecasted rate of dividend and voting rights, etc
◦ Requirements as to Issue of the Prospectus of a Company:
• There should be the disclosure of material matters.
• Moreover, it must be dated.
• The company must file a duly signed copy of it to ROC for its registration.
• Furthermore, the Company shall file it with various agencies such as the Securities and Exchange Board of
India (SEBI), stock exchanges, etc.
• SEBI examines the draft of the Prospectus to ensure disclosures and compliances.
Company SEBI

Public
 Types of Prospectus

Prospectus Sec. 2(70)

Abridged
Shelf Prospectus Red Herring Deemed Prospectus
Prospectus
Sec. 31 Sec.32 Sec. 25
Sec. 2(1) and 33

Summary of
Information of Quantity and Price
Prospectus provided Issuing House
Memorandum is not there
along with form.
Shelf Prospectus Section 31
◦ The shelf prospectus is outlined under Section 31 of the Company Act, 2013. A shelf prospectus
offers securities for subscription in one or more issues over a specific period of time without the
need for a fresh prospectus to be issued.
◦ This is done primarily in projects where the issue size is substantial, and large sums of money must
be raised to save on the expense of filing a new prospectus every time.
◦ Shelf prospectus is stated under section 31 of the Companies Act, 2013. A shelf prospectus is issued
when a company or any public financial institution offers one or more securities to the public.
◦ A company shall provide a validity period for the prospectus, which should not be over one year.
The validity period starts with the commencement of the first offer. There is no need for a
prospectus on further offers. The organisation must provide an information memorandum when
filing the shelf prospectus.
Red Herring Section 32
◦ (1) A company proposing to make an offer of securities may issue a red herring prospectus before the
issue of a prospectus.
◦ (2) A company proposing to issue a red herring prospectus under sub-section (1) shall file it with the
Registrar at least three days before the opening of the subscription list and the offer.
◦ (3) A red herring prospectus shall carry the same obligations as a prospectus. Any variation between
the red herring prospectus and a prospectus shall be highlighted as variations in the prospectus.
◦ (4) Upon the closing of the offer of securities under this section, the prospectus stating therein the total
capital raised, whether by way of debt or share capital and the closing price of the securities and any
other details as are not included in the red herring prospectus shall be filed with the Registrar and the
Securities and Exchange Board.
◦ Explanation.—For this section, the expression "red herring prospectus" means a prospectus which does
not include complete particulars of the quantum or price of the securities included therein
Abridged Prospectus Section 2(1) & 33
◦ Section 2(1) of the Company Act 2013 outlines an abridged prospectus. It means a memorandum
containing the salient features of a prospectus as per the regulations specified by the Securities and
Exchange Board.
◦ Section 33 mandates issuing application forms for securities along with an abridged prospectus.
◦ 33. Issue of application forms for securities:
◦ (1) No form of application for the purchase of any of the securities of a company shall be issued
unless an abridged prospectus accompanies such form:
◦ Provided that nothing in this sub-section shall apply if it is shown that the form of application was
issued
◦ (a) in connection with a bona fide invitation to a person to enter into an underwriting agreement
with respect to such securities or
◦ (b) in relation to securities which were not offered to the public.
◦ (2) A copy of the prospectus shall be furnished to him on a request made by any person before
the closing of the subscription list and the offer.
◦ (3) If a company makes any default in complying with the provisions of this section, it shall be
liable to a penalty of fifty thousand rupees for each default. an abridged prospectus
accompanies such form.
Deemed Prospectus Section 25
◦ Section 25 of the Company Act 2013 discusses deemed prospectuses. A deemed prospectus is a
document that is assumed to represent a company’s prospectus. A deemed prospectus is a document
that contains an offer for sale made by the intermediary or issuing house on behalf of a company that
allots or agrees to allot its shares or securities through an intermediary, such as a merchant bank,
another business, or an issuing house. A company usually opts for a deemed prospectus to avoid
complying with regulations issued by the SEBI.
◦ A deemed prospectus is considered a document of offer for sale if it meets any of the following
criteria:
1.The intermediary made an offer to sell shares to the public within six months of the allotment of
shares or
2.The company allotted its shares to the intermediary but has not received payment in exchange for
the shares the offer for sale was made by the intermediary.
Shares - Meaning and Nature
◦ Shares are the fundamental units of ownership in a company. They represent a proportionate
stake in the company’s capital and give the shareholder specific rights, such as voting,
dividends, and a share in the company’s surplus assets during liquidation.
◦ The term "share" is defined under Section 2(84) of the Companies Act, 2013, as "a share in the
share capital of a company, including stock."
◦ A share is essentially a unit that measures a shareholder's interest in the company.
◦ Shares represent ownership in the company's capital.
◦ Shareholders are part-owners of the company, but their liability is typically limited to the
unpaid value of their shares.
◦ Shares are transferable, subject to the company’s articles of association.
 Nature of Shares
◦ Movable Property
◦ Sec. 44. Nature of shares or debentures.—The shares or debentures or other interests of any
member in a company shall be movable property transferable in the manner provided by the
company’s articles.
◦ Shares are movable under Section 44 of the Companies Act, 2013.
◦ They can be bought, sold, transferred, or pledged, like any other movable property.
◦ Evidence of Ownership
◦ A share signifies ownership in the company's equity. However, it does not entitle the shareholder to
own any specific assets of the company.
◦ Legal Status
• A share is not merely a piece of paper or a certificate. (a type of intangible property).
• The share ownership confers legal and financial rights per the Companies Act’s provisions and the
company’s governing documents.
◦ Rights Attached to Shares
◦ Each share comes with a bundle of rights:
◦ Shareholders are entitled to receive a share in the profits declared as dividends.
◦ Voting rights vary depending on the type of shares (e.g., equity shares typically have
voting rights).
◦ In case of liquidation, shareholders are entitled to their share of the remaining assets after
debts are cleared.
◦ Contractual Relationship
◦ Holding shares establishes a contractual relationship between the shareholder and the
company, as defined in the Memorandum of Association (MOA) and Articles of
Association (AOA).
◦ Indivisibility
◦ Shares are indivisible. For instance, a single share cannot be divided among multiple
owners. However, co-ownership of a share is possible (e.g., joint shareholders).
Types of Shares
◦ Equity Shares (Ordinary Shares)
◦ These are the most common types of shares issued by a company, representing ownership in
the business.
• Equity shareholders have the right to vote in company meetings and influence decisions.
• They bear the highest risk but also enjoy dividends and capital appreciation when the
company performs well.
• In case of liquidation, equity shareholders are the last to be paid after all creditors and
preference shareholders.
◦ Subtypes of Equity Shares:
• With Voting Rights: Shareholders can vote in company decisions.
• Without Voting Rights: Shareholders do not have voting power but may receive higher
dividends.
◦ Preference Shares
◦ These shares provide shareholders with a fixed dividend before equity shareholders are paid.
• Preference shareholders get dividends before equity shareholders.
• They are paid before equity shareholders in the event of liquidation.
• Generally, preference shareholders do not have voting rights, except in specific situations
like non-payment of dividends.
◦ Subtypes of Preference Shares:
◦ Cumulative Preference Shares: Unpaid dividends are carried forward to subsequent years.
◦ Non-Cumulative Preference Shares: Dividends are not carried forward if unpaid.
◦ Convertible Preference Shares: Can be converted into equity shares after a certain period.
◦ Non-Convertible Preference Shares: Cannot be converted into equity shares.
◦ Participating Preference Shares: Shareholders can participate in surplus profits after paying
equity dividends.
◦ Non-Participating Preference Shares: Shareholders do not share in surplus profits.
◦ Redeemable Preference Shares: These shares can be repurchased or redeemed by the
company after a specified period or upon fulfilling certain conditions.
◦ Irredeemable Preference Shares: These shares cannot be redeemed during the company’s
lifetime and are repaid only during liquidation.
Securities (Shares) - Allotment of
securities and Share Holdings
◦ Securities are financial instruments representing ownership (shares), a debt obligation
(debentures), or ownership rights.

◦ Shares are a type of security that signifies ownership in a company, giving the holder a claim
on the company's assets and earnings.

◦ Types of Securities:
◦ Equity Shares: Represent ownership with voting rights and dividends.
◦ Preference Shares: Offer fixed dividends and priority in repayment during liquidation.
◦ Debentures: Represent debt securities with fixed interest payments.
 Allotment of Securities (Shares)
◦ Allotment refers to the process by which a company issues securities (shares) to subscribers or
investors.
◦ The allotment of shares is governed by the Companies Act 2013 in India, particularly under
Sections 39-42 and related rules.
◦ Section 39: Allotment of Securities by Company
◦ Applies to the allotment of securities in a public offer.
◦ A company cannot allot securities unless the minimum subscription in the prospectus is
received.
◦ If the stated minimum subscription is not received within 30 days of the issue, the
amount collected must be refunded.
◦ Any application for securities must be accompanied by an application for money of at
least 5% of the nominal value of the securities or such higher percentage as specified by
SEBI.
◦ Section 40: Securities to Be Dealt with in Stock Exchanges
◦ Mandatory Listing: A company making a public offer must ensure its securities are listed on
at least one recognised stock exchange.
◦ Approval Requirement: Before issuing a prospectus, the company must obtain permission
from the stock exchange to list its securities.
◦ Refund of Money: If the permission to list is not granted, the company must refund all
application money within the prescribed time.
◦ Section 41: Global Depository Receipts (GDRs)
◦ Allows a company to issue securities in the form of depository receipts (such as GDRs
or ADRs) outside India.
◦ The issue must comply with rules prescribed by the Central Government and align with
foreign investment policies.
◦ This enables companies to raise capital in international markets.
◦ Section 42: Private Placement
◦ Governs the issue of securities to a select group of investors (not exceeding 200 persons in a
financial year, excluding qualified institutional buyers and employees under ESOP).
◦ A private placement offer letter must be issued to the identified investors.
◦ The subscription money must be paid through banking channels, not cash.
◦ The company must file a return of allotment with the Registrar of Companies (RoC) within
15 days of the allotment.
◦ Non-compliance can attract penalties.
 Stages in the Allotment of Shares
◦ Issuance of Prospectus:
◦ A public company invites applications by issuing a prospectus or offering memorandum.
◦ The document specifies the offer’s details, such as the number of shares, price, and terms.
◦ Application for Shares:
◦ Interested investors submit applications, along with application money.
◦ Applications can be oversubscribed (more applications than shares offered) or
undersubscribed.
◦ Allotment of Shares:
◦ Shares are allotted based on the applications received.
◦ The company issues an allotment letter confirming the allocation.
◦ In case of oversubscription, allotment may be proportional or as per a lottery.
◦ Return of Allotment:
◦ After allotment, the company must file a Return of Allotment with the Registrar of
Companies (RoC) within 30 days.
◦ Issuance of Share Certificates:
◦ Obtain approval from the board of directors and shareholders (if required).
◦ Once the allotment is finalised, the company issues share certificates as proof of ownership.
◦ For dematerialised shares, the allotment is credited directly to the shareholder's demat
account.
◦ The issuance of shares is a critical means for companies to raise equity capital. Companies
can choose the method of issue based on their financial needs, regulatory requirements, and
shareholder preferences.
◦ Proper compliance with the Companies Act and SEBI regulations ensures a transparent and
efficient process, fostering investor trust and confidence.
Certificate of Shares
◦ A certificate of shares is a legal document issued by a company as evidence of ownership of a
specific number of shares by a shareholder.
◦ It proves the shareholder’s stake in the company and their entitlement to associated rights.
◦ A share certificate is a physical or digital document that certifies that an individual or entity is
the registered owner of a certain number of shares in a company. It is issued under the
provisions of the Companies Act, 2013 in India.
◦ Section 46 – Certificate of Shares
• A share certificate is evidence of the title of the person to the shares specified in it.
• A duplicate share certificate may be issued in case of loss or damage, subject to the
company’s rules and procedures.
◦ Contents of a Share Certificate
◦ Under Section 46 of the Companies Act, 2013, and the Companies (Share Capital and
Debentures) Rules, 2014, a share certificate must include
◦ Name of the Company: Full legal name and registered office address.
◦ Corporate Identification Number (CIN): A unique identification number for the company.
◦ Serial Number: Unique identification number for the certificate.
◦ Name of the Shareholder: The person/entity to whom the shares are issued.
◦ Number of Shares: The quantity of shares the certificate represents.
◦ Distinctive Numbers: The range of numbers assigned to the shares (e.g., 101 to 200).
◦ Class of Shares: Type of shares (e.g., equity or preference shares).
◦ Face Value and Paid-Up Value: The nominal value per share and the amount paid up on each
share.
◦ Issue Date: The date on which the certificate is issued.
◦ Signatures: Signed by at least two directors or one director and a company secretary, as per
company rules.
◦ Seal of the Company: (If applicable, though optional under the Companies Act, 2013).
Shareholders and Voting Rights
◦ Shareholders are individuals or entities that own shares in a company, making them partial
owners. Voting rights are a key privilege associated with certain types of shares, allowing
shareholders to participate in important company decisions.
◦ The relationship between shareholders and voting rights is governed by the Companies Act of
2013 and the company's Articles of Association (AoA).
◦ Equity Shareholders:
◦ Own equity shares in the company.
◦ Entitled to voting rights.
◦ Have residual rights on profits (dividends) and assets after clearing liabilities.
◦ Governed by Section 47(1)(a) of the Companies Act, 2013.
◦ Voting Rights:
◦ One vote per share.
◦ Can vote on resolutions in general meetings, including decisions related to:
◦ Appointment/removal of directors.
◦ Approval of financial statements.
◦ Issuance of new shares.
◦ Mergers, amalgamations, or winding up.
◦ Preference Shareholders
◦ Own preference shares in the company.
◦ typically have no voting rights except in specific situations (e.g., when dividend
payments are in arrears).
◦ Governed by Section 47(2) of the Companies Act, 2013.
◦ Limited Voting Rights:
◦ No voting rights in normal circumstances.
◦ Voting rights arise only when:
◦ The company fails to pay dividends for two or more consecutive years.
◦ A resolution directly affects their rights, such as:
◦ Alteration of the Articles of Association.
◦ Issuance of further preference shares.
◦ Winding up of the company.
◦ Restrictions on Voting Rights
◦ Unpaid Calls:
◦ Shareholders who have not fully paid their share capital may have their voting rights
restricted.
◦ Governed by the Articles of Association.
◦ Conflicts of Interest:
◦ A shareholder cannot vote on matters where they have a personal interest, such as
approving contracts in which they are directly involved.
Transfer of Shares
◦ The transfer of shares refers to the voluntary process of transferring ownership of shares from
one person (the transferor) to another (the transferee). This process is governed by the
Companies Act of 2013 and the company’s Articles of Association (AoA).
◦ The transfer of shares involves the movement of shares from the existing shareholder to
another individual or entity. This changes the ownership, but the company's share capital
remains unaffected.
◦ Types of Companies and Transfer Rules
◦ Public Companies:
◦ Shares are freely transferable.
◦ Subject to restrictions under the Articles of Association.
◦ Private Companies:
◦ Shares are not freely transferable.
◦ Transfer is subject to restrictions in the Articles of Association, such as:
◦ Right of first refusal: Existing shareholders have the first right to purchase shares.
◦ Approval of the board: Requires board approval for the transfer.
Shareholders and Members
◦ Member
◦ A member is any person whose name is entered in the Register of Members of the
company.
◦ Governed by Section 2(55) of the Companies Act, 2013.
◦ Includes:
◦ Subscribers to the Memorandum of Association (MOA).
◦ Individuals who acquire shares and are registered in the Register of Members.
◦ Shareholder
◦ A shareholder is a person who owns one or more shares in a company.
◦ Shareholders derive ownership rights in a company by holding equity or preference shares.
◦ Relationship Between Shareholders and Members
◦ All shareholders are members if their names are registered in the company’s Register of
Members.
◦ Not all members are shareholders:
◦ For example, in a company limited by guarantee, members do not hold shares but are
still considered members.
◦ In the case of transmission of shares, the legal heir may be a member without being a
shareholder until the shares are registered in their name.
◦ Rights of Members:
◦ Access to Records:
◦ Right to inspect statutory registers, books of accounts, and other company records.
◦ Participation in Meetings:
◦ Attend general meetings and propose resolutions.
◦ Voting Rights:
◦ Members (who are shareholders) with equity shares can vote on resolutions.
◦ Legal Remedies:
◦ Right to approach tribunals for redressal of grievances (e.g., oppression or
mismanagement).
◦ Rights of Shareholders:
◦ Ownership Rights:
◦ Shareholders own a portion of the company proportionate to their shareholding.
◦ Dividend Entitlement:
◦ Right to receive declared dividends.
◦ Capital Gain:
◦ Right to sell or transfer shares and benefit from price appreciation.
◦ Participation in Profits:
◦ Equity shareholders receive residual profits after liabilities are settled.
◦ Termination of Membership or Shareholding
◦ Membership: Ceases upon transfer of shares, resignation, death, or winding up of the
company.
◦ Shareholding: Ceases upon selling or transferring shares, buybacks, or forfeiture.
 Difference between Members and Shareholders
Member Shareholder
A person whose name is registered in the
Definition A person who owns shares in the company.
Register of Members.
Members are not always shareholders (e.g., in All shareholders are members if their names are
Ownership
a guarantee company). registered.

Legal Basis Membership is established by registration. Shareholding is based on owning shares.

Applies to companies limited by shares,

Applicability Applies only to companies with share capital.
guarantee, or unlimited companies.
Subscribers to Automatically become members upon Become shareholders only when shares are allotted
MOA registration of the company. to them.
Membership may exist without shareholding Shares can be transferred, creating new
Transferability
(e.g., guarantee company). shareholders.
Shareholders usually have voting rights (equity
Voting Rights All members may not have voting rights.
holders).
Share Capital and kinds of share capital.
◦ Share Capital refers to the funds raised by a company by issuing shares to investors.
◦ It represents the total amount shareholders invest in the company for its operations. Share
capital is a crucial part of a company’s financial structure and is classified into various types.
◦ According to Section 2(84) of the Companies Act 2013, share capital refers to the subscribed
capital of a company. It is divided into shares of fixed value, and each share represents
ownership in the company.
• Alteration of Share Capital: A company may increase, reduce, or restructure its share capital
by amending its Memorandum of Association (MOA).
• Governed by Sections 61-64 of the Companies Act, 2013
 Types of Share Capital

Authorized Issued Called-up Paid-up Uncalled Reserve

Subscribed
Share Share Share Share Share Share
Capital
Capital Capital Capital Capital Capital Capital
◦ Example:
◦ Authorized Share Capital = 50 L
◦ Issued Share Capital = 12L
◦ Subscribed Capital = 10L
◦ Subscribed and Fully paid
◦ Subscribed but not fully paid-up
Application Allotment First Call Final Call
2 3 3 2

◦ Called-up Share Capital = E.g., the Company calls shareholders and asks them to pay the first
call amount, first call 3x 1,00,000/- shares = 3,00,000/-
◦ Paid-up Share Capital – it refers to that part of called-up capital which has actually been paid by
the shareholders.
◦ E.g. Called-up Rupees 3 for the first call but received only 2 rupees per share 2x1,00,000/- =
2,00,000/- is Paid up Share Capital
◦ Uncalled-up Share Capital- The remaining part of subscribed capital not yet called up by the
company to pay is known as uncalled-up capital
◦ E.g – the Company does not make the final call of Rupees 3 on each share, so uncalled-up
share capital is 3x1,00,000=3,00,000 is uncalled-up capital
Types of Share Capital
Based on Accounting and Usage
◦ Authorized Share Capital:
◦ The maximum amount of capital a company is authorised to issue as per its
Memorandum of Association (MOA).
◦ Can be increased by amending the MOA and following the procedures prescribed
under the Companies Act.
◦ Issued Share Capital:
◦ The part of the authorised capital the company offers to investors for the subscription.
◦ It can be less than or equal to the authorised share capital.
◦ Subscribed Share Capital:
◦ The portion of the issued capital that investors have agreed to purchase.
◦ Called-up Share Capital:
◦ The part of the subscribed capital that the company has demanded (called) from the shareholders.
◦ For example, if ₹800 is called out of a ₹1000 share, ₹800 is the called-up share capital.
◦ Paid-up Share Capital:
◦ The portion of the called-up capital that shareholders have actually paid.
◦ Example: If ₹600 is paid out of a ₹1000 share, the paid-up capital is ₹600.
◦ Paid-up share capital represents the actual funds received by the company.
◦ Uncalled Share Capital:
◦ The portion of subscribed capital that the company has not yet demanded from shareholders.

◦ Reserve Share Capital:

◦ A portion of uncalled share capital reserved to be called only in the event of winding up of
the company.
◦ Based on Ownership
◦ Equity Share Capital
◦ Preference Share Capital
◦ Based on the Nature of the Payment
◦ Paid-up Share Capital:
◦ Fully or partly paid by shareholders.
◦ Unpaid Share Capital:
◦ Yet to be paid by shareholders (uncalled or outstanding amount).
Buyback of Shares
◦ Buyback of shares refers to the process by which a company repurchases its own shares from
existing shareholders. This reduces the number of outstanding shares in the market and
enhances the value of the remaining shares.
◦ The buyback is regulated under the Companies Act, 2013, and the SEBI (Buyback of
Securities) Regulations, 2018 for listed companies.
◦ Under Section 68 of the Companies Act, 2013, buyback means the repurchase of its own shares
or securities by a company from its shareholders.
◦ The company can buy back shares to reduce capital, improve financial ratios, or return surplus
cash to investors.
◦ Reducing the supply of shares in the market, leading to an increase in their price.
◦ Reducing the number of available shares can prevent outsiders from acquiring control.
Dividend
◦ Section 2(35) of the Companies Act, 2013
◦ A dividend is the portion of a company’s profits distributed to its shareholders as a return on
their investment.
◦ It is paid in proportion to the number of shares held and can be given in cash, shares, or other
assets.
◦ The payment of dividends is governed by the Companies Act, 2013, and the Income Tax Act,
1961.
Types of Dividends
◦ Based on Timing
◦ Final Dividend:
◦ Declared at the Annual General Meeting (AGM).
◦ Paid after approval from shareholders.
◦ Usually recommended by the Board of Directors.
◦ Interim Dividend:
◦ Declared by the Board of Directors before the financial year ends.
◦ Does not require shareholder approval.
◦ Usually paid when the company makes good profits during the year.
◦ Based on Form of Payment
◦ Cash Dividend:
◦ Paid in cash to shareholders.
◦ The most common form of dividend.
◦ Stock Dividend (Bonus Shares):
◦ Paid in the form of additional shares instead of cash.
◦ Increases the number of shares held but does not affect total capital.
◦ Property Dividend:
◦ Paid in the form of assets (e.g., physical goods, bonds, or property).
◦ Rarely used.
◦ Section 123 – Declaration of Dividend
◦ A company can declare and pay dividends only if:
◦ It has profits available for distribution.
◦ The dividend is paid out of:
◦ Current year’s profit.
◦ Retained earnings (free reserves).
◦ The Board must transfer a certain percentage of profits to reserves before declaring
dividends.
◦ Restrictions:
◦ Dividends cannot be paid from capital (except in liquidation).
◦ Unpaid dividends must be transferred to the Unpaid Dividend Account.
◦ Section 124 – Unpaid Dividend
◦ If a declared dividend is not claimed within 30 days, it must be transferred to the Unpaid
Dividend Account.
◦ If it remains unpaid for 7 years, it must be transferred to the Investor Education and
Protection Fund (IEPF).
◦ Section 125 – Investor Education and Protection Fund (IEPF)
◦ Companies must transfer unclaimed dividends to the IEPF after 7 years.
◦ Shareholders can claim unpaid dividends by applying to the IEPF Authority.
◦ Section 127 – Punishment for Failure to Pay Dividend
◦ If a company fails to pay dividends within 30 days, it can face penalties:
◦ Company Fine: ₹1,000 per day (up to ₹5 lakh).
◦ Director Penalty: Imprisonment (up to 2 years) or a fine up to ₹1 lakh or both.
Debentures - Meaning, Kinds and Characteristics
◦ Meaning of Debentures
◦ A debenture is a long-term financial instrument used by companies to raise funds from the
public. It is a type of debt security that acknowledges a company’s loan and obligates it to
repay the principal amount along with interest.
◦ According to Section 2(30) of the Companies Act, 2013, a debenture includes “debenture
stock, bonds, or any other instrument of a company evidencing a debt, whether constituting
a charge on the assets of the company or not.”
◦ It is a form of loan capital for a company.
◦ The debenture holders are creditors, not owners, of the company.
◦ A company pays fixed interest on debentures, usually at a predetermined rate.
◦ Debentures may or may not be secured against company assets.
Kinds of Debentures
◦ Secured Debentures:
◦ These are backed by the company’s assets as collateral.
◦ If the company defaults, debenture holders have the right to claim the asset.

◦ Unsecured (Naked) Debentures:

◦ No asset is pledged as security.
◦ Debenture holders rely solely on the company’s creditworthiness.
◦ Convertible Debentures:
◦ Can be converted into equity shares of the company after a specific period.
◦ Helps investors benefit from potential stock price appreciation.
◦ Types:
◦ Fully Convertible Debentures (FCD) – Entirely converted into shares.
◦ Partly Convertible Debentures (PCD) – Only a portion is converted into shares.

◦ Non-Convertible Debentures (NCDs):

◦ Cannot be converted into equity shares.
◦ These offer higher interest rates to compensate for the lack of conversion benefits.
◦ Redeemable Debentures:
 These have a fixed maturity date when the company repays the principal amount.
 Companies may repay in installments or as a lump sum.

◦ Irredeemable (Perpetual) Debentures:

 No fixed maturity date.
 Interest is paid indefinitely until the company decides to repay.
Characteristics of Debentures
◦ Debenture holders receive a fixed interest (coupon rate), making it a reliable investment.
◦ Unlike shareholders, debenture holders do not have voting rights or ownership in the
company.
◦ In case of liquidation, debenture holders are repaid before shareholders.
◦ Companies issue debentures to raise long-term capital for expansion and projects.
◦ Most debentures are easily transferable in the market.
◦ Debentures may be secured against assets or unsecured, depending on the company’s policy.
Thank You…!
 MODULE 04
APPOINTMENT, ROLE AND
QUALIFICATION OF DIRECTOR AND
MEETINGS OF BOARDS
Mr. Sumit Tak
Assistant Professor
Board of Directors (BoD)
◦ The Board of Directors (BoD) is a governing body responsible for managing a company's
affairs and making strategic decisions.
◦ The board plays a crucial role in ensuring compliance, transparency, and efficient corporate
governance.
◦ They act as fiduciaries to protect shareholders' interests.
◦ Composition of the Board (Section 149 of the Companies Act, 2013)
◦ The number of directors in a company is determined by law:
◦ Private Company: Minimum 2 directors
◦ Public Company: Minimum 3 directors
◦ One Person Company (OPC): Minimum 1 director
◦ Maximum Directors Allowed: 15 (can be increased by passing a special resolution)
◦ Additional Board Requirements for Listed Companies:
◦ At least one-third of the board must be Independent Directors.
◦ At least one woman director is mandatory for listed and certain public companies.
Legal Position of Directors
◦ The legal position of directors under the Companies Act, 2013, can be analyzed from different
perspectives, as they function in multiple capacities agents, trustees, employees, and officers of
the company.
◦ Directors as Agents
◦ A company is an artificial legal entity and cannot act by itself. Directors act as agents of the
company, performing legal and contractual functions on its behalf.
◦ Directors bind the company through contracts they enter into.
◦ Company is liable for the acts of directors done within their authority.
◦ If directors act beyond their authority, they may be personally liable.
◦ Directors as Trustees
◦ Directors hold and manage assets of the company in trust for shareholders and must act in
their best interests.
◦ Responsibilities as Trustees:
◦ They must act honestly and in good faith.
◦ They cannot use company funds for personal benefit.
◦ Directors must act with due diligence and competence.
◦ Directors as Employees
◦ When a director is appointed to a full-time executive position (such as Managing Director or
CEO), they become an employee of the company.
◦ Executive Directors work under a contract of employment.
◦ Entitled to salary, benefits, and perquisites like other employees.
◦ Bound by employment terms and disciplinary actions under labor laws.
◦ However, non-executive directors are not considered employees, as they do not engage in
day-to-day management.
Powers of Directors
◦ General Powers (Section 179)
◦ The Board of Directors (BoD) has the authority to:
◦ Manage company affairs.
◦ Approve financial statements.
◦ Issue shares and securities.
◦ Borrow and invest funds.
◦ Appoint and remove key managerial personnel (KMP).
◦ The Board exercises these powers collectively in board meetings unless delegated to
committees or individuals.
◦ Specific Powers Requiring Board Resolution
◦ Certain decisions must be approved in a Board Meeting, including:
◦ Making calls on shareholders for unpaid shares.
◦ Authorizing buy-back of shares (Section 68).
◦ Approving mergers, takeovers, or acquisitions.
◦ Investing in subsidiaries or joint ventures.
◦ Taking loans and issuing debentures.
◦ Appointing or removing key Managerial Personnel (KMP) (Section 203).
◦ Some decisions also require shareholder approval through a special resolution (e.g., increasing
authorized share capital).
◦ Powers Requiring Shareholder Approval
◦ Certain decisions need approval from shareholders in a general meeting, such as:
◦ Selling, leasing, or disposing of company assets (Section 180).
◦ Giving loans or guarantees exceeding specified limits (Section 186).
◦ Appointing a director who is over 70 years old (Section 196).
◦ Paying directors remuneration beyond prescribed limits (Section 197).
◦ These require a special resolution (75% majority vote) in the general meeting.
◦ Powers Delegated to Managing Directors or Committees
◦ The Board can delegate powers to:
◦ Managing Director (MD): Handles day-to-day operations.
◦ Executive Directors: Oversee specific functions like finance or HR.
◦ Audit, Nomination, and CSR Committees: Manage compliance and governance.
◦ Delegation of powers must be authorized in the company's Articles of Association (AoA).
◦
Section 166: Duties of Directors
◦ Directors have legal obligations towards the company and stakeholders. Section 166 of the
Companies Act, 2013.
◦ Fiduciary Duties
◦ Directors must act in good faith and in the best interest of the company and shareholders.
◦ Duty of Loyalty: Avoid conflicts of interest.
◦ Duty of Confidentiality: Protect company secrets.
◦ Duty of Integrity: No misuse of company resources for personal gain.
◦ Duty to Act Within Authority
◦ Directors must follow the Articles of Association (AoA) and Memorandum of Association
(MoA).
◦ They cannot exceed their legal powers or act beyond the company’s objectives.
◦ Duty of Care and Skill
◦ Directors must act with due diligence, care, and skill while making business decisions.
◦ Should take informed decisions based on professional advice.
◦ Must regularly attend Board Meetings and review financial statements.
◦ Duty to Avoid Conflicts of Interest
◦ Directors must:
◦ Not enter into contracts where they have a personal interest.
◦ Disclose any related-party transactions (Section 184).
◦ Avoid engaging in competing businesses.
◦ If a director of Tata Motors also owns shares in a competing company like Mahindra, they
must disclose this conflict of interest.
◦ Duty Not to Make Undue Gains
◦ Directors cannot make personal profits at the company’s expense.
◦ Section 197 restricts excessive director remuneration.
◦ Insider trading is prohibited under SEBI regulations.
◦ Directors must repay any undue gains and may face fines or imprisonment.
◦ Duty to Ensure Legal Compliance
◦ Directors must ensure that the company:
◦ Follows tax laws, labor laws, and corporate governance regulations.
◦ Files financial statements and annual returns on time (Section 92).
◦ Pays statutory dues like GST, TDS, and Provident Fund contributions.
◦ Penalty for Non-Compliance: Directors can be personally liable if found guilty of fraud or
negligence.
Civil and Criminal Liability of Directors
◦ Civil Liability of Directors
◦ Civil liability arises when a director fails to comply with corporate laws, causing financial
loss or harm to the company, shareholders, or creditors.
◦ Liability for Misstatements in Prospectus (Section 34 & 35)
◦ If directors issue a prospectus with false or misleading information, they are liable for
losses suffered by investors.
◦ Compensation to affected investors + fines up to ₹5 lakh per director.
◦ Derry v. Peek (1889): Directors were held liable for misrepresentation in a company
prospectus.
◦ Liability for Fraudulent Trading (Section 339, Companies Act & Section 66, Insolvency
and Bankruptcy Code, 2016)
◦ If directors carry on business with intent to defraud creditors, they can be held personally
liable.
◦ Liability to repay debts personally.
◦ Liability for Default in Payment of Dividends (Section 127)
◦ If a company declares dividends but fails to pay within 30 days, directors are responsible.
◦ Interest on unpaid dividends + up to 2 years imprisonment + ₹1,000 per day fine.
◦ Liability for Non-Filing of Financial Statements (Section 137 & 92)
◦ Directors must file annual financial statements and annual returns with the Registrar of
Companies (ROC).
◦ If they fail to do so, Fine of ₹1 lakh to ₹5 lakh per director.
◦ Liability for Wrongful Acts Against Shareholders
◦ Oppression & Mismanagement (Section 241-242):
◦ If directors misuse power, minority shareholders can file a complaint with NCLT (National
Company Law Tribunal).
◦ Directors may be removed or fined.
◦ Liability for Failure to Maintain Statutory Records
◦ Companies must keep proper books of accounts and registers.
◦ Fine up to ₹5 lakh for each director.
Criminal Liability of Directors
◦ Criminal liability arises when a director knowingly engages in illegal acts, such as fraud, tax
evasion, or mismanagement, which are punishable by fines or imprisonment.
◦ Criminal Liability for Fraud (Section 447)
◦ If directors commit fraud, including falsification of accounts or misrepresentation, they face
severe penalties.
◦ Imprisonment of 6 months to 10 years + fine of up to 3 times the fraud amount.
◦ Satyam Scam (2009) Directors were imprisoned for 7 years for financial fraud.
◦ Criminal Liability for Non-Payment of Tax (Income Tax Act, GST Act)
◦ If directors fail to deposit TDS, GST, or corporate taxes, they are personally liable.
◦ Fine + imprisonment of up to 7 years under the Income Tax Act.
◦ Criminal Liability for Corporate Manslaughter (IPC & Factories Act, 1948)
◦ If a director ignores workplace safety, leading to an employee’s death, they face criminal
prosecution.
◦ Penalty: Imprisonment up to life under Section 304A IPC.
◦ The Bhopal Gas Tragedy (1984) led to criminal charges against the company’s directors for
negligence.
◦ Criminal Liability for Non-Compliance with Corporate Social Responsibility (CSR)
(Section 135)
◦ CSR spending (2% of net profit) is mandatory for large companies.
◦ Fine up to ₹25 lakh + imprisonment of directors up to 3 years.
◦ SEBI has issued notices to companies failing to comply with CSR obligations.
◦ Directors hold significant power and responsibility in managing a company. Any violation of
the Companies Act, 2013, SEBI rules, or tax laws can lead to civil fines, personal liability, or
criminal imprisonment. Proper corporate governance and compliance are essential to avoid
these risks.
Inspection, Inquiry, and Disqualification under the
Companies Act, 2013
◦ The framework for inspection, inquiry, and disqualification of companies and their officers to
ensure compliance and prevent fraud. These are primarily covered under Chapter XIV
(Sections 206-229) of the Act.
◦ Inspection (Section 206)
◦ The Registrar of Companies (ROC) has the power to inspect company records and accounts.
◦ The ROC can call for information or explanations from the company.
◦ If the ROC suspects non-compliance, he may order further investigation.
◦ If irregularities are found, the ROC may take action under Sections 207-208.
◦ Section 207 – Conduct of Inspection and Inquiry
◦ This section outlines how a company and its officers must cooperate when an inspection or
inquiry is conducted by the Registrar of Companies (ROC) or other authorized officers.
◦ Company's Duty to Cooperate
◦ The company and its officers must produce documents, records, or any required information
during an inspection.
◦ They must not hide or destroy any relevant documents.
◦ Right to Examine on Oath
◦ The inspecting officer has the power to examine officers and employees under oath.
◦ Penalty for Non-Compliance
◦ If a company or officer fails to provide information or makes false statements, they may
face:
◦ Imprisonment up to 1 year, and/or
◦ Fine between ₹25,000 and ₹1 lakh.
◦ Section 208 – Report on Inspection
◦ After completing the inspection or inquiry, the ROC must submit a report to the Central
Government with findings and recommendations.
◦ The report may recommend further investigation, if serious irregularities or fraud are
detected.
◦ Based on this report, the government may order:
◦ A detailed investigation under Section 210.
◦ An SFIO (Serious Fraud Investigation Office) inquiry under Section 212 if fraud is
suspected.
◦ Section 211 – Establishment of SFIO (Serious Fraud Investigation Office)
◦ The SFIO is a specialized government agency that investigates serious corporate fraud. It
consists of experts from various fields like law, finance, and forensic auditing.
◦ Section 212 – SFIO Investigation
◦ The Central Government may refer a case to SFIO if:
◦ The company is involved in a fraud of public interest.
◦ There is complex financial manipulation that requires expert investigation.
◦ The company is suspected of diverting funds or money laundering.
◦ Section 213 – Investigation into Company’s Affairs on Tribunal’s Order
◦ The National Company Law Tribunal (NCLT) may order an investigation if:
◦ The company’s business is conducted fraudulently or in a way oppressive to shareholders.
◦ The company’s management is guilty of misconduct or unlawful acts.
◦ The ROC, SFIO, or other investigators can be assigned to conduct the investigation.
◦ Section 214 – Security for Investigation Costs
◦ The Tribunal (NCLT) may ask applicants (such as minority shareholders) to deposit
security before ordering an investigation.
◦ This is to prevent false complaints.
◦ Section 215 – Report of Investigation
◦ After completing the inquiry, the investigators must submit a detailed report to the Central
Government, Tribunal, or ROC.
◦ If fraud is confirmed, legal action is taken against responsible persons.
◦ The report may be used as evidence in court.
◦ Penalty for Non-Cooperation (Section 217):
◦ If a company or its officers fail to comply with the investigation:
◦ Imprisonment up to 1 year and/or
◦ Fine up to ₹25 lakh.
◦ Disqualification (Section 164 & 167)
◦ A director may be disqualified for various reasons, including fraud, non-filing of financial
statements, or conviction in a criminal case.
◦ Grounds for Disqualification (Section 164)
◦ A person is disqualified from being a director if:
◦ He is declared of unsound mind.
◦ He is an undischarged insolvent.
◦ He has been convicted of an offense with a sentence of 6 months or more.
◦ A company in which he was a director failed to file financial statements for 3 consecutive
years.
◦ He has been disqualified by SEBI for fraud or insider trading.
◦ Effect of Disqualification (Section 167): A disqualified director must vacate office
immediately, and he cannot be appointed as a director in any company for 5 years.
Removal of Director
◦ A director can be removed before the expiry of their term by the shareholders or the Tribunal
(NCLT) under certain circumstances.
◦ Removal by Shareholders (Section 169)
◦ The shareholders of a company have the right to remove a director before their tenure ends,
except in the case of:
◦ A director appointed by the Tribunal (NCLT) under Section 242.
◦ A director appointed under the principle of proportional representation (Section 163).
◦ Procedure for Removal of Director
◦ Special Notice (Minimum 14 Days Before the Meeting)
◦ A shareholder must give a special notice to the company to remove a director.
◦ The company must send this notice to all members and the concerned director.
◦ Right to Be Heard
◦ The director facing removal has the right to be heard at the general meeting before
passing the resolution.
◦ Passing an Ordinary Resolution
◦ The shareholders must pass an ordinary resolution (more than 50% votes in favor) at the
General Meeting.
◦ Filing with the ROC
◦ After passing the resolution, the company must file Form DIR-12 with the Registrar of
Companies (ROC) within 30 days.
◦ Removal by the Tribunal (NCLT) – Section 242
◦ The National Company Law Tribunal (NCLT) can remove a director in case of:
◦ Fraud, oppression, or mismanagement by the company or its board.
◦ Misuse of powers or violation of fiduciary duties by the director.
◦ The Tribunal can restrict the removed director from holding a directorship in any company
for up to 5 years.
◦ Automatic Disqualification (Section 164 & 167)
◦ A director is automatically disqualified if:
◦ They are convicted of an offense with imprisonment of 6 months or more.
◦ They have been declared insolvent.
◦ They have been involved in a company that has failed to file financial statements for 3
consecutive years.
◦ In such cases, the director must vacate their office immediately.
Types of Meetings
Shareholders' Meetings
◦ These meetings involve the members (shareholders) of the company and are conducted to
discuss important company decisions.
◦ Annual General Meeting (AGM) – Section 96
◦ Applicable to all companies except One Person Company (OPC).
◦ The basic purpose to conduct this meeting
◦ Approval of financial statements and dividends.
◦ Appointment/reappointment of directors and auditors.
◦ First AGM should be conducted within 9 months from the end of the first financial year.
◦ Subsequent AGMs can be conducted within 6 months from the end of the financial year (but
not exceeding 15 months from the previous AGM).
◦ Company may face fines, and directors may be liable for penalties.
◦ Extraordinary General Meeting (EGM) – Section 100
◦ When urgent business decisions are required, they cannot wait until the next AGM.
◦ Can be called by:
◦ Board of Directors (BoD)
◦ Shareholders holding at least 10% of the voting power
◦ Tribunal (NCLT), if the Board fails to call an EGM
◦ Alteration of Articles of Association, approval of mergers, etc.
◦ Statutory Meeting (Section 165)
◦ Applicable only to public companies.
◦ Must be held within 6 months but not later than 9 months from business commencement
date.
◦ The company must present a Statutory Report to shareholders outlining financial details and
business progress.
Board Meetings (Meetings of Directors)
◦ These meetings involve the Board of Directors (BoD) to make important management
decisions.
◦ First Board Meeting (Section 173(1): Must be held within 30 days of company incorporation.
◦ Regular Board Meetings (Section 173) Private & Public Companies: must conduct minimum 4
meetings per year, with a gap of not more than 120 days between two meetings. Small
Companies & OPCs: must conduct at least one meeting in every 6 months.
◦ Committee Meetings: Certain committees (Audit Committee, Nomination & Remuneration
Committee, etc.) must also conduct meetings as per their functions.
Creditors’ and Debenture Holders’ Meetings
◦ These meetings involve creditors and debenture holders to discuss financial matters.
◦ Creditors’ Meetings
• Held when a company is undergoing restructuring, winding up, or facing insolvency.
• Creditors approve settlement plans or restructuring proposals.
◦ Debenture Holders’ Meetings
• Held for debenture holders to discuss issues like interest payment delays, conversion of
debentures, or modifications in terms.
Meetings for Winding Up a Company
◦ These meetings are held when a company is in the process of closing its operations.
◦ Voluntary Winding-Up Meeting
◦ Shareholders decide to wind up the company.
◦ A liquidator is appointed to oversee asset distribution.
◦ Creditors’ Winding-Up Meeting
◦ Creditors are consulted before the liquidation process begins.
◦ Approval is required for repayment plans.
◦ Final Winding-Up Meeting
◦ Held at the end of the liquidation process.
◦ The liquidator presents a final report before dissolution.
Other Special Meetings
◦ Meetings Convened by Tribunal (NCLT)
◦ The National Company Law Tribunal (NCLT) can order meetings in cases of oppression,
mismanagement, or financial disputes.
◦ Meetings of the Audit Committee
◦ Companies with an Audit Committee (mandatory for listed and certain large companies)
must conduct regular meetings to review financial statements, risk management policies,
and internal controls.
Thank You…!
 MODULE 05
COMPROMISE, RECONSTRUCTION,
AMALGAMATION AND MERGERS

Sumit Tak
Assistant Professor
 Compromise (Section 230)
◦ A compromise is an agreement between a company and its creditors or shareholders to settle
disputes or financial obligations.
◦ It may involve restructuring debt repayment or modifying the rights of creditors or
shareholders.
◦ It is commonly used when a company faces financial difficulties but wants to avoid liquidation.
◦ Requires approval from the Tribunal (NCLT) and a majority of creditors (representing 75% of
value).
◦ If a company owes ₹100 crore to creditors but can pay only ₹60 crore, it may negotiate a
compromise where creditors agree to accept a partial settlement to avoid the company’s complete
shutdown.
◦ Helps resolve financial disputes without litigation
◦ Section 230 is an essential tool for companies to restructure and avoid insolvency while ensuring
protection for creditors and shareholders. The approval process under NCLT ensures fairness and
transparency.
Arrangements (Section 230 & 231)
◦ An arrangement refers to re-organising a company's share capital, liabilities, or business
structure, including mergers, demergers, or restructuring.
◦ Can include capital restructuring, changes in management, or agreements with shareholders
or creditors.
◦ Approval from the Tribunal (NCLT) and a majority of creditors/shareholders (75%) is
required.
◦ The company must submit a scheme of arrangement explaining the impact and benefits.
◦ A company may convert its preference shares into equity shares as part of a capital
restructuring arrangement.
◦ Section 231 gives the National Company Law Tribunal (NCLT) the power to supervise,
enforce, and modify a compromise or arrangement approved under Section 230.
◦ This ensures that companies, creditors, and members follow the approved scheme and that no
party is unfairly treated.
Amalgamations (Sections 232-234)
◦ An amalgamation occurs when two or more companies combine to form a single entity to
achieve synergies, financial stability, or market expansion.
◦ Types of Amalgamations
◦ Merger: One company absorbs another, and the absorbed company ceases to exist.
◦ Demerger: A company splits into two or more entities.
◦ Reverse Merger: A smaller company acquires a larger company.
◦ Cross-Border Amalgamation: A merger between Indian and foreign companies (permitted
under Section 234).
◦ Requires approval from shareholders, creditors, SEBI (if listed), and NCLT.
◦ Assets and liabilities of the merging companies transfer to the new entity.
◦ Shareholders of the merging companies receive shares in the new company.
◦ If Company A and Company B merge to form Company C, all assets, liabilities, and business
operations of A & B will be transferred to C.
◦ Section 232 plays a crucial role in corporate restructuring and business consolidation. It
provides a well-defined legal procedure for mergers and amalgamations, ensuring transparency
and fairness for all stakeholders.
◦ Section 233 provides a simplified and faster process for mergers and amalgamations of certain
types of companies such as for small companies and holding-subsidiary mergers without the
involvement of NCLT.
◦ This is called the Fast Track Merger process, which allows eligible companies to merge
without the approval of the National Company Law Tribunal (NCLT), making it quicker, cost-
effective, and less complex.
◦ Section 234 provides the legal framework for the merger or amalgamation of an Indian
company with a foreign company and vice versa. This section allows cross-border mergers
while ensuring compliance with Indian laws and foreign regulations.
◦ Such mergers are governed by:
◦ The Companies Act, 2013
◦ The Foreign Exchange Management Act (FEMA), 1999
◦ The RBI Guidelines
◦ This provision is crucial for global expansion, foreign investments, and ease of doing business
in India.
Sanction of Tribunal
◦ The National Company Law Tribunal (NCLT) is a quasi-judicial authority established under
the Companies Act, 2013, to adjudicate matters related to company law disputes, mergers,
winding-up, and corporate governance.
◦ It plays a crucial role in ensuring fair corporate practices and protecting the interests of
shareholders, creditors, and stakeholders.
◦ NCLT’s Sanction is required in Compromise and Arrangement, Merger & Amalgamation,
Reduction of Share Capital, Oppression & Mismanagement, Winding-Up of a Company.
Powers of the Tribunal (NCLT)
◦ The Tribunal has broad powers in different corporate matters:
◦ Powers Related to Corporate Restructuring
◦ Sanction Mergers, Demergers, and Amalgamations (Sections 230-234)
◦ Approve Compromises and Arrangements
◦ Authorize Reduction of Share Capital (Section 66)
◦ Powers to Prevent Mismanagement & Protect Shareholders
◦ Investigate Cases of Oppression and Mismanagement (Sections 241-242)
◦ Remove Directors for Fraud/Mismanagement
◦ Overrule Unfair Resolutions Passed by Companies
◦ Powers Related to Winding-Up of Companies
◦ Order Compulsory Winding Up (Section 271)
◦ Appoint Liquidators for the Winding-Up Process
◦ Monitor the Distribution of Assets Among Creditors and Shareholders
◦ Powers Under the Insolvency and Bankruptcy Code (IBC), 2016
◦ Initiate Corporate Insolvency Resolution Process (CIRP)
◦ Approve Resolution Plans for Debt Recovery
◦ Adjudicate Disputes Between Creditors and Debtors
Duties of the Tribunal (NCLT)
◦ The Tribunal is responsible for:
◦ Ensuring Fairness in Mergers and Amalgamations.
◦ Preventing Fraud and Mismanagement
◦ Check financial irregularities.
◦ Safeguarding small shareholders, creditors, and employees.
◦ Ensuring Compliance with Laws
◦ Resolving corporate disputes efficiently.
Power to Compromise or Make Arrangements with
Creditors and Members
◦ Procedure for Compromise or Arrangement
◦ Filing an Application to NCLT
◦ The company or creditors must file an application before the National Company Law
Tribunal (NCLT).
◦ The application must include:
◦ Details of the proposed arrangement or compromise.
◦ List of creditors and members involved.
◦ A valuation report of the company’s financial condition.
◦ Tribunal Orders a Meeting
◦ If satisfied, the Tribunal orders a meeting of creditors or members.
◦ The company must send a notice (including the scheme and valuation report) to:
◦ All creditors and members.
◦ The Registrar of Companies (ROC) and Securities and Exchange Board of India (SEBI)
(if applicable).
◦ Voting & Approval by Creditors and Members
◦ The scheme must be approved by:
◦ 75% in value of creditors or members present and voting.
◦ A report of the meeting is submitted to NCLT.
◦ Tribunal’s Final Approval
◦ If NCLT finds the compromise fair and in the interest of all stakeholders, it approves.
◦ The approved scheme becomes legally binding on all creditors and members.
◦ Filing with ROC
◦ The final approved arrangement is filed with the Registrar of Companies (ROC) for
enforcement.
◦ Powers of Tribunal (NCLT) in Approving Compromises & Arrangements
◦ Modify or Reject the Scheme – If it is unfair or against the public interest.
◦ Order Investigation – To verify financial records and fairness.
◦ Impose Conditions – Such as monitoring the implementation of the scheme.
◦ Consider Objections – Any objections from creditors, members, or regulatory bodies.
◦ Binding Nature – Once approved, the scheme applies to all creditors and members.
Reconstruction and Amalgamation of a Company
◦ In the corporate world, companies undergo restructuring due to financial, strategic, or
operational reasons.
◦ Reconstruction involves reorganizing a company's structure, assets, liabilities, or business
operations.
◦ Amalgamation refers to the merging of two or more companies into a single entity to improve
business efficiency.
◦ Reconstruction of a Company
◦ Meaning of Reconstruction
◦ Reconstruction is a process where a company modifies its structure due to financial difficulties
or to improve operational efficiency. It can be:
◦ Internal Reconstruction: Reorganizing a company without forming a new entity.
◦ External Reconstruction: Closing an existing company and forming a new one to carry
forward the business.
◦ Methods of Reconstruction
◦ Alteration of Share Capital – Modifying the company's share capital structure.
◦ Reduction of Share Capital (Section 66) – Reducing the share capital by canceling or
adjusting liabilities.
◦ Arrangement with Creditors (Section 230) – Negotiating with creditors for debt restructuring.
◦ Change in Management or Ownership – Bringing in new investors or promoters.
◦ Example of Reconstruction
◦ A financially struggling company reduces its share capital and renegotiates its debt
obligations with creditors to continue its operations.
 Modes or Methods of Reconstruction
◦ Internal Reconstruction
◦ Alteration of Share Capital (Section 61)
◦ Increasing or decreasing share capital based on the company’s needs.
◦ Subdividing or consolidating shares to adjust shareholding patterns.
◦ Reduction of Share Capital (Section 66)
◦ Used when the company has accumulated losses or excess capital.
◦ Capital is reduced by cancelling unpaid capital, writing off losses, or repaying
shareholders.
◦ Requires NCLT approval and special resolution by shareholders.
◦ Compromise or Arrangement with Creditors and Members (Section 230)
◦ A company renegotiates debts, modifies financial obligations, or restructures loans.
◦ Requires approval from 75% of creditors and shareholders and NCLT sanction.
◦ Buy-back of Shares (Section 68)
◦ The company repurchases its shares from existing shareholders to reduce share capital.
◦ Helps in improving financial ratios and increasing shareholder value.
◦ External Reconstruction
◦ Merger or Amalgamation (Section 232)
◦ Demerger (Section 232)
◦ Takeover or Acquisition
Declaration and Payment of Dividends in Cases of
Amalgamation and Reconstruction
◦ Section 123 – Declaration of Dividend
◦ Current profits after providing for depreciation. Past reserves/surpluses (if permitted by Articles
of Association). Dividends cannot be declared from capital.
◦ Dividend Payment During Amalgamation & Reconstruction
◦ Pre-Merger Dividends (Before the Effective Date of Amalgamation)
◦ If a company declares a dividend before the merger is approved, it must pay it from its own
funds.
◦ The transferor company (merging company) must pay dividends before dissolution.
◦ Post-Merger Dividends (After Amalgamation is Completed)
◦ After the merger, dividends are declared based on the combined profits of the merged entity.
◦ If the transferee (new) company has insufficient reserves, dividends may be restricted.
◦ If Company A merges with Company B, shareholders of Company A will receive dividends
from the newly formed entity, not from Company A’s past profits.
◦ SEBI Guidelines for Listed Companies
◦ Dividends cannot be paid until all creditors’ claims are settled.
◦ Companies must disclose impact of amalgamation on dividend policy to shareholders.
Fast Track Mergers
◦ Fast Track Mergers (FTM) are simplified merger processes introduced under Section 233 of
the Companies Act, 2013 to help small companies, startups, and certain corporate entities
merge efficiently with less regulatory oversight and faster approvals.
◦ Fast Track Merger?
◦ A Fast Track Merger is a simplified merger process that does not require approval from the
National Company Law Tribunal (NCLT), unlike regular mergers under Section 232.
Quicker & Less Expensive, No Need for NCLT Approval, Approval Only Required from
ROC & Official Liquidator.
◦ Small Companies: Companies with Paid-up Capital < ₹4 Cr OR Turnover < ₹40 Cr
◦ Holding & Wholly Owned Subsidiary Companies: A wholly-owned subsidiary can merge
with its parent company easily.
◦ Process of Fast Track Mergers (Section 233)
◦ Board Approval: Both merging companies must pass Board Resolutions approving the
merger.
◦ Notice to ROC & Official Liquidator : A notice is sent to: Registrar of Companies (ROC),
Official Liquidator, Other Regulators (if applicable, like RBI, SEBI for listed entities, etc.)
◦ Approval from Shareholders & Creditors: Members (Shareholders) – 90% in value must
approve, Creditors – 90% in value must approve
◦ Filing of Approved Scheme: The approved scheme is filed with the ROC and the Official
Liquidator within 30 days.
◦ Final Approval from ROC & Official Liquidator: If there are no objections, the scheme is
registered and legally binding. If objections are raised, the matter is sent to NCLT for further
approval.
Amalgamation of Companies by Central Government
in Public Interest
◦ The Central Government has the power to order the amalgamation of companies in the public
interest under Section 237 of the Companies Act, 2013.
◦ This provision allows the government to merge two or more companies if it believes that such
amalgamation is necessary to protect public interest, national security, or economic stability.
◦ Section 237 (Power of Central Government to Amalgamate Companies)
◦ Central Government can forcefully merge companies if:
◦ It is necessary in the public interest.
◦ The merger ensures proper management of the companies.
◦ It helps protect creditors, employees, or the economy.
◦ If a company is engaging in fraudulent activities or is mismanaged, the government can
step in and order its compulsory merger with another company.
The government can order forced mergers
◦ If a company is found guilty of corporate fraud or tax evasion.
◦ If poor governance affects employees, creditors, or the economy.
◦ If a company is involved in anti-national activities or foreign threats.
◦ If a company in banking, telecom, or essential sectors collapses.
◦ Monopoly or Anti-Competitive Practices
Thank You…!
 MODULE 06
ACCOUNTS OF COMPANY
Mr. Sumit Tak
Assistant Professor
Books of accounts, etc, to be kept by the Company
◦ The maintenance of Books of Accounts by companies is governed by Section 128.
◦ This section mandates that every company must maintain proper accounting records to ensure
financial transparency, compliance, and accountability.
◦ Section 128: Every company must maintain proper books of accounts that:
◦ Provide a true and fair view of the company’s financial position.
◦ Follow accrual accounting and double-entry system.
◦ Record all income, expenses, assets, and liabilities.
◦ The Board of Directors ensures compliance.
◦ Place to keep Books of Accounts
◦ Registered Office of the Company: Mandatory.
◦ Other Locations: If books are kept at any place other than the registered office, the company
must notify the Registrar of Companies (ROC) within 7 days.
◦ Electronic Format: Allowed, provided the data is accessible in India and can be reproduced
on demand.
◦ At least 8 years from the end of the financial year to which they relate.
◦ In case of ongoing legal disputes, records must be kept until the issue is resolved.
◦ Section 128(6)
◦ If a company fails to maintain proper books of accounts, the penalty is:
◦ Managing Director, CFO, or Responsible Officer – Imprisonment up to 1 year or fine up
to ₹5 lakh, or both.
◦ Company: Fine up to ₹25 lakh.
Books of Accounts to be Maintained
◦ Financial Records
◦ Cash Book (cash receipts & payments).
◦ Bank Book (all bank transactions).
◦ General Ledger (income, expenses, assets & liabilities).
◦ Journal Entries (adjustments & corrections).
◦ Statutory & Compliance Records
◦ Balance Sheet & Profit & Loss Account.
◦ Shareholder & Debtor Records.
◦ Tax Records (GST, Income Tax, etc.).
◦ Employee & Payroll Records
◦ Salary details.
◦ Provident Fund & other statutory deductions.
◦ Contracts & Agreements
◦ Loan agreements, lease documents, partnership deeds, etc.
Methods of Maintaining Accounts
◦ Companies can maintain accounts in either physical (manual) or electronic format:
◦ Manual Accounting System
◦ Used by small businesses.
◦ Transactions recorded in ledgers and registers.
◦ Prone to human errors and time-consuming.
◦ Computerized Accounting System
◦ Used by most companies today.
◦ Data is recorded digitally using ERP or accounting software.
◦ Accurate, efficient, and real-time reporting.
◦ Tally, SAP, QuickBooks, Oracle Financials, Zoho Books.
Audit and Auditors
◦ An audit is an independent examination of a company's financial statements, records, and
operations to ensure compliance with laws and regulations.
◦ Objectives of an Audit:
◦ Ensure financial transparency and accuracy.
◦ Detect errors, fraud, or mismanagement.
◦ Ensure compliance with the Companies Act, 2013.
Appointment of Auditors (Section 139)
◦ First Auditor:
◦ Appointed within 30 days of incorporation by the Board.
◦ If the Board fails, shareholders appoint within 90 days at an EGM.
◦ Subsequent Auditors:
◦ Appointed at the first AGM for 5 years.
◦ Reappointment every 5 years with shareholder approval.
◦ Rotation of Auditors (For Listed & Prescribed Companies):
◦ Individual CA: Maximum one term of 5 years.
◦ Audit Firm: Maximum two terms of 5 years.
◦ Cooling-off period: 5 years before reappointment.
Section 140: Removal, Resignation, and Rights of an
Auditor
◦ Removal of Auditor Before Term Completion (Section 140(1))
◦ An auditor cannot be removed before their term ends without:
◦ Board of Directors’ approval, and
◦ Special Resolution by Shareholders in a General Meeting.
◦ Resignation of Auditor (Section 140(2) & (3))
◦ If an auditor resigns, they must file a statement with the company and ROC within 30 days
(Form ADT-3).
◦ The resignation must include reasons and any concerns about the company's financials.
◦ Auditor’s Rights in Case of Removal (Section 140(4))
◦ If removed, the auditor has the right to be heard at the General Meeting.
Section 141: Qualifications & Disqualifications of an
Auditor
◦ Who Can Be Appointed as an Auditor? (Section 141(1) & (2))
◦ Only a Chartered Accountant (CA) or a firm where a majority of partners are CAs can be
appointed as an auditor.
◦ (Section 141(3)) An individual or firm cannot be appointed as an auditor if:
◦ They are an officer or employee of the company.
◦ Their relative holds shares or has significant indebtedness in the company.
◦ They have a direct/indirect business relationship with the company.
◦ They provide management, bookkeeping, or valuation services to the company.
◦ They are convicted of fraud and sentenced for 6+ months.
◦ They do not meet cooling-off period requirements.
◦ Penalty for Non-Compliance (Section 141(4))
◦ If a company appoints a disqualified auditor, the appointment is invalid, and both the
company and auditor may face penalties.
Powers & Duties of Auditors (Section 143)
◦ Powers of an Auditor
◦ Right to access books, accounts, and vouchers.
◦ Right to obtain information from officers of the company.
◦ Right to report fraud to the Central Government (if amount exceeds ₹1 crore).
◦ Duties of an Auditor
◦ Examine financial statements and report irregularities.
◦ Ensure compliance with accounting standards & legal provisions.
◦ Report on whether financials give a true and fair view.
◦ Detect fraud, misstatements, and errors.
Rights of Minority Shareholders
◦ Minority shareholders (those holding less than 50% of a company’s shares) often face
challenges in decision-making, as majority shareholders control corporate affairs.
◦ The Companies Act, 2013, provides several safeguards to ensure their rights are protected from
oppression and mismanagement.
Rights of Minority Shareholders
◦ Right to Fair Treatment
◦ Minority shareholders must be treated fairly and equally.
◦ Majority shareholders cannot abuse their power to harm minority interests.
◦ Right to Oppose Oppression and Mismanagement (Section 241-242)
◦ If company affairs are conducted in a way that is oppressive or prejudicial to minority
shareholders, they can file a complaint with the National Company Law Tribunal (NCLT).
◦ Oppression: When the majority uses their power unfairly against minorities (e.g., denying
dividends, removing directors unfairly).
◦ Mismanagement: When company affairs are mismanaged, leading to financial loss.
◦ Right to Call for General Meetings (Section 100)
◦ Minority shareholders holding at least 10% of voting power can demand an Extraordinary
General Meeting (EGM) to discuss important matters.
◦ Right to Seek Investigation into Company Affairs (Section 213)
◦ If at least 100 shareholders or those holding 10% of voting rights suspect fraud or financial
irregularities, they can request an investigation by the government or NCLT.
◦ Right to File a Class Action Suit (Section 245)
◦ Minority shareholders can file a class action lawsuit against:
◦ The company for fraud or mismanagement.
◦ Directors for violating shareholder rights.
◦ Auditors for providing false financial statements.
◦ In the Satyam scam (2009), minority shareholders suffered due to fraudulent financial
reporting.
Removal of Names of Companies from Register of
Companies
◦ The Companies Act, 2013, provides for the removal of a company's name from the Register of
Companies if it is inactive, non-operational, or in violation of legal requirements.
◦ This process is commonly known as "Strike Off", governed by Section 248-252 of the Act.
◦ Modes of Removal (Strike Off) of a Company
◦ A company’s name can be struck off in two ways:
◦ Voluntary Strike Off by Company (Section 248(2))
◦ If a company wants to close its business, it can voluntarily apply to the Registrar of
Companies (ROC) for removal.
◦ Eligibility for Voluntary Strike Off:
◦ The company has not commenced business within one year of incorporation.
◦ The company has not carried out any business activity for the last two financial years.
◦ The company has no pending liabilities or legal proceedings.
◦ Compulsory Strike Off by ROC (Section 248(1))
◦ The Registrar of Companies (ROC) can suo-motu remove a company’s name if it:
◦ Fails to commence business within one year of incorporation.
◦ Does not file Annual Returns & Financial Statements for the last two consecutive
financial years.
◦ Is not carrying on business as per the company's objectives.
◦ Obtains incorporation fraudulently or violates legal provisions.
◦ Consequences of Strike Off
◦ The company ceases to exist as a legal entity.
◦ The company cannot carry out any business activities.
◦ Directors and shareholders remain personally liable for any pending liabilities.
◦ The company’s assets are vested with the government under the Companies Act, 2013.
◦ If a company was struck off but had unpaid debts, creditors can still file a case against the
directors.
◦ Restoration of a Struck-Off Company (Section 252)
◦ A company’s name can be restored by:
◦ Restoration by Tribunal (NCLT) (Section 252(1))
◦ If the company was wrongly struck off, it can file an appeal with NCLT within three
years.
◦ If NCLT is satisfied, it orders restoration, and the company resumes operations.
◦ Restoration by Registrar (ROC) (Section 252(3))
◦ Any member, creditor, or workman can apply to restore the company within 20 years if
it had pending liabilities.
◦ A company mistakenly struck off for non-filing of returns can apply for restoration within three
years.
Difference Between Strike Off & Winding Up

Basis Strike Off Winding Up

Debt, insolvency, or court

Reason Inactive company or non-filing
order

Court/Tribunal-driven
Process ROC removes the name
liquidation

Ends after all debts are

Legal Existence Ends after strike-off
settled

1-2 years (depends on

Time Required 3-6 months
complexity)
Revival and Rehabilitation of Companies
◦ The revival and rehabilitation of companies ensure that financially distressed or non-
operational companies get an opportunity to restructure, recover, and continue operations
instead of being permanently dissolved.
◦ The Companies Act, 2013, along with the Insolvency and Bankruptcy Code (IBC), 2016,
provides mechanisms for reviving struck-off, sick, or insolvent companies.
Section 252 Revival of Companies
◦ If a company has been struck off by the Registrar of Companies (ROC) under Section 248, it can
apply for restoration through the National Company Law Tribunal (NCLT) or the ROC.
◦ Restoration by National Company Law Tribunal (NCLT) – Section 252(1)
◦ The company can file an appeal to NCLT within three years of strike-off.
◦ NCLT, if satisfied that the strike-off was wrong or unjust, may order the company’s restoration.
◦ The ROC will restore the name in the Register of Companies and issue an official order.
◦ A company mistakenly struck off due to non-filing of annual returns can apply to NCLT for revival.
◦ Restoration by Registrar of Companies (ROC) – Section 252(3)
◦ Any member, creditor, or workman can apply to ROC within 20 years of strike-off.
◦ The applicant must prove that the company was operating or had pending liabilities.
◦ If satisfied, the ROC may restore the company’s name in the register.
◦ A creditor can apply for the revival of a struck-off company to recover debts owed by it.
 Section 253-269 Rehabilitation of Sick Companies
◦ A company is considered "sick" if it fails to pay its debts or faces financial distress affecting
operations.
◦ Who Can Apply for Rehabilitation?
◦ The company itself.
◦ Creditors who are owed at least 50% of total debt.
◦ Central or State Government (in public interest).
◦ Role of National Company Law Tribunal (NCLT)
◦ If NCLT determines a company is "sick," it can order:
◦ Debt restructuring to allow repayment in installments.
◦ Change of management for better governance.
◦ Merger or takeover by another financially stable company.
◦ Financial assistance from the government (for specific industries).
◦ Kingfisher Airlines could have sought rehabilitation due to its financial losses and unpaid debts.
Revival Under Insolvency and Bankruptcy Code
(IBC), 2016
◦ For companies facing severe financial distress, the IBC, 2016, provides a structured process
for corporate revival.
◦ Corporate Insolvency Resolution Process (CIRP)
◦ If a company fails to pay its debts (₹1 crore or more), creditors can initiate CIRP.
◦ A Resolution Professional (RP) is appointed to restructure the company.
◦ If the company can be revived, a resolution plan is approved by creditors.
◦ If revival is not possible, the company goes into liquidation.
◦ Jet Airways underwent CIRP, and a new investor acquired the company for revival.
Thank You…!
 MODULE 07
WINDING UP PROCESS
Mr. Sumit Tak
Assistant Professor
Meaning of Winding up
◦ Winding up is the legal process of closing a
company and liquidating its assets to settle
debts and distribute the remaining funds
among shareholders. After winding up, the
company ceases to exist as a legal entity.
◦ Winding up does not necessarily mean the
company is insolvent; it may also be a
voluntary decision by shareholders or
compulsory due to legal violations.
Procedures for winding up
◦ Passing of Resolution
◦ The Board of Directors holds a meeting and passes a resolution to wind up the company.
◦ In voluntary winding up, approval from 75% of shareholders is required.
◦ In compulsory winding up, a petition is filed before the NCLT.
◦ Appointment of Liquidator
◦ A Liquidator is appointed to supervise the liquidation of assets and payment of debts.
◦ In voluntary winding up, the company appoints a registered liquidator.
◦ In compulsory winding up, NCLT appoints an Official Liquidator.
◦ Duties of Liquidator:
◦ Identify and sell company assets.
◦ Settle creditor claims.
◦ File necessary reports with ROC and NCLT.
◦ Settlement of Liabilities
◦ The liquidator sells assets and distributes proceeds in the following order:
◦ Insolvency costs & liquidator’s fees
◦ Secured creditors (e.g., banks, financial institutions)
◦ Employee dues (wages, provident fund, gratuity, etc.)
◦ Unsecured creditors (vendors, suppliers, tax liabilities)
◦ Shareholders (if any amount is left after debts are cleared)
◦ If a company has ₹10 crore in assets and ₹8 crore in debts, creditors will be paid first, and
the remaining ₹2 crore will go to shareholders.
◦ Filing of Final Accounts
◦ The liquidator prepares final accounts, showing how assets were liquidated and liabilities
were settled.
◦ These reports are submitted to NCLT and the Registrar of Companies (ROC) for approval.
◦ Dissolution of the Company
◦ Once all debts are settled, the liquidator applies for a Dissolution Order.
◦ NCLT issues a final order, and the company is officially dissolved.
◦ The Registrar of Companies (ROC) removes the company’s name from its records.
◦ The company ceases to exist and cannot conduct business anymore.
Sections 271-303: Winding up process by Tribunal
◦ A company can be forced into winding up by the NCLT under Section 271 in cases like:
◦ Inability to pay debts.
◦ Business conducted fraudulently.
◦ Persistent failure to file financial statements or annual returns.
◦ Just and equitable reasons (e.g., shareholder disputes).
 Procedure for Compulsory Winding Up
Petition for Winding Up (Section 272)
Filed by company, creditors, government, or ROC.
Must provide reasons and financial details.

Tribunal's Decision (Section 273)

Dissolution Order (Section 302-303)
NCLT reviews the case and may dismiss, reject, or accept
the petition. Once debts are cleared, NCLT orders
dissolution, and the company ceases to exist.
If accepted, an official liquidator is appointed

Settlement of Liabilities & Asset

Appointment of Liquidator (Section 275-277)
Liquidation (Section 290-292)
The Tribunal appoints a liquidator to take over assets
and liabilities. Liquidator sells assets and repays creditors in
order of priority.
Consequences of winding order
◦ When the National Company Law Tribunal (NCLT) issues a winding-up order, the company
begins its final closure process.
◦ This order has several legal, financial, and operational consequences affecting the company, its
directors, creditors, employees, and shareholders.
◦ The company must stop all business activities immediately, except those necessary for winding
up.
◦ The company cannot enter into new contracts or transactions.
◦ An official liquidator is appointed by the NCLT to take control of the company’s assets and
affairs.
◦ The board of directors loses all powers, which are transferred to the liquidator
◦ Employees are terminated, and their pending salaries, gratuity, and provident funds are settled.
◦ Employees become preferential creditors and are paid before unsecured creditors.
◦ Once a winding-up order is issued, all pending lawsuits against the company are halted.
◦ No fresh cases can be filed without the Tribunal’s permission.
◦ Director’s Powers are Terminated
◦ Repayment of Debts in Order of Priority
◦ Once the liquidation process is complete, the Registrar of Companies (ROC) removes the
company’s name from its records.
◦ Shareholders lose their investment if the company is insolvent.
◦ If any money is left after debts are paid, shareholders may receive a final distribution.
◦ If directors misused company funds, they may be fined or jailed.
Company liquidator and their appointments
◦ Voluntary Liquidation (Under IBC, 2016)
◦ The company itself appoints a liquidator when shareholders decide to wind up.
◦ A registered insolvency professional (IP) is appointed as the liquidator.
◦ The appointment is approved by shareholders and creditors.
◦ The liquidator reports to the National Company Law Tribunal (NCLT) and Insolvency and
Bankruptcy Board of India (IBBI).
◦ If a private company voluntarily winds up, the shareholders appoint a professional liquidator
to manage the process.
◦ When a company is wound up by NCLT under Section 271, the Tribunal appoints an
Official Liquidator.
◦ The Official Liquidator is usually from the Ministry of Corporate Affairs (MCA).
◦ The Official Liquidator takes charge of the company’s assets, financial records, and
operations.
◦ The company’s directors lose all powers and must cooperate with the liquidator.
◦ If a company is involved in fraud, NCLT can order compulsory winding up and appoint an
Official Liquidator from the ROC or MCA.
 Report of the Liquidator
◦ A Liquidator’s Report is a formal document submitted to the National Company Law Tribunal
(NCLT) and the Registrar of Companies (ROC) during the winding-up process of a company.
◦ It contains details of the liquidation proceedings, including the realization of assets, settlement of
liabilities, and final distribution of funds.
◦ Purpose of the Liquidator’s Report
◦ To provide a transparent and detailed record of the liquidation process.
◦ To ensure creditors and shareholders are paid according to legal priorities.
◦ To confirm compliance with the Companies Act, 2013, and Insolvency and Bankruptcy Code
(IBC), 2016.
◦ To request final dissolution of the company from NCLT.
◦ A company in liquidation submits a report stating that it has sold assets worth ₹50 crore and
settled all outstanding debts.
◦ The liquidator prepares reports based on financial records and asset sales.
◦ The report is audited to ensure accuracy.
◦ The report is submitted to NCLT for approval.
◦ A copy is sent to the Registrar of Companies (ROC).
◦ If the tribunal is satisfied, it issues a final winding-up order.
◦ The company is removed from the ROC register and ceases to exist.
◦ The company is officially dissolved, and its legal identity is permanently terminated.
◦ The Liquidator’s Report is a crucial document that ensures proper winding up of a company.
◦ It provides detailed financial records, ensures creditors are fairly compensated, and leads to the
final dissolution of the company.
Custody of company’s property
When a company undergoes winding up, its property, assets, and records must be secured and
managed properly.
The custody of the company’s property refers to who controls, protects, and distributes the
company’s assets until liquidation is complete.
◦ The Company Liquidator takes custody of all assets.
◦ If a company voluntarily winds up, the liquidator freezes bank accounts, takes control of offices, and sells
assets for debt repayment.
◦ If NCLT orders a company’s winding up due to fraud, the Official Liquidator takes control and prevents
directors from moving assets.
◦ If a company defaults on a ₹100 crore loan, an Insolvency Professional is appointed to take control of its
factories and sell them.
◦ Section 283 – Custody of Company’s Property During Winding Up
◦ When a winding-up order is passed, the Official Liquidator takes custody and control of the
company's property.
◦ Directors and officers must handover all company assets, books, and records to the
liquidator.
◦ If any director or officer fails to comply, they may be penalized or imprisoned.
◦ If a director refuses to surrender company bank accounts and office properties, they may
face legal action.
◦ Section 290 – Powers of the Liquidator to Take Control
◦ The liquidator has full authority to seize, protect, and sell the company's property.\
◦ They can reverse fraudulent transactions that happened before liquidation.
◦ The liquidator must pay creditors in order of priority before distributing any remaining
funds to shareholders.
◦ If a company director gifted a company car to a relative before winding up, the liquidator
can reclaim it.
◦ Section 324 – Offenses Related to Non-Cooperation with the Liquidator
◦ If directors or officers hide, destroy, or transfer company property, they face criminal
liability.
◦ They may be fined or imprisoned for up to 5 years.
◦ Any fraudulent asset transfers can be declared void by the Tribunal.
◦ If a CEO withdraws company funds after liquidation starts, they could face criminal
charges.
◦ Section 325 – Disposal of Company’s Property
◦ After liquidation, if there are leftover assets or funds, they are handed over to the
government.
◦ If no legal claimant comes forward, the government takes ownership.
◦ If a liquidator finds ₹10 lakh in an unclaimed bank account, it is transferred to the
government treasury.
Company Dissolution
◦ Company dissolution is the legal termination of a company’s existence, meaning it ceases to
operate and is removed from the Register of Companies (ROC).
◦ Dissolution occurs after the company has completed the winding-up process, where all its
assets are liquidated, liabilities settled, and any remaining funds distributed among
shareholders.
◦ It can happen voluntarily when shareholders decide to close the company or compulsorily by a
tribunal due to insolvency, fraud, or mismanagement.
◦ Once the National Company Law Tribunal (NCLT) issues a dissolution order and the ROC
strikes off the company's name, it no longer has any legal standing.
◦ Any undistributed property is transferred to the government.
◦ Dissolution ensures that all financial and legal responsibilities are properly concluded,
preventing any further claims or obligations on the company.
Voluntary Winding Up
◦ Voluntary Winding Up refers to the process where a company decides to close its operations on
its own accord, without the intervention of a tribunal or court.
◦ This can happen when the company has achieved its objectives, is financially unviable, or is no
longer required by its members.
◦ Procedure for Voluntary Winding Up
◦ Directors pass a resolution for voluntary winding up.
◦ Approval is taken from 75% of shareholders via a special resolution.
◦ Directors declare that the company has no pending debts.
◦ If debts exist, creditors’ approval is required.
◦ A professional liquidator is appointed to settle accounts and liabilities.
 ◦ The liquidator sells assets and repays creditors.
◦ ROC and tax authorities confirm compliance.
◦ After clearance, the ROC removes the company’s name from the register.

Basis Voluntary Winding Up Compulsory Winding Up

Initiated By Shareholders or creditors NCLT, creditors, ROC, Govt.

Fraud, non-compliance, debt

Reason Business closure, insolvency
default

Who Appoints Liquidator? Company (via resolution) Tribunal (via court order)

Approval Required 75% shareholders & creditors NCLT's approval

Time Taken 6-12 months 1-3 years

Declaration of Insolvency
◦ A Declaration of Insolvency is a formal statement made by a company's Board of Directors
confirming that the company is unable to pay its debts and is financially distressed.
◦ This declaration is typically required before initiating voluntary winding up under Section 59
of the Insolvency and Bankruptcy Code (IBC), 2016.
◦ It ensures that the company acknowledges its financial inability and intends to liquidate its
assets in an orderly manner.
◦ The declaration must be made by a majority of directors, stating that:
◦ The company has no reasonable prospects of continuing business.
◦ It has fully examined its financial position and concluded that it is unable to pay its debts
within the stipulated time.
◦ The decision is made in good faith, without fraudulent intent.
◦ This declaration must be:
◦ Signed by the directors and submitted along with the winding-up resolution.
◦ Accompanied by audited financial statements and a report of the company’s assets and
liabilities.
◦ Filed with the Registrar of Companies (ROC) before beginning the voluntary liquidation
process.
◦ Once the declaration is accepted, the liquidator is appointed, and the process of asset
liquidation and creditor repayment begins.
◦ If the insolvency is fraudulent or misrepresented, the directors may face legal penalties
under the Companies Act and IBC.
Thank You…!
 MODULE 08
CONSTITUTION OF NATIONAL COMPANY
LAW TRIBUNAL, APPELLATE TRIBUNAL AND
SPECIAL COURT
Sumit Tak
Assistant Professor
Constitution of National Company Law Tribunal
(NCLT)
◦ The National Company Law Tribunal (NCLT) is constituted under Section 408 of the
Companies Act, 2013. This section provides the legal framework for the establishment and
composition of the tribunal.
◦ Section 408 – Constitution of National Company Law Tribunal: The Central Government
shall, by notification, constitute a tribunal known as the National Company Law Tribunal
(NCLT) to exercise and discharge the powers and functions conferred upon it by the
Companies Act, 2013 or any other law for the time being in force.
Composition of NCLT
◦ The tribunal shall consist of:
◦ President – The President shall be a person who is or has been a Judge of a High Court.
◦ Judicial Members – Individuals with substantial legal experience, including:
◦ A person who has served as a Judge of a High Court, or
◦ A District Judge with at least five years of experience, or
◦ A lawyer with over ten years of experience in company law matters.
◦ Technical Members – Individuals with expertise in fields like:
◦ Company law, Accounting, Finance, Corporate affairs, Industrial management or
administration
◦ Any other discipline relevant to company matters
◦ The number of Judicial and Technical Members is determined by the Central Government as
required.
◦ Appointment of Members
◦ Members are appointed by a Selection Committee led by the Chief Justice of India or his
nominee.
◦ The Central Government appoints the President, Judicial Members, and Technical Members
based on recommendations from this committee.
◦ Term of Office
◦ The President and Members hold office for a term of 5 years and are eligible for
reappointment.
◦ The maximum age limit for the President is 67 years, while for Members it is 65 years.
Constitution of National Company Law Appellate
Tribunal (NCLAT)
◦ The National Company Law Appellate Tribunal (NCLAT) is constituted under Section 410 of
the Companies Act, 2013. This section outlines the establishment, composition, and functions
of the appellate tribunal.
◦ Section 410 – Constitution of Appellate Tribunal: The Central Government shall, by
notification, constitute an appellate tribunal known as the National Company Law Appellate
Tribunal (NCLAT) to hear appeals against the orders of the National Company Law Tribunal
(NCLT) and for other matters as specified under the Act.
 Section 410: Composition of National Company Law
Appellate Tribunal (NCLAT)
◦ The NCLAT shall consist of the following members:
◦ Chairperson
◦ A Judge of the Supreme Court, or
◦ A Chief Justice of a High Court.
◦ Judicial Members
◦ A Judge of a High Court, or
◦ A person who has served as a Judicial Member of the NCLT for at least five years.
◦ Technical Members
◦ Technical Members must possess expertise in one or more of the following fields:
◦ Company law, Accounting, Finance, Corporate affairs, Industrial management or
administration, Other relevant disciplines deemed appropriate for corporate legal matters
◦ Number of Members
◦ The Central Government determines the total number of Judicial and Technical Members
required for the effective functioning of the NCLAT.
◦ Appointment Process
◦ Members are appointed by the Central Government based on recommendations from a
Selection Committee led by the Chief Justice of India or his nominee.
◦ Term of Office
◦ The Chairperson and Members serve for a term of 5 years and are eligible for reappointment.
◦ The maximum age limit is:
◦ 70 years for the Chairperson
◦ 67 years for Judicial and Technical Members
◦ The NCLAT acts as the primary appellate authority for company law, insolvency, and
competition-related matters.
◦ Appeals from NCLAT decisions are made directly to the Supreme Court of India.
Selection of Members
◦ National Company Law Tribunal (NCLT)
◦ The members of NCLT, including the President, Judicial Members, and Technical Members,
are appointed by the Central Government based on recommendations from a Selection
Committee.
◦ Selection Committee for NCLT & NCLAT:
◦ Chief Justice of India or his nominee – Chairperson
◦ A senior Supreme Court Judge or Chief Justice of a High Court
◦ Secretary of the Ministry of Corporate Affairs (MCA)
◦ Secretary of the Ministry of Law and Justice
◦ Secretary of the Department of Financial Services
Term of Office
Position Maximum Age Term of Office

President (NCLT) 67 years 5 years (renewable)

Chairperson (NCLAT) 70 years 5 years (renewable)

Judicial & Technical Members

65 years 5 years (renewable)
(NCLT)

Judicial & Technical Members

67 years 5 years (renewable)
(NCLAT)

Members are eligible for reappointment upon completion of their term.

Salary & Allowances
◦ Section 414 – Salary, Allowances, and Other Terms and Conditions of Service
◦ The salaries, allowances, and other terms and conditions of service of the President,
Chairperson, and other Members of the NCLT and NCLAT shall be prescribed by the
Central Government.
◦ These terms must not be altered to the disadvantage of the member after their appointment.
◦ The salary structure is governed by the Tribunal, Appellate Tribunal, and Other Authorities
(Qualifications, Experience, and Other Conditions of Service of Members) Rules, 2017.
Salary Structure

Position Salary (per month)

President (NCLT) ₹2,50,000 + allowances

Chairperson (NCLAT) ₹2,50,000 + allowances

Judicial & Technical Members (NCLT) ₹2,25,000 + allowances

Judicial & Technical Members (NCLAT) ₹2,25,000 + allowances

◦ Allowances and Benefits
◦ Dearness Allowance (DA) – As prescribed by the Central Government.
◦ House Rent Allowance (HRA) – As per government norms.
◦ Conveyance Allowance – For official travel.
◦ Medical Facilities – For the member and dependent family members.
◦ Leave and Leave Encashment – As per government rules.
◦ Pension/Retirement Benefits – Applicable to retired judges and other qualified officials.
Removal of Members of NCLT & NCLAT
◦ The procedure for the removal of members of the National Company Law Tribunal (NCLT)
and National Company Law Appellate Tribunal (NCLAT) is governed by Section 415.
◦ Section 415 – Removal of Members
◦ Have been convicted of an offense involving moral turpitude.
◦ Are physically or mentally incapable of performing their duties.
◦ Have acquired financial or other interests that may adversely affect their ability to perform
their duties impartially.
◦ Have engaged in misconduct or abused their position, rendering their continuance
prejudicial to public interest.
Procedure for Removal
◦ Preliminary Inquiry:
◦ The President (NCLT) or Chairperson (NCLAT) can recommend an inquiry if there are
allegations of misconduct or incapacity.
◦ A Supreme Court Judge conducts the inquiry.
◦ Report Submission: If the inquiry confirms the charges, a report is submitted to the Central
Government.
◦ Final Decision: The President or Chairperson may be removed by an order of the Central
Government based on the report.
◦ For other members, removal requires approval of the Chief Justice of India before the Central
Government can act.
◦ Suspension During Inquiry
◦ During the inquiry process:
◦ The Central Government may suspend the member from office to prevent potential misuse
of authority.
◦ The suspension period remains valid until the inquiry is completed and a final decision is
taken.
◦ Safeguards for Members
◦ Members cannot be removed without a fair inquiry.
◦ The inquiry must follow the principles of natural justice to ensure impartiality and
transparency.
Order of Tribunal
◦ The provisions related to the orders passed by the National Company Law Tribunal (NCLT)
and the National Company Law Appellate Tribunal (NCLAT) are governed by Section 420 and
Section 421.
◦ Section 420 – Orders of Tribunal (NCLT & NCLAT)
◦ After hearing the parties involved, the Tribunal (NCLT) shall pass an order in writing.
◦ The order must state reasons for the decision.
◦ The Tribunal may amend or rectify its order within two years if there is an apparent mistake
(clerical or factual).
◦ Such modification must be made only after hearing all parties concerned.
◦ The Tribunal's order is binding and must be complied with by the concerned parties.
◦ If not followed, penalties may apply as per the Act.
◦ Section 421 – Appeal Against Tribunal Orders
◦ Any person aggrieved by an order of NCLT may file an appeal to NCLAT within 45 days
from the date of the order.
◦ NCLAT may allow a delayed appeal if there is a valid reason for the delay.
◦ After hearing the case, NCLAT shall pass a reasoned order in writing.
◦ If dissatisfied with the NCLAT's decision, an appeal may be made to the Supreme Court of
India within 60 days of the order.
Powers of National Company Law Tribunal (NCLT)
◦ The NCLT is a quasi-judicial body that has the power to adjudicate and resolve matters related
to company law disputes.
◦ Power to Hear Class Action Suits (Section 245): NCLT can allow shareholders and depositors
to file class action suits against a company for fraudulent acts or mismanagement.
◦ Power in Case of Oppression and Mismanagement (Sections 241-242)
◦ NCLT can intervene in cases where company affairs are being conducted in a manner
prejudicial to shareholders or public interest.
◦ It can remove directors, freeze assets, or restrict unfair practices.
◦ Power to Deregister Companies (Section 7(7)): NCLT can cancel the registration of companies
obtained by fraud or misrepresentation.
◦ Power to Approve Mergers & Amalgamations (Sections 230-232): NCLT has the authority to
approve corporate restructuring, including mergers, demergers, and amalgamations.
◦ Power to Investigate Company Affairs (Sections 213 & 216): NCLT can order an investigation
into a company's affairs if there is suspicion of fraud, mismanagement, or oppression.
◦ Power to Convert a Public Company into a Private Company (Section 14): NCLT has the
power to approve or reject an application for conversion of a public company into a private
company.
◦ Power to Wind Up Companies (Section 271-273): NCLT can order the winding up of a
company if it is unable to pay debts or has engaged in fraudulent activities.
◦ Power to Hear Cases Related to the Revival of Companies (Section 253-254): NCLT can
revive sick companies and provide solutions for financially distressed businesses.
◦ Powers under the Insolvency and Bankruptcy Code (IBC), 2016
◦ Power to Admit or Reject Insolvency Petitions
◦ NCLT acts as the Adjudicating Authority for corporate insolvency resolution processes
under the Insolvency and Bankruptcy Code (IBC), 2016.
◦ Power to Approve Resolution Plans
◦ NCLT can approve or reject resolution plans submitted by resolution professionals.
◦ Power to Liquidate Companies
◦ If no resolution plan is approved, NCLT can order liquidation of the company.
Powers of National Company Law Appellate Tribunal
(NCLAT)
◦ The NCLAT is the appellate authority that reviews the decisions made by NCLT and certain
regulatory bodies.
◦ Power to Hear Appeals from NCLT Orders (Section 421)
◦ Any person aggrieved by an order of the NCLT can file an appeal before NCLAT within 45
days.
◦ Power to Review Decisions
◦ NCLAT can modify, uphold, or reverse the decisions of NCLT if they are found to be
unlawful or incorrect.
◦ Power to Issue Directions
◦ NCLAT can direct companies, regulators, or parties to comply with legal provisions.
◦ Powers under the Insolvency and Bankruptcy Code (IBC), 2016
◦ Power to Hear Appeals Against NCLT Orders
◦ NCLAT hears appeals against NCLT’s insolvency decisions under IBC.
◦ Power to Review Resolution Plans
◦ NCLAT can approve or reject NCLT’s orders on resolution plans for financially
distressed companies.
◦ Powers under the Competition Act, 2002
◦ Power to Hear Appeals Against Competition Commission of India (CCI) Orders
◦ NCLAT acts as an appellate authority for orders passed by the Competition Commission
of India (CCI) regarding anti-competitive practices.
◦ Appeals from NCLAT to Supreme Court (Section 423)
◦ Any person dissatisfied with an order of NCLAT can appeal to the Supreme Court within 60
days.
◦ The Supreme Court has the power to uphold, modify, or reverse the decision of NCLAT.
 Appeal from Orders of Tribunals – Section 421 & Section
423
◦ Section 421 – Appeal from Orders of NCLT
◦ Any person aggrieved by an order of NCLT may file an appeal to the NCLAT.
◦ The appeal must be filed within 45 days from the date on which the NCLT order is received.
◦ NCLAT may allow an appeal beyond 45 days if there is sufficient cause for delay, but the total
delay period cannot exceed another 45 days.
◦ The orders of NCLAT are binding unless overturned by the Supreme Court.
◦ Section 423 – Appeal to Supreme Court
◦ Any person aggrieved by an order of NCLAT may appeal to the Supreme Court.
◦ The appeal must be filed within 60 days from the date of the NCLAT order.
◦ The Supreme Court may extend the appeal period if it is satisfied that there was sufficient cause
for delay.
◦ The Supreme Court has the authority to:
◦ Uphold, modify, or reverse NCLAT’s decision.
◦ Pass any further orders required to ensure justice.
Establishment of special courts
◦ Section 435: Power to Establish Special Courts:
◦ The Central Government may, by notification, establish or designate Special Courts for the
purpose of trying offences under the Companies Act, 2013.
◦ Special Courts are set up to ensure the fast-track trial of offences to reduce delays in
corporate litigation.
◦ Special Courts shall try:
◦ All offences punishable under this Act with imprisonment of two years or more.
◦ For lesser offences, the Special Court may transfer the case to a Magistrate Court with
appropriate jurisdiction.
◦ Composition of Special Courts: Each Special Court shall consist of:
◦ A single judge appointed by the Central Government in consultation with the Chief Justice of
the High Court.
◦ The judge must be:
◦ A Sessions Judge or an Additional Sessions Judge (for serious offences).
◦ A Metropolitan Magistrate or a Judicial Magistrate of First Class (for less serious offences).
◦ Section 436 – Offences Triable by Special Courts
◦ All offences under the Companies Act, 2013 that are punishable with imprisonment of two
years or more.
◦ If an offence under the Act is punishable with imprisonment of less than two years, the
Special Court may transfer the case to: A Magistrate of First Class or a Metropolitan
Magistrate having jurisdiction.
◦ A Special Court can take direct cognizance of offences:
◦ Either upon receiving a complaint or a police report.
◦ The Special Court does not require the accused to be first committed for trial by a
Magistrate.
◦ Special Courts follow the procedures laid down in the Code of Criminal Procedure, 1973
(CrPC) for the trial of warrant cases (serious offences).
Meditation and Conciliation Panel
◦ Section 442: Establishment of the Panel:
◦ The Central Government shall maintain a Mediation and Conciliation Panel.
◦ This panel comprises experts who are qualified and experienced in handling corporate,
legal, and financial matters.
◦ The Mediation and Conciliation Panel is intended to:
◦ Assist in the settlement of disputes between:
◦ Parties to corporate disputes.
◦ Disputes before the National Company Law Tribunal (NCLT) or National Company
Law Appellate Tribunal (NCLAT).
◦ Members are appointed to the panel for a fixed term of five years and are eligible for
reappointment.
◦ The Central Government prescribes the qualifications, experience, and manner of selection
for panel members.
 ◦ Any party to a dispute may apply to NCLT or NCLAT to refer the matter to the Mediation
and Conciliation Panel.
◦ The Tribunal/Appellate Tribunal may also direct parties to refer their dispute to the panel for
mediation.
◦ The panel will follow a structured process to mediate and guide parties toward a mutually
acceptable solution.
◦ On successful settlement, the panel submits a report of settlement to NCLT or NCLAT.
◦ If mediation fails, the panel refers the matter back to the Tribunal/Appellate Tribunal for
further legal proceedings.
◦ A settlement agreement prepared by the panel holds the same legal standing as an order
passed by NCLT/NCLAT.
◦ Significance of the Mediation and Conciliation Panel:
◦ Encourages alternative dispute resolution (ADR), reducing lengthy litigation.
◦ Ensures cost-effective and speedy resolution of corporate disputes.
◦ Promotes mutual agreement and improved corporate relationships.
Section 135 – Corporate Social Responsibility (CSR)
◦ The provisions of CSR apply to companies that meet any one of the following criteria during
the immediately preceding financial year:
◦ Net worth of ₹500 crore or more, or
◦ Turnover of ₹1,000 crore or more, or
◦ Net profit of ₹5 crore or more.
◦ Companies meeting the above criteria must form a CSR Committee consisting of three or more
directors, with at least one independent director.
◦ The CSR Committee’s role is to:
◦ Formulate and recommend the CSR policy.
◦ Recommend the expenditure to be incurred on CSR activities.
◦ Monitor the implementation of the CSR policy.
◦ Companies must spend at least 2% of their average net profit (calculated over the last three
financial years) on CSR activities.
◦ If the company fails to spend the required amount, it must provide an explanation in the
Board's report, and the unspent amount (in certain cases) must be transferred to a designated
fund or Schedule VII project.
◦ Approved CSR Activities (Schedule VII): CSR funds must be used for activities such as:
◦ Eradicating hunger, poverty, and malnutrition.
◦ Promoting education, gender equality, and women empowerment.
◦ Ensuring environmental sustainability.
◦ Contributions to the PM Relief Fund or other government-specified funds.
◦ Rural development projects.
◦ Support for armed forces veterans, war widows, and their dependents.
◦ CSR activities must be undertaken in India.
◦ Contributions to political parties or activities that benefit only company employees are not
considered CSR.
◦ The Board's Report must include details of CSR initiatives, funds spent, and their impact.
◦ Companies failing to meet CSR obligations may face:
◦ A fine ranging between ₹50,000 to ₹25 lakh.
◦ Defaulting officers may also be fined up to ₹5 lakh or face imprisonment.
Thank You…!