CS Praveen Choudhary Introduction of Company

Introduction of Company

Structure of Co. Act 2013

 New Company Law has been framed on Skelton Approach
 It consist of 29 chapters, 470 Sections, 7 schedules, 95 definitions.

Definition
 Section 2(20) of the Companies Act, 2013, provides that a 'company' means
a company incorporated under this Act or under any previous company law.

CHARACTERISTICS/ FEATURES OF A COMPANY

1. Incorporated Association
2. Artificial Person
3. Separate Legal Entity
4. Separate property
5. Capacity to sue and to be sued
6. Separate Ownership & Management
7. Common Seal
8. Transferability Shares
9. Perpetual Succession
10. Limited Liability
11. One-man Company
12. Experience of a Shareholder as Experience of a Company
13. Contractual Rights
14. Limitation of Action
15. Voluntary Association for Profit
16. Termination of Existence

Advantages of Company
1. A company is a legal entity, distinct and independent of those persons who from
time to time are called its members.
2. The liability of the company's members are limited to the extent they have agreed
to contribute towards the capital of the company with reference to the number of
shares and/or the amount of guarantee respectively undertaken by them.

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CS Praveen Choudhary Introduction of Company

3. As the company is having an independent personality of its own, its members are
not personally liable for any act or omission on the part of the company, unless the
law expressly provides otherwise.
4. The company being a juristic person, distinct from the members constituting it, a
company can acquire, own, enjoy and alienate property in its own name. As such the
property would be that of the company and no member can make any claim upon it
so long as the company is a going concern.
5. The company being a legal entity can sue and also be sued in its own name.
6. The continuity of the company and its functioning-is not effected by the death,
disability or retirement of any of its members. The company continues to exist,
irrespective of change in its membership. It is commonly referred to as "perpetual
succession"
7. Transfer of member's interest in the company can be readily attained without in
any way adversely affecting its property, business, or existence.
8. Transferability of the company's shares provides an element of liquidity to the
investors in respect of their investment in the shares of the company and thus
facilitates increased investment in the company's funds without, in any way,
adversely affecting its economic stability.
9. The members of the company equitably share the profit by way of dividend and the
company's assets in the event of its winding up distributed in proportion of its
capital respectively contributed by them.
10. Shares of small denomination afford an opportunity to the small investors to invest
according to their capacity.

Disadvantages of Company
1. Formalities and expenses: Incorporation of Company is coupled with many complexes
and legal formalities. Even after the Company is incorporated, it has to comply
with the various legal provisions. Various documents and returns have to be filed
with various government agencies from time to time, which lead to heavy
expenditure.
2. Corporate disclosure: Various corporate information has to be disclosed from time to
time to the members of the Company, hence no secrecy.
3. Separation of control from ownership: Members of the Company do not have the
control over the Company. Although they have interested in money and are the
owner of the Company but still they do not have active control over the Company.
4. Greater social responsibility: The Companies have the great impact on the society,
due to this reason the Companies are called to show greater social responsibility in
their working.

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CS Praveen Choudhary Introduction of Company

5. Greater tax burden: Tax burden in case of the Company is more than any other
form of business organisation. A Company is liable to pay tax without any minimum
taxable limit and it has to pay tax on its whole income in other words Basic
exemption limit for Companies is Nil.
6. Detailed winding-up procedure: The Act provides for a very detailed and lengthy
procedure to wind up the Company, which is more expensive and time consuming.

Body Corporate (or) Corporation (or) Corporation [Sec

2(11)]
Body corporate or corporation includes a company incorporated outside India, but
does not include-
i. A co-operative society registered under any law relating to co-operative societies;
and
ii. Any other body corporate (not being a company as defined in this Act), which the
CG may, by notification, specify in this behalf.

Body corporate includes a private company, public company, one person company, small
company, limited liability partnership, foreign company etc.

Note: A company is a body corporate but all bodies corporate need not be
a company

ILLEGAL ASSOCIATION
Sec 464 read with Rule 10 of Co. (Miscellaneous) Rules 2014
No association or partnership consisting of more than such number of persons as may
be prescribed (i.e. 100 as per the Sec 464 but 50 as per Rules, (Rules shall be
prevailed here) shall be formed for the purpose of carrying on any business that has for
its object the acquisition of gain by the association or partnership or by the Individual
members thereof, unless it is registered as a company under this Act or is formed
under any other law for the time being in force.

However the restrictions shall not apply to

 Hindu Undivided Family carrying any business OR

 An Association or Partnership formed by professionals who are governed by
special Acts.

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CS Praveen Choudhary Introduction of Company

LIABILITY OF MEMBERS
Every member of an illegal association is:
a) Personally liable for all liabilities incurred in carrying on the business of, or by, the
illegal association; and
b) Punishable with fine up to Rs.1,00,000/-

LIFTING OR PIERCING CORPORATE VEIL

A company is formed by the members and managed by the Board of Directors
with the assistance of officers and employees. On incorporation, law gives
separate legal entity to the company. Thus, a fiction is created by law by which
the rights, powers, duties, functions, liabilities and property of a company is
differentiated from the rights, powers, duties, functions, liabilities and property
of the members, Directors, officers and employees of the company. This fiction
of law is called Veil of Incorporation or Corporate Veil.
Or
“Lifting of Corporate Veil” means ignoring the separate legal entity of the
company and looking behind the company to identify the real persons who
controls the company.

Effect of Corporate Veil

The effect of this Corporate Veil is that only Company can be held liable for
the acts and defaults done in the name of the company, even though members,
Directors, officers or employees had acted on behalf of the company.

Lifting of Corporate Veil under Companies Act

Corporate veil can be ignored under:
A. Statutory provisions
B. Judicial Pronouncements

A. STATUTORY PROVISIONS UNDER WHICH CORPORATE VEIL IS

REMOVED.
1. Reduction of membership
2. Misrepresentation in Prospectus
3. Failure to refund Application money
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CS Praveen Choudhary Introduction of Company

4. Mis-description of Company’s name

5. Holding and Subsidiary
6. Fraudulent Conduct
7. Liability under other Statues
8. Ultra Vires Act

B. Lifting of Corporate Veil under Judicial interpretation

1. Protection of Revenue
Case Law Sir Dinshaw Maneckjee Petit

2. Determination of enemy character of the Company

Case Law Daimler Co. Ltd. Vs. Continental Tyre & Rubber Co. Ltd

3. Prevention of fraud
Case Law Gilford Motor Company vs. Horne

4. Avoidance of Welfare Legislation

Case Law Workmen of Associated Rubber Industry Ltd. Vs. Associated
Rubber Industry Ltd.

5. To punish for contempt of Court

6. Subsidiary to act as an agent.

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CS Praveen Choudhary Introduction of Company

Applicable Rules

Chapter Rules Forms

I Co. (specification of definition details) Rules
2014
II Co. (incorporation) Rules 2014 INC 1 (RUN) – INC
34
III Co. (prospectus & allotment of securities) rules PAS 1 – PAS 5
2014
III Co. (Issue of GDR) Rules 2014
IV Co. (Share capital & Debenture) Rules 2014 SH 1 – SH 15
RSC 1 – RSC 7
IV NCLT (procedure for reduction of share capital of
co.) Rules 2016
V Co. (acceptance of deposit) Rules 2014 DPT 1 – DPT 4
VI Co. (registration of charge) Rules 2014 CHG 1 – CHG 9
VII Co. (management & administration) Rules 2014 MGT 1 – MGT 15
VIII Co. (Declaration & payment of Dividend) Rules IEPF 1 – IEPF 6
2014
VIII IEPFA (appointment of chairperson & members
holding of meeting & provision for offices and
officers) Rules 2016
IX Co. (accounts) Rules 2014 AOC 1 – AOC 5
IX Co. (corporate social responsibility policy) Rules
2014
IX Co. (Indian Accounting Standard) Rules 2015
IX NFRA (composition & manner of selection of
chairperson & member) rules 2014
X Co. (audit and auditors) Rules 2014 ADT1 – ADT4
X Co. (cost records and audit) Rules 2014 CRA 1 – CRA 4
XI Co. (appointment and qualification of directors) DIR 2 – DIR 12
Rules 2014
XII Co. (meeting of board and its powers) Rules MBP1 – MBP 4
2014
XIII Co. (appointment & remuneration of Managerial MR1 – MR3
person) Rules 2014
XIV Co. (inspection, Investigation & Inquiry) Rules
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CS Praveen Choudhary Introduction of Company

2014
XV Co. (compromise, arrangement &amalgamation ) CAA 1 – CAA15
Rules 2016
XVI Companies (winding up) rules 2014
XXI Co. (authorized to register) Rules 2014 URC1-URC2
XXII Co. (Registration of foreign co.) Rules 2014 FC1 – FC5
XXIV Co. (Registration offices and fees) Rules 2014 GNL1- GNL 4
XXIV Co. (filing of documents and forms in XBRL)
Rules 2014
XXVI Nidhi Rules 2014 NDH 1 – NDH 3
XXVII NCLT (Salary, allowances & other terms and
conditions of services of president & other
members) Rules 2015
XXVII NCLAT (Salary, allowances & other terms and
conditions of services of president & other
members) Rules 2015
XXVII NCLT Rules 2016 NCLT 1 – NCLT 18
NCLAT 1 – NCLAT
9
XXVII Co. (transfer of pending proceedings) Rules 2016
XXVIII Co. (mediation and conciliation) Rules 2016 MDC 1 – MDC 2
XXIX Co. (Miscellaneous) Rules 2014 MSC1- MSC 5
Co. (adjudication & penalties) Rules 2014 ADJ
Draft rules of prevention of oppression and
mismanagement rules
Draft rules for registered valuer
Draft rules for removal of name from the register
of companies
Draft rules for rehabilitation and revival of sick
companies

Categories of Forms to be filed with ROC and other authorities of

MCA

Form Description
SPICE+ Application for Name Reservation and Incorporation of company
AGILE Application for GSTIN, ESIC, EPFO numbers.
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CS Praveen Choudhary Introduction of Company

CG 1 Form for filing application or documents with Central Govt.

INC 1 Application to Reserve of Unique Name
(RUN)
INC 3 OPC – Nominee consent form
INC 4 OPC – Change in member/ nominee
INC 5 OPC – Intimation of exceeding threshold
INC 6 OPC – application for conversion
INC-12 Application for grant of License under section 8
INC – 18 Application to regional director for conversion of sec 8 company into
company of any other kind
INC 20 Intimation to ROC of revocation/ surrender of license issued under sec
8
INC 21 Declaration prior to the commencement of business or exercising
borrowing power
INC 22 Notice of situation or change of situation of registered office
INC 22A Active Compliant Form “ACTIVE”
INC 23 Application to RD for approval to shift the Registered office from one
state to another state or from jurisdiction of one ROC to another
ROC within the same state.
INC 24 Application for approval of CG for change of name
INC 27 Conversion of public company into private company or private co. into
public company
INC 28 Notice of order to the court or any other competent authority
RD 1 Application to RD
RD 2 Form for filing application to CG (RD)
MSC 1 Application to ROC for obtaining the status of dormant company
MSC 4 Application for seeking status of active company
GNL 1 Application made to ROC
GNL 2 ROC document – schedule IV, Schedule II, MOA and AOA
GNL 3 Details of persons/ directors/ charged/ specified.
GNL 4 Addendum for rectification of defects or incompleteness.
FTE Application for striking off the name of company under the Fast track
exit mode
FC 2 Return of alteration in the documents filed for registration by foreign
company
FC 3 Annual accounts along with the list of all principal places of business in
India established by foreign company

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CS Praveen Choudhary Introduction of Company

Form 14 Form for intimating to ROC of conversion of the co. into LLP
CHG 1 Application for registration of creation, modification of charge (other
than those related to debentures)
CHG 4 Particulars for satisfaction of charge thereof
CHG 6 Notice of appointment or cessation for receiver or manager
CHG 8 Application to CG for extension of time for filling particulars of
registration of creation of creation / modification/ satisfaction of
charge
Or
For rectification of omission or misstatement/ of any particular in
respect of creation/ modification / satisfaction of charge.
CHG 9 Application for registration of creation or modification of charge for
debentures or rectification of particulars filed in respect of creation or
modification o charge for debentures
SH 7 Consolidation, diversion, increases in share capital or members.
SH 8 Letter of offer
SH 9 Declaration of Solvency
SH 11 Return in respect of buy back of securities
DIR 3 Application for allotment of director identification number
DIR 3 Application for Active DIN of Directors.
KYC Web
DIR-3C Intimation of Director Identification Number by the company to the Registrar
DIN services
DIR 5 Application for surrender of DIN
DIR 6 Intimation of change in particulars of directors to be given to the CG
DIR-9 A Report by a company to ROC for intimating the disqualification of the
director
DIR 10 Application for removal of disqualification of director
DIR 11 Notice of resignation of a director to the ROC
DIR 12 Particulars of appointment of directors and the KMP and the changes
among them
URC 1 Application by company for registration u/s 366
FC 1 Information to be filed by foreign company
FC-2 Return of alteration in the documents filed for registration by foreign
company
FC 3 Annual accounts along with the list of all principal places of business in India
established by foreign company
FC 4 Annual Return of a foreign company

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CS Praveen Choudhary Introduction of Company

1 INV Statement of amounts credited to IEPF a/c

PAS 2 Information Memorandum
PAS 3 Return of allotment
PAS 4 Private Placement Offer Letter
MGT 3 Notice of situation or change of situation or discontinuation of situation of
place where foreign register shall be kept
MGT 6 Persons not holding beneficial interest in shares
MGT 7 Form for filing annual return by a company
MGT 14 Filing of resolution and agreements to ROC
MGT 15 Form for filing Report on Annual General Meeting
MGT 10 Changes in shareholding position of promoters and top ten shareholders
AOC 5 Notice of address at which books of account are maintained
MR 1 Return of appointment of MD or WTD or Manager
MR 2 Form of application to the CG for approval of appointment or re
appointment and remuneration or increase in remuneration or waiver
for excess or over payment to MD or WTD or Manager and commission
or remuneration to directors.
MSC-1 Application to Registrar for obtaining the status of dormant company
MSC 3 Return of dormant companies
MSC-4 Application for seeking status of active company
ADT-1 Information to the Registrar by Company for appointment of Auditor
ADT 2 Application for removal of auditor(s) from his/their office before expiry of
term
ADT-3 Notice of Resignation by the Auditor
5 INV Statement of unclaimed and unpaid amounts
DPT 1 Circular or circular in the form of advertisement inviting deposits
DPT-3 Return of deposits
DPT-4 Statement regarding deposits existing on the commencement of the Act
22 Statutory report
CRA 2 Form of intimation of appointment of cost auditor by the company to
Central Government.
CRA-4 Form for filing Cost Audit Report with the Central Government.
I- XBRL Form for filing XBRL document in respect of cost audit report and
other document with the CG
A-XBRL Form for filing XBRL document in respect of compliance report and
other documents with the CG
35A Information to be furnished in relation to any offer of a scheme or
contract involving the transfer of shares or any class of shares in the
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CS Praveen Choudhary Introduction of Company

transferor company to the transferee company

ICP Investor Complaint Form
Form for filing complaint against the company
ADJ Memorandum of appeal
SCP SERIOUS COMPLAINT FORM
AOC 4 Form for filing XBRL document in respect of financial statement and other
(XBRL) documents with the Registrar

AOC 4 Form for filing financial statement and other documents with the Registrar
AOC 4 Form for filing consolidated financial statements and other documents with
(CFS) the Registrar

Refund Application for requesting refund of fees paid.

23C Form of application to the Central Government for appointment of cost
auditor.
23D Information by cost auditor to Central Government
23AC Form for filing XBRL document in respect of balance sheet and other
documents with the Registrar.
23 ACA Form for filing XBRL document in respect of Profit and Loss account and
other documents with the Registrar.
20B Filing annual return by a company having a share capital with the Registrar.
21A Particulars of annual return for the company not having share capital
66 Form for submission of compliance certificate with the Registrar
NDH 1 Return of Statutory Compliances
NDH 2 Application for extension of Time
NDH 3 Half Yearly Return

Schedules

Schedule 1 Formant of MOA and AOA

Schedule Useful life to compute depreciation
2
Schedule General instruction for preparation of balance sheet and statement of
3 profit and loss of a company
Schedule Code for independent directors
4
Schedule Conditions to be fulfilled for the appointment of a MD, WTD or a
5 Manager without the approval of the central Govt.
Schedule Infrastructural projects or infrastructural facilities
6
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CS Praveen Choudhary Introduction of Company

Schedule Activities which may be included in CSR policy.

7

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CS Praveen Choudhary Prospectus and Allotment

Prospectus and Allotment

INTRODUCTION
Section 23 provides the methods of issue of securities by a public company
and a private company.

A. Public company may issue securities in the following modes:

1. Public Offer:
2. Private Placement:
3. Right or Bonus Issue:
B. A private company may issue securities in the following modes:
1. Private placement;
2. Rights or bonus issue.

Basic concepts and Provisions of Prospectus

Definition: Sec 2(70)
"Any document described or issued as a prospectus and includes a red herring
prospectus, shelf prospectus or any notice, circular, advertisement or other
document inviting offers from the public for the subscription or purchase of
any securities of a body corporate".

Ingredients of Prospectus:
a) There must be an invitation offering to the public; (General Public)
b) The invitation must be made "by or on behalf of the company or in relation
to an intended company";
c) The invitation must be "to subscribe or purchase";
d) The invitation must relate to shares or debentures or such other
instrument.

Note: Prospectus is Invitation to make offer

Case law Immugan Vs. Ranga Ram

In essence, it means that a prospectus is an invitation issued to the public
CS Praveen Choudhary Prospectus and Allotment

to offer for purchase / subscribe shares or debentures of the company.

Case law Nash Vs. Lande

But to be a prospectus, it must be 'issued to the public. A single private
communication does not satisfy the term "issue".

When prospectus is not required to be issued:

1. When shares/debentures are issued to existing shareholders /debenture
holders.
2. When issue relates to shares or debentures uniform in all respect with in or
quoted in a RSE.
3. When person is bonafide invitee to enter an underwriting agreement.
4. Where shares are not offered to public.

Abridged Prospectus Section 2(1)

A memorandum containing such salient features of the prospectus as may be
specified by SEBI by making regulation in this behalf.

Section 33 No application forms can be issued by a company inviting subscription

for any securities unless it is accompanied by an 'abridged prospectus'.

Exceptions:
a) application to the existing security holders of the company, by way of Rights
Issue;
b) Form to Underwriters; and
c) shares not offered to the public (private placement cases).

Shelf Prospectus [Section 31]

Meaning: A prospectus in respect of which the securities or class of securities
included therein are issued for subscription in one or more issues over a certain
period without the issue of a further prospectus.

A company filing a shelf prospectus, however, is also required to file

CS Praveen Choudhary Prospectus and Allotment

information memorandum containing all material facts of new charges created,

and changes in financial position of the company with the Registrar which
occurred within 1 month prior to the issue of a 2nd or subsequent offer under
shelf prospectus.

Red Herring Prospectus [Section 32]

A company can issue red-herring prospectus prior to issue of a prospectus. The
expression “red-herring prospectus” means a prospectus which does not include
complete particulars of the quantum or price of the securities included therein.

A company proposing to issue a red herring prospectus shall file the same with
the ROC at least 3 days prior to the opening of the subscription list and the
offer. Upon the closing of the offer of securities, the company is required to
file with the ROC of Companies and the SEBI, prospectus stating therein the
total capital raised, and the closing price of the securities and any other
details as are not included in the red herring prospectus.

Remedies for Misrepresentation in the Prospectus

(a) Remedies against the Company

 The 1stremedy against the company is to rescind the contract.
 The 2nd remedy against the company is to sue the company for damages for
deceit.

(b) Remedies against Directors/ Promoters/Expert

Where a mis-statement or untrue statement occurs in a prospectus, there
may arise civil as well criminal liability for the directors, promoters, expert,
etc.

Section 447  Penalty for fraud

If the fraud involves an amount less than Rs. 10 lakh or less than 1% of T.O.
of the co, (w.i.l) and does not involve public interest  imprisonment up-to 5
years OR with Fine up-to Rs. 20 Lakhs OR with both.
If fraud involve an amount of at least Rs. 10 Lakh or 1% of the T.O. of the
CS Praveen Choudhary Prospectus and Allotment

company (w.i.l)Imprisonment Minimum 6 months up-to 10 yrs. AND Fine

Minimum Amt involved in the fraud, up to 3 times the amount involved in
the fraud.

If fraud involves public interest  the term of imprisonment  Minimum 3

years and Maximum 10 years.

Civil Liability for Mis-statement in Prospectus

Section 35 makes the following persons liable to pay compensation for loss or
damage sustained by reason of mis-statement/untrue statement or inclusion or
omission of any matter in the prospectus:
1. Director of company;
2. Proposed Directors;
3. Promoter
4. Every person who has authorized the issue of the prospectus; and
5. Every person who is named in the prospectus as an expert.

Case law Peek Vs. Gurney

A subsequent purchase of shares in the open market has no remedy against
the company or the directors or promoters.

Punishment for Impersonation [Section 38]

This section provides punishment for those persons who apply in fictitious
name or make multiple applications in different names or different combination
of surnames or otherwise induces companies to allot shares in fictitious name.
Such persons will be held guilty of fraud u/s 447, an offence which is non-
compoundable.

Allotment of securities

General Principles Regarding Allotment

1. The allotment should be made by proper authority i.e., BOD, or an
authorised committee. Otherwise it will be invalid.
CS Praveen Choudhary Prospectus and Allotment

2. Allotment must be made within a reasonable time.

3. The allotment should be absolute and unconditional.
4. The allotment must be communicated. Posting of letter of allotment will be
taken as a valid communication even if the letter is lost in transit or delayed
in transit.

Statutory Provisions Regarding Allotment [Sections 39 & 40]

The Companies Act, 2013 lays down the following conditions to be fulfilled
before a company proceeds to allot securities:
1. Application Money:
2. Minimum Subscription:
3. Listing Permission:

Return of Allotment (Sec 39)

Within 30 days of the allotment of securities, a company must send to the
ROC, a report in e-Form No. PAS.3, containing the following particulars/
documents:
1. A list of allottees stating their names, address, occupation and number of
securities allotted to each of the allottees.
2. Contracts in writing, under which securities have been allotted for any
consideration other than cash, must be produced for examination of the
ROC.
3. Where bonus securities have been allotted, a copy of the resolution of the
shareholders.

UNDEWRITING COMMISSION (Sec 40)

The conditions, which must be fulfilled for the payment of underwriting
commission, are as follows:
a) The payment of the commission must be authorized by the AOA of the
company.
b) The rate of the commission must not exceed 5% of the price at which the
securities have been issued or any lesser amount prescribed by articles. In
the case of debentures, the rate of the commission must not exceed 2.5%
CS Praveen Choudhary Prospectus and Allotment

or any lesser amount prescribed by articles;

c) Underwriting commission shall not be paid on those securities which are
not offered to the public for subscription;
d) Commission may be paid out of the proceeds of issue or profits of the
company or both;
e) The name of the underwriter and rate of commission must be disclosed
in the prospectus;
f) The prospectus should also indicate the number of securities or
debentures which have been underwritten; and
g) A copy of underwriting agreement should be delivered to the Registrar
along with the prospectus.

Private Placement (Sec 42)

1. A company may, subject to the provisions of this section, make a private
placement of securities.
2. A private placement shall be made only to a select group of persons who have
been identified by the Board whose number shall not exceed 50 or such higher
number as may be prescribed [excluding the QIB and employees being offered
securities under a scheme of ESOP], in a FY however the proposal has been
previously approved by the shareholders of the company, by a special resolution
for each of the offers or invitations.
3. A company making private placement shall issue private placement offer and
application in Form PAS 4 serially numbered and addressed specifically to the
person to whom the offer is made and shall be sent to him, either in writing or
in electronic mode, within 30 days of recording the name of such person.
Provided further that No other person shall be allowed to apply through such
application form and any application not conforming to this condition shall be
treated as invalid.
Provided that the private placement offer and application shall not carry any
right of renunciation.
4. Every identified person willing to subscribe to the private placement issue shall
apply in the private placement and application issued to such person along with
subscription money paid either by cheque or demand draft or other banking
CS Praveen Choudhary Prospectus and Allotment

channel and not by cash:

Provided that a company shall not utilize monies raised through private
placement unless allotment is made and the return of allotment is filed with the
ROC.
5. The payment to be made for subscription to securities shall be made from the
bank account of the person subscribing to such securities and the company shall
keep the record of the bank account from where such payment for subscription
has been received
Provided that monies payable on subscription to securities to be held by joint
holders shall be paid from the bank account of the person whose name appears
first in the application
Provided further that the provisions of this sub-rule shall not apply in case of
issue of shares for consideration other than cash.
6. No fresh offer or invitation under this section shall be made unless the
allotments with respect to any offer or invitation made earlier have been
completed or that offer or invitation has been withdrawn or abandoned by the
company:
Provided that, subject to the maximum number of identified persons, a company
may, at any time, make more than one issue of securities to such class of
identified persons as may be prescribed.
7. A company making an offer or invitation under this section shall allot its
securities within 60 days from the date of receipt of the application money for
such securities and if the company is not able to allot the securities within that
period, it shall repay the application money to the subscribers within 15 days
from the expiry of 60 days and if the company fails to repay the application
money within the aforesaid period, it shall be liable to repay that money with
interest at the rate of 12% p.a. from the expiry of the 60th day:
Provided that monies received on application under this section shall be kept in a
separate bank account in a scheduled bank and shall not be utilized for any
purpose other than—
a) For adjustment against allotment of securities; or
b) For the repayment of monies where the company is unable to allot securities.
8. No company issuing securities under this section shall release any public
CS Praveen Choudhary Prospectus and Allotment

advertisements or utilize any media, marketing or distribution channels or agents

to inform the public at large about such an issue.
9. A company making any allotment of securities under this section, shall file with
the ROC a return of allotment within 15 days from the date of the allotment
in PAS 3 + Fees, including a complete list of all allottees, with their full names,
addresses, number of securities allotted and such other relevant information as
may be prescribed.
10. If a company defaults in filing the return of allotment, the company, its
promoters and directors shall be liable to a penalty for each default of Rs.
1,000/- for each day during which such default continues but not exceeding Rs.
25 lakhs.
11. If a company makes an offer or accepts monies in contravention of this section,
the company, its promoters and directors shall be liable for a penalty which may
extend to the amount raised through the private placement or Rs. 2 Cr,
whichever is lower, and the company shall also refund all monies with interest to
subscribers within 30 days of the order imposing the penalty.
12. The company shall maintain a complete record of private placement offers in
Form PAS-5.

Issue of securities in Dematerialised Form (Rule 9A of PAS amendment

rules)
1. Every unlisted public co. shall issue securities only in demat form and facilitate
dematerialisation of all its existing securities as per depositories act 1996 and
regulations made thereunder.
2. Every unlisted public co. making any offer for issue of any securities or buyback
of securities or issue of bonus shares or right offer shall ensure that before
making such offer, entire holding of securities of its promoters, directors, KMP
has been dematerialised.
3. Every security holder of unlisted public co. –
a. Who intends to transfer such securities on or after 2nd Oct 2018, shall get
such securities dematerialised before the transfer. OR
b. Who subscribes to any securities of an unlisted public company (whether by
way of pvt. Placement or bonus shares or right offer) on or after 2 nd Oct,
CS Praveen Choudhary Prospectus and Allotment

2018 shall ensure that all his existing securities are held in Demat form
before such subscription.
4. Every unlisted public co. shall facilitate dematerialisation of all its existing
securities by making necessary application to a depository and shall secure
international security Identification Number (ISIN) for each type of security and
shall inform all its existing security holders about such facility.
5. Every Unlisted public company shall ensure that –
a. It makes timely payment of fees (admission as well as annual) to the
depository and RTA as per the agreement executed between parties;
b. It maintains security deposit, at all times, of not less than 2 years’ fees
with the depository and RTA, in such form as may be agreed between the
parties;
c. It complies with the regulations or directions or guidelines or circulars, if any,
issued by the SEBI or Depository from time to time with respect to
dematerialisation of shares of unlisted public companies and matters incidental
or related thereto;
6. No unlisted public company which has defaulted in sub rule 5 shall make offer to
any securities or buyback its securities or issue any bonus or right shares till the
payments to depositories or RTA are made.
7. The provisions of Depository act 1996, SEBI (Depositories and partcipants)
Regulations, 1996 and SEBI( RTA) Regulations, 1993 shall apply mutatis
mutandis to dematerialisation of securities of unlisted public companies.
8. Every unlisted public company governed by this rule shall submit PAS 6 to the
ROC with prescribed fees within 60 days from conclusion of each half year duly
certified by a PCS/ PCA.
9. The company shall immediately bring to the notice of the depositories any
difference observed in its issued capital and the capital held in demat form.
10. The grievances, if any, of security holders of unlisted public companies under this
rule shall be filed before the IEPF authority.
11. This rule shall not apply to an unlisted public company which is: a Nidhi, a
Govt. co., or a WOS.
CS Praveen Choudhary Share Capital of a Company

Share Capital of a Company

In Company Law, the "Capital" is the share capital of a company, which is classified as:

a) Nominal, Authorised or Registered Capital

b) Issued Capital:
c) Subscribed Capital:
d) Called up Capital:
e) Paid-up Share Capital:

Reserve Capital
This is that part of uncalled capital of the company, which can be called up, only in the event of
its winding up.
A limited company may, by a special resolution, determine that a portion of its uncalled capital
shall be called up.
 In the event of winding up
 For the purpose of winding up only.
Reserve capital cannot be turned into uncalled capital without the leave of the tribunal.it is
available only for the creditors on the winding up of the company. The company can neither
charge reserve capital nor cancel it in a reduction of capital. (Midland Rly Carriage Co.)

Difference between Reserve Capital and Capital Reserve

Reserve capital Capital Reserve

It is that part of the uncalled capital It is created by the accumulation of profits out of
which the company cannot demand capital profit or earning.
except company being wound up.
Creation of reserve capital is not It is mandatory to create capital reserve in case
mandatory. of profit.
Disclosure of reserve capital is not Capital reserve is disclosed under the head
entertained in the balance sheet of the reserve and surplus on the liabilities side of
company. balance sheet.
Reserve capital cannot be used to write Capital reserve can be used to write off capital
off capital losses. losses or for the issue of bonus shares.

Kinds of Shares (Section 43)

There are 2 types of shares:
1. Preference share and
2. Equity share.

Preference Share: A preference share is a share which fulfils the following 2 conditions:
 That in respect of dividends, in addition to the preferential rights to the amounts with respect
to dividend, it has a right to participate, whether fully or to a limited extent, with capital not
entitled to the preferential right aforesaid;
CS Praveen Choudhary Share Capital of a Company

 That in respect of capital, in addition to the preferential right to the repayment, on a winding
up, of the amounts aforesaid, it has a right to participate, whether fully or to a limited extent,
with capital not entitled to that preferential right in any surplus which may remain after the
entire capital has been repaid.

Kinds of Preference share Capital

1. Cumulative/ Non-Cumulative Preference shares:

2. Participating / Non-participating preference shares
3. Redeemable /Irredeemable preference shares (Sec 55)
If so authorized by its AOA, may issue redeemable preference shares, subject to the
following conditions:
a) special resolution;
b) no subsisting default, in the redemption of preference shares issued either before or
after the commencement of this Act or in payment of dividend due on any preference
shares; and
c) The company cannot issue preference shares which is redeemable after the expiry of
20 years from the date of its issue.
However, a company engaged in the setting up and dealing with of infra structural
projects, as defined in Schedule VI to this Act, may issue preference shares for a period
exceeding 20 years but not exceeding 30 years, subject to the redemption of a
minimum 10% of such preference shares per year from the 21st year onwards or earlier,
on proportionate basis, at the option of the preference shareholders.

Note: A company cannot issue irredeemable preference shares.

Conditions for redemption of Preference share capital:

i. Shares should be fully paid-up;
ii. Share may be redeemed only out of the distributable profits;
iii. Where the shares are redeemed out of the profits available for distribution as dividend, a
sum equal to the nominal amount of the shares redeemed shall be transferred out of
profits to the CRR Account, which can be utilized only for the purpose of issuing fully-
paid bonus shares, otherwise it shall be deemed to be reduction of share capital; and
iv. If premium is payable on redemption, it must have been provided for out of profits or
out of company's security premium account.
If a company is unable to redeem its preference shares, it may redeem unredeemed
preference shares by issue of further preference shares with consent of holders of 75%
in value of such preference shares and the approval of the NCLT.

The NCLT shall while giving, such approval, and order the redemption forthwith of
preference shares of such person who have not consented to the issue of further
redeemable preference shares.

It may further be noted the fact of redemption of preference shares is required to be

intimated to the ROC by filing Form SH.7 within 30 days.
CS Praveen Choudhary Share Capital of a Company

4. Convertible/ Non-Convertible preference shares

Equity Share
Equity share means share which is not preference share. Following are the important features of
equity shares:
 Availability of voting rights.
 No fixed dividend.
 No priority in distribution of surplus assets.

Voting Rights
Every member of a company limited by shares and holding equity share capital therein, shall have a
right to vote on every resolution placed before the company; and his voting right on a poll shall be in
proportion to his share in the paid-up equity share capital of the company.
Preference share holder shall have a right to vote only on -
 Resolutions placed before the company which directly affect the rights attached to his preference
shares and,
 Any resolution for the winding up of the company or for the repayment or reduction of its share
capital.

Preference shareholders are entitled to vote on every resolution placed before the company at any
meeting, if the dividend due on such class of preference shares are in arrears for a period of 2 years
or more.

Further, equity share capital is of 2 types:

 Ordinary Shares with equal rights
 Shares with Differential Rights

Equity Shares with Differential Rights [Sec 43(a)]

A DVR share is like an ordinary equity share, but it provides fewer voting rights to the
shareholder. The difference in voting rights can be achieved by reducing the degree of voting
power. It is ideal for long term investors, typically small investors who seek higher dividend
and are not necessarily interested in taking a voting position.

Rule 4 of The Companies (Share Capital and Debentures) Rules, 2014 provide that no
company whether it is unlisted, listed or a public company limited by shares shall issue
equity shares with differential rights as to dividend, voting or otherwise, unless it
complies with the following conditions:
1. There must be an authority in the AOA of the company;
2. ordinary resolution shall be passed. However, in case of Listed company such OR shall
be passed by way of Postal Ballot.
3. The voting power in respect of shares with differential rights of the company shall not
exceed 74% of total voting power including voting power in respect of equity shares with
differential rights issued at any point of time.
4. The Company has not defaulted in filing of annual accounts and annual returns for 3 years;
in repaying deposits or paying interest thereon; in redeeming debentures or paying interest
there on; or redemption of preference share or paying dividend thereon; or re payment of
CS Praveen Choudhary Share Capital of a Company

any term loan or payment of interest thereon to a bank or financial institution; and paying
dividend after declaration; and
5. The company has-not been convicted, during the last three years, of any offence under
SCRA, 1956; SEBI Act, 1992; and FEMA Act, 1999; RBI Act, 1934 or any other special
Act, under which such companies being regulated by sectorial regulators.
6. It may be noted that a company cannot convert its equity shares with equal rights into
equity shares with differential rights and vice-versa.

Issue of Shares at a Premium [Section 52]

A company may issue shares at a premium when it is able to sell them at a price above par or
nominal value, irrespective of the fact whether the shares are listed on Stock Exchange or not.
The rate of premium will be decided by the BOD.

Section 52 deals with the concept of share or securities premium.

 It cannot be treated as Free Reserve or profit and shall not available for distribution as
dividend.
 The amount of premium, whether received in cash or in kind must be kept in a separate
account, known as the "Securities Premium Account'
 The amount of share premium is to be maintained with the same sanctity as the share
capital.

Section 52(1) The securities premium can be utilized only for the following purposes: -
 Issuing fully-paid bonus shares to members.
 Write-off the preliminary expenses of the company.
 Write-off commission paid or discount allowed, or the expenses incurred on issue of shares
or debentures of the company.
 For providing for the premium payable on redemption of any redeemable preference shares
or debentures of the Company.
 For the purpose of buy-back of shares or securities u/s 68.

Issue of Shares at Discount is prohibited [Section 53]

A company u/s 53 of the Act has been prohibited to issue shares at discount, except in case of
issue of sweat equity shares. Any share issued by a company at a discount shall be void.

However, a company may issue shares at a discount to its creditors when its debt is converted
into shares in pursuance of any statutory resolution plan or debt restructuring scheme as per
any guidelines or directions or regulations specified by the RBI under RBI Act 1934 or the
banking regulation act 1949.

In case of contravention, the company shall be punishable with Penalty which shall not be less
than Rs. 1 Lakh but which may extend to Rs. 5 Lakh and every officer who is in default shall be
punishable with imprisonment for a term up to 6 months OR with fine Rs. 1 Lakh – Rs. 5
Lakh OR with both.

Sweat Equity Shares [Section 54]

CS Praveen Choudhary Share Capital of a Company

A company may issue sweat equity shares subject to the following conditions: -
1. The shares must be of class already issued.
2. The issue must be authorized by a Special Resolution passed by the Company in GM.
3. The resolution must specify number of shares; their current market price; consideration (if
any); and the class or classes of directors or employees to whom they are to be issued.

Note: Sweat equity share-holders shall be ranked pari passu with other equity shareholders.

Section 53 states that no shares to be issued at discount whereas Section 54 states that sweat
equity shares can be issued at discount. It means that Section 54 shall override Section 53.

The rules for the purposes of sweat equity has defined 'Employee' so as to mean
1. A permanent employee of the company who has been working in India or outside India.
2. A director of the company, whether a whole time director or not.
3. An employee or a director as defined in sub-clauses (a) or (b) above of a subsidiary, in India
or outside India, or of a holding company of the company.

Provided further that A start-up company may issue sweat equity shares not exceeding
50% of its PSC up to 10 years from the date of its incorporation.

Alteration of Share (Sec 61)

A limited co. having a share capital may, if so authorized by its AOA, Alter its share capital in the
following manner
 By increasing the share capital by issuing new shares
 By consolidating the shares into shares of larger amount.
 By converting fully paid up shares into stock and vice versa.
 By sub dividing shares into shares of smaller amount
 By cancelling shares not taken up

This can be done by an ordinary resolution at a general meeting

The ROC has to be notified of the type of alteration made within 30 days of such alteration to enable
him to make changes in the co.’s MOA and AOA

Where any company fails to comply with the above provisions, such company and
every officer who is in default shall be liable to a penalty of Rs. 500 for each day
during which default continues or subject to a maximum of Rs. 5,00,000 in case of
a company and Rs. 1,00,000 in case of an officer who is in default.

Reduction of share capital (Sec 66)

A co. limited by share or a co. limited by guarantee and having a share capital may reduce its share
capital, subject to confirmation by NCLT, in any of following 3 ways -

1. Reduction in unpaid capital

2. Cancellation of lost paid up capital
CS Praveen Choudhary Share Capital of a Company

3. Paying off excess paid up capital

Procedure for reduction

 There shall be provision in the AOA for reduction of capital
 A special resolution shall be passed in General meeting
 Confirmation of court is also required before affecting the reduction of capital
 Along with NCLT, co. has to make application CG before reduction of capital.
 Similarly, Company has to make application to SEBI before reduction of capital.
 Every creditors of the company shall be entitled to object to the reduction
 The tribunal shall settle a list of the creditors of the company
 The tribunal shall ensure that the creditors objections to reduction-
 Have given their consent ; or
 Have been discharge ; or
 Have been given sufficient security.
 The Tribunal has the discretion to confirm or reject the reduction
 Before sanctioning the reduction, the Tribunal shall satisfy itself that-
 The reduction will be fair considering the interest of all the classes of shareholder.
 The reduction will not be prejudicial to the interest of creditors.
 The Tribunal may confirms the reduction of capital on such terms as it thinks fit.
 The Tribunal may direct the company to add the word ‘and reduction’ at the end of the name
of the company.
 The company shall delivers to ROC for registration:-
 A certified copy of the order of the Tribunal ; &
 A certificate copy of the minute approved by the Tribunal
 The registration shall register the order & minute procedure before him. He shall issue a
certificate of registration to the company.
 The certificate shall be conclusive evidence that all the requirement of this act with, &respect
to the reduction of share capital have been complied with, & that the share capital of the
company is such as is started in the minute.
 Reductions shall become effective only on registration of the order & minute of the Tribunal.
 The order of the Tribunal shall be punishable in such manner as may be directed by the court.

Reduction of share capital without Sanction of NCLT

Surrender of Shares

Buy-Back of Shares and securities

A company would opt for buy - back for the following reasons: -
i. To improve shareholder value - Buy back generally results in higher Earning per share (E.P.S.)
ii. As a defence mechanism - Buy back provides a safeguard against hostile take - overs by
increasing promoters' holding,
iii. To provide an additional exit route to shareholders when shares are undervalued or
thinly traded.
iv. To return surplus cash to shareholders.

Important Provisions [Section 68]

CS Praveen Choudhary Share Capital of a Company

Following are the important provisions of Section 68:

1. Company may purchase its own shares or other specified securities out of;
(i) Its free reserves;
(ii) The Securities premium account; or
(iii) The proceeds of an earlier issue of shares or other specified securities. However, no buy -
back can be done out of proceeds of an earlier issue of same kind of shares/ securities.
2. For buy - back purpose, the following conditions must be fulfilled-

Transfer to and Application of Capital Redemption Reserve Account [Section 69]

Circumstances Prohibits Buy-Back [Section 70]

No company shall directly or indirectly purchase its own shares or other specified securities-
 Through any subsidiary company including its own subsidiary companies;
 Through any investment company or group of investment companies; or
 If a default, is made by the company, in the repayment of deposits accepted either before or
after the commencement of this Act, interest payment thereon, redemption of debentures or
preference shares or payment of dividend to any shareholder, or repayment of any term loan
or interest payable there on to any financial institution or banking company: However, the
buy-back is not prohibited, if the default is remedied and a period of three years has lapsed
after such default ceased to subsist.
 No company shall, directly or indirectly, purchase its own shares or other specified
securities in case such company has not complied with the provisions of sec 92Annual
Return), Sec 123(Declaration of Dividend), Sec 127 (punishment for failure to distribute
dividend) and sec 129(Financial Statement).

Further Issue of Capital [Section 62]

Rights Issue of Shares [Section 62(1) (a)]
A rights issue is an offer of a company's shares to its existing shareholders. It gives them the
first opportunity to purchase a new issue of shares.
Notice period shall be min 7 days and maximum 30 days as per Rule 12A.

Note: Right issue is also known as Right of First Refusal or Pre-emptive Right of Existing
Shareholders.

EMPLOYEES STOCK OPTION SCHEME SEC 62 (1) (b)

Company may at any time issue shares to its employees under a scheme of employees' stock option,
subject to Special resolution (OR in Pvt. Co.) passed by company and subject to such conditions as
may be prescribed.
CS Praveen Choudhary Share Capital of a Company

Preferential Allotment or Allotment of Shares Section 62(1)(c)

To any person , if it is authorised by SR, whether or not those persons covered under clause a) or b)
above, either for cash or for a consideration other than cash, if the price of such shares is determined
by the valuation report of registered valuer and subject to other conditions as may be prescribed.
Bonus Share [Section 63]
A company may issue fully paid-up bonus shares to its members, in any manner whatsoever,
out of-
 Its free reserves;
 The securities premium account; or
 The capital redemption reserve account:

The following conditions must be satisfied before issuing bonus shares:

 Bonus issue must be authorized by the AOA of the company.
 It has, on the recommendation of the Board, been authorized in the GM of the company;
 It has not defaulted in respect of the payment of statutory dues of the employees, such as,
contribution to provident fund, gratuity and bonus;
 The partly paid-up shares, if any outstanding on the date of allotment, are made fully paid-up;
 It complies with such conditions as may be prescribed.
 Under the rules no company which has once announced the decision of its Board recommending
a bonus issue, can subsequently withdraw the same.

Return of Bonus Issue

When a company having a share capital makes any allotment of bonus shares, it must within 30 days
in E-form SH-3, thereafter file with the ROC a return stating the number and nominal amount of
such shares comprised in the allotment and the names, addresses and occupations of the allottees and
a copy of the resolution authorising the issue of such shares.
CS Praveen Choudhary Share Certificate

Share Certificate
SHARE CERTIFICATE [SEC 46]:
 A share certificate is a certificate issued under the common seal, if any, of
the co. or signed by 2 directors or by a director and the CS (if any)
specifying the number of shares held by him and the amount paid on each
share.
 The certificate is a statement as against the company that the person,
whose name appears on it, is the registered holder of the shares.
 No share certificate is to be issued to member of the company holding shares
in electronic form i.e. this section does not apply to shares held by a person
as a beneficial owner in depository.

Delivery of Share Certificate

 within 2 months from the date of incorporation, in the case of subscribers
to the memorandum;
 within 2 months from the date of allotment, in the case of any allotment
of any of its shares.

Form of Share Certificate

Rule 5(2) of Companies (Share Capital and Debentures) Rules, 2014

Every share certificate shall be in Form No. SH-1 or as near thereto as possible
and shall specify the name(s) of the person(s) in whose favour the certificate is
issued, the shares to which it relates and the amount paid-up thereon.

Sealing and Signing of Share Certificate [Rule 5(3)]

Every certificate shall specify the shares to which it relates and the amount paid-up
thereon and shall be signed by 2 directors or by a director and the CS, wherever the
company has appointed company secretary or by Affixing a common seal (if any).
Explanation. – For the purposes of this sub-rule, it is hereby clarified that -
CS Praveen Choudhary Share Certificate

a) in case of an OPC, it shall be sufficient if the certificate is signed by a director

and the CS or any other person authorised by the Board for the purpose.

b) a director or company secretary shall be deemed to have signed the share

certificate if his signature is printed thereon as facsimile signature.

Issue of Share Certificates-

Authorisation:
 In pursuance of a Board resolution; and
 On surrender to the company of its letter of allotment.

Legal Effect of Share Certificates [Section 46(1)]

It states that share certificate issued under the common seal of the company,
specifying any shares held by any person, shall be prima facie evidence of the
title of the person to such shares. A share certificate once issued binds the
company in 2 ways:

 Estoppel as to payment: If the certificate states that on each of the shares

full amount has been paid, the company is stopped from alleging that they
are not fully paid.

 Estoppel as to title: It is a declaration by the company to all the world that

the person in whose name the certificate is made out and to whom it is
given, is a bona fide shareholder of the company. In other words, the
company is stopped from denying his title to the shares.

Issue of Duplicate Share Certificate [Sec 46 & Rule 6]

The same may be issued, if original certificate-
a) Is proved to have been lost or destroyed; or
b) Has been defaced, mutilated or torn and is surrendered to the company.
 The consent of the Board is given (in case of loss or destruction of
certificate.
 The certificate in lieu of which it is being issued is surrendered to the
company and is cancelled.
CS Praveen Choudhary Share Certificate

 Fees = Max Rs. 50 per share certificate.

 Proper evidence and indemnity to the satisfaction of the company is
furnished.

Time Period for issue of Duplicate Share Certificate

The Duplicate Share Certificates shall be issued:
 In case unlisted companies, within 3 months.
 In case of listed companies, within 15 days,

Register of duplicate Certificate

Form No. SH-2 indicating against the name of the person to whom the
certificate is issued, at the registered office of the company or at such other
place where the Register of Members is kept & shall be preserved permanently
and shall be kept in the custody of the CS of the company or any other person
authorized by the Board for the purpose.

Punishment for personation of Shareholder [Section 57]

If any person deceitfully personates as an owner of any security or interest in a
company and thereby obtains or attempts to obtain any such security or
interest or receives or attempts to receive any money due to such owner, he
shall be punishable with imprisonment for 1 year to 3 years and Fine Rs. 1 lakh
to Rs. 5 Lakh.
 www.cscartinadia.com CS Praveen Choudhary
Transfer and Transmission

Transfer and Transmission of Shares

Transfer of Shares [Section 56]

The transfer shares will be governed by the general law relating to transfer of
movable property. In private company, this right must always be restricted.
All the securities and the interest of a member in the company can be
transferred.

Procedure for Transfer of Shares

A proper instrument of transfer in form SH-4. Such form shall be -

 duly stamped,
 dated and executed by or on behalf of the transferor and the transferee, and
 Specify the name, address and occupation, if any, of the transferee.
 shall be delivered to the company within 60 days from the date of such
execution.

Blank Transfer:

When a shareholder signs a transfer deed without filing in the transferee name and
hands it over with the share certificate.

Void and Forged Transfer:

If a shareholder transfers his shares, and the transfer turns out to be invalid, he
remains liable for calls in the shares.
Transfers made during winding up of the company are void, unless sanctioned by the
Court, or by liquidator in case of voluntary liquidation.
An instrument on which the signature of the transferor is forged, is called a forged
 www.cscartinadia.com CS Praveen Choudhary
Transfer and Transmission
transfer. A forged document or transfer never has any legal effect.

Loss of Instrument with Share Certificates:

Where the instrument of transfer has been lost or the instrument of transfer has
not been delivered within 60 days from date of execution, the company may
register the transfer on such terms as to indemnity as the Board may think fit.

Where Signature of Transferor Differs:

Then it is suggested that the company should send a notice by registered post to
the transferor with a copy to the transferee. If the transferor does not respond
within 15 days of the date of notice, the company shall take necessary action in
this regard.

Partly-paid Shares:

The company shall give a notice in Form No. SH.5 by registered post to the
transferee and shall register the transfer only when no objection is received from
the transferee within 2 weeks from the date of receipt of notice.

Joint Holding:

Where shares are held in the names of 2 or more persons, they are deemed to
be held jointly. Generally, the articles of a company may allow joint holding in
the names of up to 4 persons.

It may be noted that transposition of names is not a transfer and does not
need an instrument.
 www.cscartinadia.com CS Praveen Choudhary
Transfer and Transmission

Circumstances under which a Private Company can refuse to register the

Transfer of Shares [Section 58]

The BOD of a private company can refuse to register transfer of shares in

favour of any person in terms of the provisions of AOA of the Company for
bonafide purpose.

And it shall within 30 days from the date of delivery of instrument to the
company, send notice of the refusal to both the parties along with reason.

The transferee is entitled to appeal to the NCLT against any refusal of the
company within 30 days from receipt of notice or within 60 days from delivery
of instrument to company.

Circumstances in which a Public Company can refuse to register the

Transfer Shares [Section 58]

The shares or debentures and any interest therein of a company shall be freely
transferable subject to the provision that any contract or arrangement between
2 or more persons in respect of transfer of securities shall be enforceable as a
contract.

Provided that if a company, without sufficient cause, refuse to register transfer

of shares, within 30 days from the date on which the instrument of transfer is
delivered to the company, the transferee may within 60 days of such refusal or
where no intimation has been received from the company, within 90 days of
the delivery of the instrument of transfer or intimation of transmission, appeal
to the Tribunal.

Power of NCLT

The NCLT, while dealing with an appeal may, after hearing the parties, either
 www.cscartinadia.com CS Praveen Choudhary
Transfer and Transmission
dismiss the appeal, or by order-

a) Direct to registered by the company and the company shall comply with such
order within 10 days of the receipt of the order; or
b) Direct rectification of the register and also direct the company to pay
damages, if any, sustained by any party aggrieved.

Time limit for Issue of Certificates Section 56(4)

Within 2 months in case of unlisted companies

Every company, unless prohibited by any provision of law or of any order of any
Court, Tribunal or other authority, shall deliver the certificates of all securities
allotted, transferred or transmitted-
 Within 2 months from the DOI,  for subscribers to MOA;
 Within 2 months from the date of allotment,  For allotment of shares;

 Within 1 month  For transfer or transmission of securities;

 Within 6 months  For allotment of debenture.

Mode of Approval of Transfers:

The instrument of transfer is considered by the Share Transfer Committee (STC)

appointed by the Board consists of:
1. Min 2 directors, if the strength of the Board is less than or equal to 6
directors and,
2. Min 3 directors, if the strength of the Board is more than 6 directors.

Transmission of shares

 Transmission of shares takes place when a registered shareholder dies or becomes

lunatic or is adjudicated insolvent or if the shareholder, being a company, goes
into liquidation i.e., which is known as a transfer of shares by operation of law.
 www.cscartinadia.com CS Praveen Choudhary
Transfer and Transmission
 On the death or lunacy of the original shareholder, his shares vest in his legal
representative and his estate remains liable for the unpaid amount.

 On the insolvency of a shareholder, his shares vest in the Official Assignee, who
may get himself registered as holder of these shares, or dispose them of.
 No formal instrument is required for registration of transmission of shares.

Generally, the following documents are required for transmission of shares:-

 An application for transmission of shares;
 A letter of indemnity;
 A probate(attested copy of will) or letter of administration;
 No-objection certificate, in case of more than one claimants.

Distinction between Transfer and Transmission

Transfer Transmission
By operation of Parties By operation of law
Transfer deed in SH - 4 No transfer deed
Stamp duty required No stamp duty
Consideration may or may not No consideration
be there
In favour of any person In favour of nominee only
CS Praveen Choudhary Membership

Membership

Member Sec 2 (55)

1) The subscribers of the MOA of a company, who shall be deemed to have

agreed to become members of the company, and on its registration, shall
be entered as members in its register of members.
2) Every other person who agrees in writing to become a member of a
company and whose name is entered in its register of members shall, be a
member of the company.
 By making an application to the company for allotment of shares; or
 By executing an instrument of transfer of shares as transferee; or
 By consenting to transfer of shares of a deceased member in his
name; or
 By acquiescence or estoppels,
3) Every person holding equity shares of a company and whose name is
entered as beneficial owner in the records of the depository shall be
deemed to be member of the concerned company:
Who can become a Member?
Subject to the MOA and AOA of a company, any sui juris (a person who is
competent to contract) can become a member of a company.
1. Company as a member of another company:
A company can become a member of any other company if it authorized by
its MOA.
2. Partnership firm as a member: A partnership firm is not a legal person and
so much it cannot, in its own name, become member of a company. However,
it can become a member of Section 8 Company but on dissolution of firm,
its membership in such company ceases.
3. Foreigners as members: A foreigner (Except Alien Enemy) may take shares in an
Indian company and become a member with the general or special permission of
the RBI under the FEMA, 1999.
4. Minors as members: A minor cannot become a member of a company since he is
CS Praveen Choudhary Membership

not competent to enter into a contract. Consequently, an agreement by a minor

to take shares is void ab - initio.

5. Pawnee: A pawnee cannot be treated as the holder of the shares pledged in his
favour, and the pawner continues to be a member and can exercise the rights of
a member.
6. Receiver: A receiver whose name is not entered in the register of members
cannot exercise any of the membership rights attached to a share unless in a
proceeding to which company is a party, an order is made therein. Mere
appointment of a receiver in respect of certain shares of a company without
more right cannot, deprive the holder of the shares, whose name is entered in
the register of members of the company of the right to vote at the meeting of
the company.
7. Bankrupt/ Insolvent: A bankrupt may be a member of a company as long as he is
on the register of members. He is entitled to vote.

8. Trade union: A trade union registered under the trade union act 1926 can be
registered as a member and can hold shares in the company in its own corporate
name.
9. Person taking shares in fictitious name: He becomes liable as a member besides
incurring criminal liability u/s 38 of the Act.

Cessation of Membership
When his name is removed from its register of members, in any of the
following situations:
 He transfers his shares to another person.
 His shares are forfeited.
 He makes a valid surrender of his shares.
 His shares are sold by the company to enforce a lien.
 He dies or is adjudged insolvent.
 His redeemable preference shares are redeemed.
 His shares are bought-back.
 His shares are attached by the Court in satisfaction of a decree.
CS Praveen Choudhary Membership

Expulsion of a Member
The AOA of a company cannot provide for expulsion of a member, as it is
opposed to the fundamental principle of the Company Jurisprudence and,
therefore, ultra vires the company.

Rights of Members
 Not to have his financial obligation increased by the company without his
consent.
 To transfer his shares.
 To have a share certificate issued to him in respect of his shares.
 To vote on resolutions at meetings of the company.
 To take inspection of the various registers of the company.
 To requisition an EGM of the company.
 To receive notice of general meetings and to attend and speak at general
meetings.
 To appoint proxy and inspect proxy registers.
 To demand for poll.
 To appoint the representative to attend and vote at general meetings of
the company on its behalf, if the member is a body corporate.
 To require the company to circulate his resolution.
 To enjoy the profits of the company in the shape of dividend.
 To elect directors and thus to participate in the management through
them.
 To apply to the NCLT for relief in case of oppression, mismanagement,
winding up.
 To share in the surplus on winding up.

Liability of Members
 To pay for the outstanding calls on shares only.
 To pay the amount guaranteed, in the event of winding up, if assets of the
company fall short of the liabilities.
CS Praveen Choudhary Membership

 In case of Unlimited Company, the members are personally liable to pay for
the debts of the company as in the case of Partnership Firm by partners.

Register Prima Facie Evidence

A register of members is prima facie evidence of the truth of its contents.
Accordingly, if a person’s name, to his knowledge, is there in the register of
members of a company, he shall be deemed to be member and onus lies on
him to prove that he is not a member.

Registration of shares in the name of public office

There is no provision in the Companies Act, 2013 that the shares in a
company may be held in the name of a public office. The Collector of Central
Excise or the Secretary to the Government of India, as such, is not a legal
entity. Shares cannot, therefore, be held in the name of such office. Hence,
shares in a company cannot be registered in the name of a Public Office, which
is not a corporation sole as understood in law.
CS Praveen Choudhary Debentures

Debenture
Definition Sec 2 (30):
The term "debenture" includes debenture stock, bonds and any other securities of a company,
whether constituting a charge on the assets of the company or not.
Provided that –
a) Instruments referred to in chapter III D of RBI Act 1934 and
b) Such other instrument, as may be prescribed by CG in consultation with RBI, issued by a
company.
Shall not be treated as debenture

SALIENT FEATURES OF
DEBENTURES
 A debenture is usually in the form of a certificate (like a share certificate) issued under the
common seal of the company.
 The certificate is an acknowledgement by the company of indebtedness to a holder.
 A debenture usually provides for the payment of a specified sum at a specified date.
 A debenture usually provides for payment of interest until the principal sum is paid back. Interest
may be made payable subject to contingencies of uncertain nature.
 Even zero rate of interest debentures can be issued.
 Debenture holders do not have any right to vote at any meeting of the company.

There is no prohibition to issue debentures at a discount unlike the restrictions contained in Section
54 of the Companies Act, 2013 for the issue of shares at a discount.

CLASSIFICATION OF
DEBENTURES:
1. Redeemable Debentures
2. Perpetual Or Irredeemable Debentures
3. Registered And Bearer Debentures:
Note: Debenture Certificates must be issued within 6 months of Allotment
4. Secured and Unsecured Or Naked Debentures:

Conditions to issue secured

debentures (Rule 18)
No company shall issue secured debentures unless it complies with the following
conditions:
 Maximum Maturity Period shall not exceed 10 years from the date of issue.
However, A company engaged in the setting up of infrastructure projects may issue secured
CS Praveen Choudhary Debentures

debentures for a period exceeding 10 years but not exceeding 30 years.

 The company shall appoint a debenture trustee before the issue of prospectus or letter of
offer for subscription of its debentures and within 60 days after the allotment of the
debentures, execute a debenture trust deed to protect the interest of the debenture holders.
 Security for the debentures by way of a charge or mortgage shall be created in favour of the
debenture trustee only.

5. CONVERTIBLE AND NON-CONVERTIBLE DEBENTURES:

 Fully convertible debentures (FCDs)

 Partly convertible debentures {PCDs)
 Non-convertible debentures (NCDs)

DISTINGUISH BETWEEN
DEBENTURES AND SHARES

Debenture Shares
Debenture constitute a loan Shares are part of capital of company
Debenture holders are creditors of company Shareholders are owners/members of company
Debenture holders get fixed interest which gets Shareholders get dividend with varying rights
priority over dividend
Debentures generally have charge on the assets Shares do not carry any such charge
of company
Debentures can be issued at discount without Shares cannot be issued at discount
restriction.
In case of debentures, interest rates are fixed. In case of equity shares, dividend varies from
year to year depending on profit of company
and decision of BOD to declare dividend or not.
Debenture holders do not have any voting rights Generally Shareholders enjoy Voting Rights
Interest on debenture is payable even if there is Dividend to shareholder can only be paid out of
no profit in company profits of company and not otherwise.
Interest paid on debenture is a business Dividend is not allowable deduction as business
expenditure and allowable deduction from expenditure.
profits.
Return of allotment is not required for allotment Return of allotment in PAS 3 is to be filed for
of debentures allotment of shares.

Issue of Debentures:
 The power to issue debentures is usually set out in the MOA.
 Unlike shares, they can be issued at a discount without any restriction, if AOA so authorize,
the reason being that they do not form part of the capital of the company.
 They can also be issued at a premium.
 Interest payable on them is a debt and can be paid out of capital.
 There is no ceiling, minimum or maximum, for the rate of interest payable on debentures.
CS Praveen Choudhary Debentures

Any rate of interest, though justifiable, can be paid on the debentures.

 In the case of unsecured debentures which amounts to be deposits, the rate of interest should
be within the maximum limit prescribed by the rules.
 All sums allowed by way of discount must be stated in every balance sheet of the company
until written-off.

REDEMPTION OF DEBENTURES
(SECTION 71):
Debenture Redemption Reserve (DRR)
Creation of DRR
Rule 18 (7) of the Companies (Share Capital and Debentures) Rules, 2014
The company shall create a DRR for the purpose of redemption of debentures, as per following
conditions:
a) DRR shall be created out of the profits of the company available for payment of dividend;
b) The limits with respect to adequacy of DRR & investment of deposit shall be as under:
i. For AIFI & Banking Co., No DRR is required.
ii. For other FI, DRR shall be as applicable to NBCF registered with RBI.
iii. For listed companies (other than AIFI & Banking Co.’s), DRR is not required in
following cases –
I. In case of public issue of debentures –
A. For NBFC & for Housing Finance companies.
B. For other listed companies.
II. In case of privately placed debentures, for companies specified in A & B above.
iv. For unlisted companies, (other than AIFI & Banking co.) –
A) For NBFCs & Housing Finance companies, DRR is not required in case of privately
placed debentures.
B) For other Unlisted companies, the adequacy of DRR shall be 10% of value of
outstanding debentures.
v. In case of companies covered in item A or B of point iii or item B of point iv, it shall on
or before the 30th day of April in each year, invest or deposit a sum which shall not be
less than 15% of amount of debenture maturing during the year, ending on 31st day of
March of next year in any one or more methods of investments or deposits.
Provided that the amount remaining invested or deposited, shall not at any time fall
below 15% of the amount of debenture maturing during the year ending on 31st day of
March of that year.
vi. The methods of investments or deposits are as follows:
a. In deposit with SCB, free from any charge or lien.
b. In unencumbered securities of CG or SG.
c. In unencumbered securities specified in Indian Trust Act 1882
Note: the amount so invested or deposited shall not be used for any purpose other
than for redemption of debentures maturing during the year referred above.
c) In case of partly convertible debentures, DRR shall be created in case of non convertible
portion of debenture.
CS Praveen Choudhary Debentures

d) The amount credited to DRR shall not be utilised by co., except for the purpose of
redemption of debentures.

DEBENTURE TRUST DEED (Sec

71))
Rule 18(5) of the Companies (Share Capital and Debentures) Rules, 2014 provides that for the
purposes of Sec 71 (13) and sub-rule (1) a trust deed in Form SH-12 or as near thereto as possible
shall be executed by the company issuing debentures in favour of the debenture trustees within 60
days of allotment of debentures.

Advantages of a Trust Deed

 The trustees hold the title deeds of the mortgaged property, which prevents the company from
misusing the property for any purpose.
 The trustees are given power under the trust deed so that the property mortgaged is kept insured
and is maintained in proper condition.
 The company can, with the consent of the trustees, enjoy a number of powers over the property
charged, e.g., by way of sale, exchange or lease, thus enabling the company to put the property to
advantageous use without jeopardizing the interest of debenture holders.
 In case of default by the company, the trustees can take necessary steps to realize the security
without the aid of the Court.

Appointment of Debenture
Trustee
The company shall not issue prospectus to more than 500 persons without appointing debenture
trustee.

Conditions for appointment

of Debenture trustees [Rule
18(2)]
 The names of the debenture trustees shall be stated in letter of offer inviting subscription for
debentures.
 A written consent shall be obtained from such debenture trustee or trustees proposed to be
appointed and a statement to that effect shall appear in the letter of offer issued for inviting
the subscription of the debentures.

Disqualification from being

appointed as Debenture
Trustee.
1. A person shall not be appointed as a debenture trustee, if he-
CS Praveen Choudhary Debentures

 Beneficially holds shares in the company;

 Is a promoter, director or KMP or any other officer or an employee of the company or its
holding, subsidiary or associate company;
 Is beneficially entitled to money which are to be paid by the company otherwise than as
remuneration payable to the debenture trustee;
 Is indebted to the company, or its subsidiary or its holding or associate company or a
subsidiary of such holding company;
 Has furnished any guarantee in respect of the principal debts secured by the debentures
or interest thereon;
 Has any pecuniary relationship with the company amounting to 2% or more of its gross
turnover or total income or Rs. 50 lakh or such higher amount as may be prescribed,
whichever is lower, during the 2 immediately preceding financial years or during the
current financial year;
 Is relative of any promoter or any person who is in the employment of the company as a
director or KMP

2. Casual Vacancy of Debenture Trustee

The Board may fill any casual vacancy in the office of the trustee but while any such vacancy
continues, the remaining trustee or trustees, if any, may act:
Provided that where such vacancy is caused by the resignation of the debenture trustee, the
vacancy shall only be filled with the written consent of the majority of the debenture holders.

3. Removal of Debenture Trustee

Any debenture trustee may be removed from office before the expiry of his term only if it is
approved by the holders of not less than 3/4th in value of the debentures outstanding, at their
meeting.

Duties and functions of

debenture trustee
The functions of the debenture trustee to protect the interest of debenture holders shall generally:
 To protect the interest of holders of debentures.
 To redress the grievances of holders of debentures effectively.

MEETING OF DEBENTURE
HOLDERS: Rule18(4)
The meeting of all the debenture holders shall be convened by the debenture trustee on-
 Requisition in writing signed by debenture holders holding at least 1/10th in value of the
debentures for the time being outstanding.
 The happening of any event, which constitutes a breach, default or which in the opinion of
the debenture trustees affects the interest of the debenture holders.
CS Praveen Choudhary Debentures

LIABILITY OF TRUSTEE TO
DEBENTURE HOLDERS: SECTION
71(7)
In general, a debenture trustee is liable to debenture holders for any type of breach of trust. However,
he may escape the liability in the following cases:
 Where the trustee can show that he took such care and diligence as required of him as a trustee
having regard to the powers, authorities and discretions conferred on him by the trust deed.
 Where a majority of, not less than 3/4th in value, debenture holders, present and voting in person
or by proxy agree, at a meeting summoned for the purpose, with respect to specific acts or
omissions of the trustee.

Pari Passu Clause in case of

Debentures
a) Debentures are usually issued in a series with a pari passu clause and it follows that they
would be on an equal footing as to security and should the security be enforced, the amount
realised shall be divided pro-rata, i.e. they are to be discharged rateably. In the event of
deficiency of assets, they will abate proportionately.
CS Praveen Choudhary Deposits

Deposits
CS Praveen Choudhary Deposits

KINDS OF DEPOSITS:

Prohibition on acceptance of deposits from public: Sec 73(1)

CS Praveen Choudhary Deposits

No company shall invite, accept or renew deposits under this Act from the public except in a
manner provided under Chapter V.
Exceptions:
 A banking company
 NBFC as defined in RBI Act, 1934 and
 To such other company as the CG may, after consultation with the RBI, specify in this
behalf.

Conditions for acceptance of deposits from members:

Section 73(2) states that a company may, subject to
 The passing of a resolution in GM and
 Subject to such rules as may be prescribed in consultation with the RBI, accept the
deposits from its members on such terms and conditions, including the provisions of
security, if any, on such repayment of such deposits with interest, as may be agreed upon
between the company and its members,
Subject to the fulfilment of the following conditions, namely-
a) Issuance of a circular to its members including therein a statement showing the
financial position of the company, the credit rating obtained, the total number of
depositors and the amount due towards deposits in respect of any previous deposits
accepted by the company and such other particulars in such manner as may be
prescribed.
b) Filing a copy of the circular along with such statement with the ROC 30 days before
the date of issue of the circular.
c) Depositing sum not less than 20% of the amount of its deposits maturing during a
FY and the FY next following, and kept in a scheduled bank in a separate bank
account to be called as Deposit Repayment Reserve Account.
d) Certifying that the company has not committed any default in the repayment of
deposits accepted either before or after the commencement of this act or payment of
interest on such deposits and where such default has occurred, the company
made good the default and a period of 5 years had lapsed since the date of
making good the default.
e) Providing security, if any for the due repayment of the amount of deposit or the
interest thereon including the creation if such charge on the property or assets of the
company. In case when a company does not secure the deposits or secures such
deposits partially, then, the deposits shall be termed as “unsecured Deposits” and
shall be so quoted in every circular, form, advertisement or in any document related
to invitation or acceptance of deposits.

Clauses (a) to (e) of section 73(2) Shall not apply to a private company
A. which accepts from its members’ monies not exceeding 100 % of aggregate of the PSC,
FR and securities premium account; or
B. which is a start-up, for 5 years from the DOI; or
C. which fulfils all of the following conditions, namely:
a) which is not an associate or a subsidiary company of any other company;
b) if the borrowings of such a company from banks or financial institutions or anybody
corporate is less than twice of its PSC or Rs. 50 Cr., whichever is lower; and
c) such a company has not defaulted in the repayment of such borrowings subsisting at
the time of accepting deposits under this section:
CS Praveen Choudhary Deposits

Provided that the company referred to in clauses (A), (B) or (C) shall file the details of
monies accepted to the ROC in prescribed manner (2018)

Applicable Rules [Rule 3]

 Periods of Acceptance of Deposits
Shall not be repayable on demand; or on notice; or after minimum 6 months or more
than 36 months from the date of acceptance or renewal of such deposits, as the case
maybe.

However, a company may, for meeting short-term requirements of funds, accept or

renew short-term deposits for repayment earlier than 6 months from the date of
deposit or renewal;

Provided that such deposits do not exceed 10% of the aggregate of the PSC and FR of
the company and such deposits are not repayable earlier than 3 months from the date
of acceptance or renewal, as the case may be.

Ceiling on Rate of Interest and Brokerage [Rule 3(6)]

No company shall accept/renew deposits at a rate of interest exceeding the maximum
rate of interest prescribed by RBI that the NBFCs can pay on their public deposits.

Who is eligible to receive brokerage?

Only the person who is authorized, in writing, by a company to solicit deposits on its
behalf and through whom deposits are actually procured will be entitled to the brokerage
and payment of brokerage to any other person for procuring deposits shall be deemed to
be in violation of these Rules.

Form and Particulars of Advertisements or Circulars [Rule 4]

Every company, other than an Eligible Company, intending to invite deposit from its
members shall issue a circular to all its members by registered post with acknowledgement
due or speed post or by electronic mode in Form DPT-1. It may be noted that in addition to
this, the circular may be published in English language in an English newspaper and in
vernacular language in a vernacular newspaper having wide circulation in the State in which
the registered office of the company is situated.

Every Eligible Company intending to invite deposits shall issue a circular in the form of an
advertisement in Form DPT-1 for the purpose in English language in an English newspaper
and in vernacular language in one vernacular newspaper having wide circulation in the State
in which the registered office of the company is situated. Every company inviting deposits
from the public shall upload a copy of the circular on its website, if any.

APPOINTMENT OF TRUSTEE FOR DEPOSITORS, ETC. (RULE 7,8,&

9):
Every company, inviting secured deposits shall appoint one or more trustees for
CS Praveen Choudhary Deposits

depositors for creating security for the deposits. The company shall execute a deposit
trust deed in Form DPT-2 at least 7 days before issuing the circular or circular in the
form of advertisement.

Certain Persons not to be appointed as Deposit Trustees

No person including a company that is in the business of providing trusteeship services
shall be appointed as a trustee for the deposit holders, if the proposed trustee -
a) Is a director, KMP or any other officer or an employee of the company or of its
holding, subsidiary or associate company or a depositor in the company;
b) Is indebted to the company, or its subsidiary or its holding or associate company or
a subsidiary of such holding company;
c) Has any material pecuniary relationship with the company;
d) Has entered into any guarantee arrangement in respect of principal debts secured by
the deposits or interest thereon;
e) Is related to any person specified in clause (a) above.

REMOVAL OF DEPOSIT TRUSTEES:

With consent of all the directors including Independent Director if company have one.

The duties and functions of deposit trustee shall generally be -

 To protect the interest of holders of depositors (including creation of securities within
the stipulated time); and
 To redress the grievances of holders of depositors effectively.

Premature Surrender of Deposits [Rule 15]

If a company makes repayment of any deposit after the expiry of 6 months from the date of
such deposit but before, the maturity date of deposit, it should, reduce the interest on such
deposit by 1% from the rate which the company would have paid, had the deposit been
accepted for the period for which such deposit had run; and the company should not pay
interest at a rate higher than the rate so reduced.

Where the period for which the deposit had run contains any part of year, then if such part is
6 months or more, it should be reckoned as one year for the purpose of this Rule.

Return of Deposits [Rule 16]

Every company shall file a return of deposits, in Form DPT-3, with the ROC on or before
30th June of every year. This return shall contain information as on 31st March and shall
be duly certified by the Auditors of the Company.

Penal Rate of Interest [Rule 17]

A penal rate of interest of 18% per annum shall be paid for the overdue period, in case of
public deposits, whether secured or unsecured, matured and claimed but remaining unpaid.

Penalty for Violation of the Provisions of Deposits [Section 76A]

If a company fails to repay the deposits or part thereof or any interest thereon within
the specified time the company shall, in addition to the payment of the amount of
deposit or part thereof and the interest due, be punishable with minimum fine of Rs. 1
CS Praveen Choudhary Deposits

Cr or twice the amount of deposit accepted by the company (w.i.l) and maximum
fine of Rs. 10 Cr and every officer in default shall be punishable with imprisonment
which may extend to 7 years AND with minimum fine of Rs.25 Lakh and a maximum
fine of Rs.2 Cr.
 www.cscartindia.com CS Praveen Choudhary
Registration of Charges

Registration of Charges
Charges
Definition Sec 2(16)
An interest or lien created on the property or assets of a company or any of
its undertakings or both as security and includes a mortgage.
1. There should be 2 parties to the transaction, the creator of the charge and
the charge holder.
2. The subject-matter of charge, which may be current or future assets and
other properties of the borrower.

A charge is a security, given for securing loans or debentures. The security may
be provided either by way of mortgage, hypothecation, pledge or lien.

Thus, charge is a general concept and it covers each and every mode of creating
the security on the assets of a company, for the purpose of securing the
repayment of any debt due by a company.

Kind of Charges
A charge on the property of the company as security for creditors may be of
the following kinds, namely:
1. Fixed or specific charge.
2. Floating charge.

Fixed or A fixed charge is against security of certain specific property,

Specific and the company loses the right to dispose off that property
Charge: as unencumbered.
Floating A floating charge is a charge on a class of assets present and
Charge: future, which in the ordinary course of business is changing
from time to time and leaves the company free to deal with
the property as it sees fit until the holders of charge take
steps to enforce their security.
 www.cscartindia.com CS Praveen Choudhary
Registration of Charges

Crystallisation of Floating Charge

A floating charge crystallizes and the security becomes fixed in the following
cases-
 When the company goes into liquidation.
 When the company ceases to carry on the business.
 When the creditors take steps to enforce their security.
 On the happening of the specified event.
On crystallization, the floating charge converts itself into a fixed charge on the
property of the company. It has priority over any subsequent equitable charge
and other unsecured creditors

Registration of Charges
1. A charge created by a company is required to be registered with the ROC
within 30 days of its creation in CHG-1 (for other than debentures) and
CHG-9 (for Debentures).
Provided that the ROC may, allow delay of such registration —
a) If created before 2019  300 days from date of creation & 6 months more
can be given.
b) If created after 2019  60 days from date of creation & 60 more days can
be given.

On satisfaction, ROC shall issue a certificate of registration of charge in

CHG-2 to the company and to the person in whose favour the charge is
created and shall be conclusive evidence.

All types of charges are required under the Act to be registered whether
created within or outside India Except charges as may be prescribed in
consultation with the RBI.
2. Application for Registration of Charge by the Charge-holder
Where a company fails to register the charge within 30 days, charge holder
may apply to the ROC for registration of the charge and shall be allowed to
 www.cscartindia.com CS Praveen Choudhary
Registration of Charges

recover the expenses made.

The ROC may, on such application, give notice to the company about such
application. The company may either itself register the charge or shows
sufficient cause that why such charge should not be registered. On failure on
part of the company, the ROC may allow registration of such charge within
14 days after giving notice to the company shall allow such registration fees
paid by him to the ROC for the purpose of registration of charge.

Modification of charges [Section 79]

The requirement of registering the charge shall also apply to a company
acquiring any property subject to charge or any modification in terms and
conditions of any charge already registered.
The provisions relating to Condonation of delay shall apply, mutatis mutandis,
to the registration of charge on any property acquired.

Amendments
Relaxation of time for filing forms related to creation or modification of Charges
under the Companies Act, 2013
This is applicable in respect of filing of Form No.CHG-1 and CHG-9 by a company or
a charge holder, where the date of creation/modification of charge:

1. Is before 01.04.2021, but the timeline for filing form has not expired as on
01.04.2021
 Relaxation of Time: The period beginning from 01.04.2021 and ending
31.05.2021, shall not be counted towards the number of days under section 77
or 78 of the Act.
 Applicable Fees: If the form is filed before 31.05.2021, the fees as on
31.03.2021 as per fees rules shall be charged, but if form is filed after
01.06.2021, the fees shall be leviable as per fee rules after counting the number
of days elapsed after 01.6.2021 till form is filed.
2. Falls on any date between 01.04.2021 to 31.05.2021(both days inclusive)
 Relaxation of Time: The period beginning from 01.04.2021 and ending
31.05.2021, shall not be counted towards the number of days under section 77
or 78 of the Act and period will start from 01.06.2021.
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Registration of Charges

 Applicable Fees: If the form is filed before 31.05.2021, the fees as per fees
rules shall be charged, but if form is filed after 01.06.2021, the fees shall be
leviable as per fee rules after counting the number of days elapsed after
01.6.2021 till form is filed.

Verification of Instruments
1. Property situated outside India 
 Either under the seal of the company, or
 Under the hand of any director or CS or
 an authorised officer of the charge holder or
 under the hand of interested person;

2. property wholly or partly, to the situated in India 

 under the hand of any director or CS of the company or
 an authorized officer of the charge holder.

Section 80 – Effect of registration of charges

Whene any charge is registered u/s 77, any person acquiring such property,
assets, undertakings or part thereof or any share or interest therein shall be
deemed to have notice of the charge from the date of such registration.

Consequences of Non-Registration
 Void against the liquidator means that the liquidator on winding up of the
company can ignore the charge and can treat the concerned creditor as
unsecured creditor. The property will be treated as free of charge i.e. the
creditor cannot sell the property to recover its dues.

 Void against any creditor of the company means that if any subsequent
charge is created on the same property and the earlier charge is not
registered, the earlier charge would have no consequence and the latter
charge if registered would enjoy priority. In other words, the latter charge
holder can have the property sold in order to recover its money.
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Registration of Charges

Thus, non-filing of particulars of a charge does not invalidate the charge against
the company as a going concern. It is void only against the liquidator and the
creditors at the time of liquidation.

Satisfaction of Charges [Sec 82]

A company shall give intimation to the ROC in CHG-4, of the payment or
satisfaction in full of any charge registered within 30 days from date of such
payment of satisfaction.
Provided that the ROC may, allow delay for 300 days of payment or
satisfaction on payment of such additional fees as may be prescribed.

On receipt of such intimation, the ROC shall issue a notice to the holder of
the charge calling a show cause within not exceeding 14 days, as to why
payment or satisfaction in full should not be recorded as intimated to the
ROC. If no cause is shown, by such holder of the charge, the ROC shall order
that a memorandum of satisfaction shall be entered in the register of charges
maintained by the ROC u/s 81 and shall inform the company. If the cause is
shown to the ROC shall record a note to that effect in the register of charges
and shall inform the company accordingly and shall issue a certificate of
registration of satisfaction of charge in Form No. CHG-5.

Company's Register of Charges [Sec 85]

Every company shall keep at its registered office a register of charges in Form
No. CHG.7 which shall include details of all charges created, modified and
satisfied.

The register of charges shall be preserved permanently and the instrument

creating a charge or modification there on shall be preserved for 8 years from
the date of satisfaction of charge by the company.
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Registration of Charges

Inspection of the Register and instruments shall be allowed only during the
business hours to any member or creditor (without fees) of the Company or
any other person subject to reasonable restriction.

Penalty for Non-Registration of Charge [Section 86]

The company shall be liable to a penalty of Rs. 5,00,000 and
Every officer in default shall be liable to a penalty of Rs. 25,000.

For wilfully furnishing any false or incorrect information or knowingly suppresses any
material information  shall be liable for action u/s 447.

Rectification by Central Government in register of charges [Sec 87]

The CG on being satisfied that —

a. The omission to give intimation to the ROC of the payment or satisfaction of a

charge, within the time limit OR;
b. The omission or misstatement of any particulars with respect to any such charge
or modification or with respect to any memorandum of satisfaction;

was accidental or due to inadvertence or some other sufficient cause or it is not of

a nature to prejudice the position of creditors or shareholders of the company,
Then
CG may, on the application of the company or any person interested and on
prescribed terms and conditions, direct that the time for the giving of intimation
of payment or satisfaction shall be extended or, as the case may require, that the
omission or misstatement shall be rectified.”.

Intimation of Appointment of Receiver or Manager [Section 84]

If any person obtains an order for the appointment of a receiver of, or of a
person to manage, the property, subject to a charge, of a company or if any
person appoints such receiver or person under any power contained in any
instrument, he shall, within 30 days from the date of the passing of the
order or of the making of the appointment, give notice of such appointment
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Registration of Charges

to the company and the ROC along with a copy of the order or instrument
and the ROC shall, on payment of the prescribed fees, register particulars of
the receiver, person or instrument in the register of charges.

Any person so appointed shall, on ceasing to hold such appointment, give to

the company and the ROC a notice to that effect and the ROC shall register
such notice.
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Divisible Profits and Dividend

Divisible Profits and Dividend

Definition and Meaning of Dividend

Dividends are sums of money to be paid to the members of the Company in
proportion to the amount paid - up on the shares held by them out of the profits
made by the Company. Dividend is paid.

Difference between Dividend and Interest:

 Dividend is paid on shares whereas interest is paid on borrowings of company.

 Interest is a debt which like all debts is paid out of the company's assets
generally. A dividend however becomes a debt only after it has been declared
by the company.

 Dividend cannot be paid out of the assets of the company, generally it can
be declared only out of the profit available for the purpose. Interest is a
charge on profits while dividend is an appropriation of profits.

Right to claim dividend will only arise after a dividend is declared by the company in
General Meeting and until and unless it is so declared, the shareholder has no claim
against the company in respect of it.

Kinds of dividend:

Final Dividend:
 Dividend declared at the AGM of the company is called as Final Dividend.
 Final dividend once declared becomes a debt enforceable against the company.
 Final Dividend can be declared only if it is recommended by the BOD of the
Company.
 BOD must state in the Board's Report the amount of dividend, if any, which it
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Divisible Profits and Dividend

recommends to be paid.
Interim Dividend

1) Dividend is said to be an interim dividend, if it is declared by the Board between

2 AGM of the company.

2) The BOD may declare out of surplus in the P & L a/c or out of profits of
the FY in which such interim dividend is sought to be declared or out of
profits generated in the FY till the quarter preceding the date of
declaration of the interim dividend:

Provided that in case the co. has incurred loss during the current financial
year up to the end of the quarter immediately preceding the date of
declaration of interim dividend, such interim dividend shall not be declared
at a rate higher than the avg. dividends declared by the co. during
immediately preceding 3 FY.

Dividend on Preference Shares:

It could either be a fixed amount or an amount calculated at a fixed rate. It may

be cumulative or non-cumulative. If there are 2 or more classes of preference
shares, the shareholders of the class which has priority are similarly entitled to their
preferential dividend before any dividend is paid in respect of the other class.

Dividend on Equity Shares:

Dividend on equity shares are to be paid as per rights of the respective classes of
shares and only after all dividends on preference shares have been paid to date. But
they may enjoy a privilege of a higher dividend as the preference dividend is fixed
and cannot be increased.

Dividend Warrant:

An order to its banker to pay the amount specified therein to the shareholder
whose name is written therein. The shareholder may, at his discretion thereafter
draw the amount of the warrant from his account with the bank and with whom he
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Divisible Profits and Dividend

deposits the warrant for collection.

Ascertainment of Divisible Profits and Dividends (Sec 123)

Declaration of dividend at annual general meeting

 No dividend shall be payable except in cash.
 Dividend is to be declared at an AGM but it has no power to declare a dividend
exceeding the amount recommended by the Board.
 On declaration, dividend becomes a debt payable by the company to the
registered shareholders, who are entitled to sue the company for the non-
payment of declared dividend.
 A company cannot pass a resolution for the declaration of dividend without
passing a resolution for the adoption of annual accounts u/s 129.
 It is beyond the powers of a company to declare a further dividend after the
declaration of a dividend at the AGM. However, a company, which could not
declare a dividend at an AGM, may do so at a subsequent EGM.
 A company which does not comply with the provisions relating to
acceptance and repayment of deposits as provided under sec 73 & 74 would
be barred to declare dividend.

Sources of Dividend
The payment of dividend is bound by two fundamental principles, which are: -
a) Dividend must never be paid out of the capital (Assets); and
b) Dividend shall be declared only out of the profits.

The Companies Act allows dividend to be paid out of the following sources:-
a) Profits of the company for the year for which the dividend is to be paid; OR
b) Undistributed profits of the previous financial years OR
c) Both OR
d) Out of money provided by CG or SG for the payment of dividend by the co.
as per guarantee given by that govt.
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Divisible Profits and Dividend

Mode of Payment of Dividend

First of all, the amount of declared dividend shall be deposited in a separate

bank account in a scheduled Bank within 5 days from the date of declaration
and shall be utilized for the payment of dividend only and shall be distributed
within 30 days.

Inadequacy of Profits (2nd Proviso to Sec 123(1))

A company can declare dividend in case of absence or inadequacy of profits for a
financial year out of the surplus of the previous years. But for such a declaration,
the following conditions are to be fulfilled simultaneously:-

1. Rate of Dividend
The rate of dividend declared shall not exceed the average of the rates at which
dividend was declared by it in the 3 years immediately preceding that year. It
may be noted that the aforesaid provision shall not apply to a company, which
has not declared any dividend in each of the three preceding FY.

2. Total amount to be drawn

The total amount to be drawn from the accumulated profits shall not-exceed an
amount equal to 1/10th of of its paid-up capital and free reserves and the
amount so drawn shall first be utilized to set off the losses incurred in the
financial year before any dividend is declared.

3. Balance of Reserves
The balance of reserves after such withdrawal shall not fall below 15% of its paid
- up share capital.

4. Set-off of Unabsorbed Depreciation

In case a company has incurred a loss in previous financial years, the amount of
loss or an amount, which is equal to the amount, provided for depreciation for
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Divisible Profits and Dividend

these previous financial years, whichever is less, shall be set off against the
profits of the company for the year for which dividend is to be paid.

Unpaid and unclaimed Dividend and its Payment (Sec 124)

1) Where a dividend has been declared by a company but has not been paid or
claimed within 30 days from the date of the declaration, the company shall,
within next 7 days, transfer the total amount of dividend which remains
unpaid or unclaimed, to a special account to be opened by the company in
that behalf in any SCB to be called 'Unpaid Dividend Account of ........
Company Limited / Company (Private) Limited;

2) Otherwise the company shall pay, from the date of such default, interest at
the rate of 12% per annum and the interest accruing on such amount shall
ensure to the benefit of the members of the company in proportion to the
amount remaining unpaid to them.
3) Any person claiming to be entitled to any money transferred to the Unpaid
Dividend Account of the company may apply to the company for payment
of the money claimed.
4) If Any money transferred remains unpaid or unclaimed for 7 years then
shall be transferred to the IEPF and the company shall intimate to the
authority which administers the Fund and that authority shall issue a
receipt to the company as evidence of such transfer.

Details of unpaid dividend to be placed on the website

The company shall, within 90 days of making any transfer of an amount to
the Unpaid Dividend Account,
1. Prepare a statement containing
 the names,
 their last known addresses and
 the unpaid dividend to be paid to each person and
2. Place it on the website of the company, if any, and
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Divisible Profits and Dividend

3. Also on any other web site approved by the Central Government for this
purpose,
In such form, manner and other particulars as may be prescribed.

If company fails to comply,

Such company shall be liable to a penalty of Rs. 1 Lakh and in case of

continuing failure, with a further penalty of Rs. 500 for each day after the
first during which such failure continues, subject to a maximum of Rs. 10 Lakh
And
Every officer of the company who is in default shall be liable to a penalty of
Rs. 25,000 and in case of continuing failure, with a further penalty of Rs.
100 for each day after the first during which such failure continues, subject to
a maximum of Rs. 2 lakh.

Investor Education and Protection Fund [IEPF] (Sec 125).

The CG has established a Fund to be known as 'IEPF' in which following

amounts shall be credited -
a. Unpaid Dividend;
b. Unpaid application money received by companies for allotment of securities
and due for refund;
c. Unpaid matured deposits;
d. Unpaid matured debentures;
e. Interest thereon;
f. Grants and donations given to IEPF by the C/G, S/G, companies or any
other institutions for the purposes of IEPF;
g. Interest or other income received out of the investments made from the
IEPF;
h. Sale proceeds of fractional shares arising out of issuance of bonus shares,
merger and Amalgamation for 7 or more years;
i. Redemption amount of preference shares remaining unpaid or unclaimed for
7 or more years; and such other amount as may be prescribed
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Divisible Profits and Dividend

The Fund shall be utilised for:

a) The refund in respect of unclaimed dividends, matured deposits, matured

debentures, the application money due for refund and interest there on;
b) Promotion of investors' education, awareness and protection;
c) Distribution of any disgorged amount among eligible and identifiable applicants
for shares or debentures, shareholders, debenture-holders or depositors who have
suffered losses due to wrong actions by any person, in accordance with the
orders made by the Court which had ordered disgorgement;
d) Reimbursement of legal expenses incurred in pursuing class action suits; and
e) Any other purpose incidental thereto, in accordance with such rules as may be
prescribed.

Right to Dividend on Pending Registration of Shares (Sec 126)

In such case, the dividend is required to be paid to the transferee if the transferor
has given a mandate to that effect. otherwise, the dividend in respect of the shares
should be transferred to the Unpaid Dividend Account.

Further, the company shall keep in abeyance (suspend) the rights shares and bonus
shares, to be issued in respect of transferred shares but not registered.

Punishment for Failure to Distribution Dividends (Sec 127)

Every director of the company shall, if he is knowingly a party to the default,
be punishable with simple imprisonment which may extend to 2 years and shall
also be liable to fine of Rs.1,000 for every day during which such default
continues.
Further, company shall be liable to pay simple interest @ 18% p.a. for the
period of default.
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CSR

Corporate Social Responsibility

Corporate Social Responsibility

According to 'CSR Voluntary Guidelines, 2009' in December, 2009, each

business entity should formulate a CSR policy to guide its strategic planning
and provide a roadmap for its CSR initiatives, which should be an integral part
of overall business policy and aligned with its business goals.

Benefits of CSR
The benefits of CSR could be listed as follows:
 Strengthened brand positioning
 Enhanced corporate image and reputation
 Satisfaction of economic and social contribution to society
 Contribution to the surrounding society
 Increased ability to attract, motivate and retain employees
 Enhanced sales and market share
 Increased appeals to investors and financial analysts
 Local economy gains in all dimensions.

Requirement (Sec 135)

Every company having -
 Net worth of Rs. 500 Cr or more; or
 Turnover of Rs. 1,000 Cr or more; or
 Net profit of Rs. 5 Cr or more
 During immediately preceding FY shall constitute a CSR Committee.
 The Board shall ensure that at-least 2% of average net profits of the company
made during 3 immediately preceding FY OR where the company has not
completed the period of 3 financial years since its incorporation, during such
immediately preceding FY, shall be spent on such policy every year.
 Any amount remaining unspent, shall be transferred by the company within 30
days from the end of the FY to a special account called as Unspent CSR
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CSR

Account, and shall be spent within 3 FY from the date of such transfer for CSR
activity only, otherwise the company shall transfer the same amount to a Fund
specified in Schedule VII, within next 30 days.
 Where the amount to be spent by a company does not exceed Rs. 50 lakhs, no
need to constitution of the CSR Committee and the functions of such
Committee shall, in such cases, be discharged by the BOD of such company.
(Amendment)

Composition of CSR Committee

 The CSR committee shall consist of 3 or more directors, out which one
director shall be an Independent Director. The composition of such CSR
Committee shall have to be disclosed in the Board's Report as required
u/s134(4).
 An unlisted public company or a private company which is not required to
appoint an independent director shall have in its CSR Committee 2 or more
directors.
 With respect of foreign company, the CSR Committee shall comprise of at least
2 persons of which one-person resident in India and another person shall be
nominated by the foreign company.

CSR Policy
The CSR Policy of the company shall, inter alia includes the following, namely:
a) A list of CSR projects or programs which a company plans to undertake falling
within the purview of the Schedule VII of the Act, specifying modalities of
execution of such project or programs and implementation schedule for the same;
and
b) Monitoring process of such projects or programs. But the activity should not be
undertaken in pursuance of normal course of business of a company.
c) The Board shall ensure that the activities included by the company in its CSR
Policy are related to the activities mentioned in Schedule VII of the Act.

Functions of the CSR Committee (Sec 135(3))

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CSR

1. The Committee shall formulate and recommend to the Board, a CSR Policy which
shall indicate the activities to be undertaken by the company (in areas or
subject) as specified in Schedule VII of the Act.
2. The Committee shall also stipulate how, where, and when they want to invest
their funds with respect to this requirement.

CSR Activities
The CSR activities may be undertaken by way of the following methods:
a) By Charity
b) By Contract
c) By Itself

In the Companies (CSR Policy) Rules, 2014, in rule 2(1)(e), the following proviso
shall be inserted, namely: -
Provided that any company engaged in research and development activity of new
vaccine, drugs and medical devices in their normal course of business may undertake
research and development activity of new vaccine, drugs and medical devices related
to COVID-19 for financial years 2020-21, 2021-22 and 2022-23 subject to the
conditions that:
(i) such research and development activities shall be carried out in collaboration
with any of the institutes or organisations mentioned in item (ix) of
Schedule VII of the Companies Act, 2013.
(ii) details of such activity shall be disclosed separately in the Annual Report on
CSR included in the Board’s Report.

Role of Board (Sec 135(4))

The Board of every company shall -
1. After receiving recommendation and policy made by the CSR Committee, approve
and take steps to implement / execute the CSR policy for the company and
disclose such policy –
a. in the Board's Report; and
b. Also place the contents of policy on its Company's web site, if any, in form
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CSR

prescribed under Companies (CSR Policy) Rules, 2014.

Ensure that the activities which formulate by CSR Committee in the Policy are
duly undertaken by the company

Consequences of not complying with provisions of CSR

If a company is in default in complying with the provisions, the company shall be
liable to a penalty of twice the amount required to be transferred by the company
to the Fund specified in Schedule VII or the Unspent CSR Account, as the case may
be, or Rs. 1 Cr., (w.i.l), and
Every officer in default shall be liable to a penalty of 1/10th of the amount required
to be transferred by the company to such Fund specified in Schedule VII, or the
Unspent CSR Account, as the case may be, or Rs. 2 Lakhs, (w.i.l).

Companies (CSR Policy) Amendment Rules, 2021 effective from 01.04.2021

 Every entity who intends to undertake any CSR activity, shall register itself
with the Central Government by filing the Form CSR-1 electronically with the
Registrar w.e.f. 01.04.2021 to be certified by CA/CS/CMA in practice.
 On submission, a unique CSR number will be generated.
 Transfer of unspent CSR amount to any fund included in schedule VII of the
Act”.
 If the entity spends more than the prescribed amount, such excess amount can
be set off against the requirement to spend up to immediate succeeding 3 FY
subject to condition that excess amount is not arising from CSR activities and
resolution has been passed to this effect by Board.
 CSR amount may be spent by a company for creation or acquisition of a capital
asset which shall be held by a company specified for this purpose.
 Any surplus arising out of CSR activities shall not form part of Business profits
and shall be ploughed back into the same project or transfer to the Unspent
CSR Amount and spent in pursuance of CSR policy and annual action plan of the
company or fund specified in Scheduled VII of the companies act, 2013 within 6
months from the end of financial year.
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CSR

 Every Company having average CSR obligation of Rs. 10 crore or more in the 3
immediately preceding FY shall undertake impact assessment, through an
independent agency, of their CSR projects having outlays of Rs. 1 crore or more,
and which have been completed not less than 1 year before undertaking the
impact study and impact assessment reports shall be placed before the Board and
shall be annexed to the annual report on CSR and the Company undertaking
impact assessment may book the expenditure towards CSR for that FY, which
shall not exceed 5% of the total CSR expenditure for that financial year or Rs.
50 lakhs, whichever is less. ”
 Administrative overhead expenditure shall not exceed 5% of total CSR
expenditure for a financial year.
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Accounts

ACCOUNTS

Books of Account (Sec 128)

For preparation of annual accounts, the maintenance of proper books of
account is must.
Place of keeping books of accounts  at its registered office.
However, all or any of the books of accounts may be kept at such other place in
India as the BOD and within 7 days shall file with the ROC in Form AOC-5 a notice
in writing giving full address of that other place. ()

Nature of transactions to be Recorded or Contents of Books of Accounts:

The original books of account, which must be kept by a company, are with respect
to: -
 All sums of money received and expended by the company.
 All sales and purchases of the goods.
 The assets and liabilities.
In the case of a company engaged in production, processing, manufacturing or mining
activities, such particulars relating to utilization of material or labour or other
items of cost as may be prescribed

Mandatory use of Accounting Software having Audit Trail with effect from
01.04.2021
From FY commencing on 01.04.2021, every Company shall use Accounting
Software having feature to record audit trail of each transaction, creating the
edit log of changes made & ensuring that the audit trail cannot be disabled.
(Amendment)

Inspection of Books of Account by Directors

1. Books shall be open for inspection by any director during business hours.
2. Such inspection may be done by any type of director- nominee, independent,
promoter or whole time.
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Accounts

3. A director of the Company can inspect the books of accounts of the

subsidiary, only on authorisation by way of BR.
4. Where any other financial information maintained outside the country is
required by a director, the director shall furnish a request to the company
setting out the full details of the financial information sought and the
period for which such information is sought.
5. The said information shall be provided to director within 15 days of receipt
of request.
6. The director can seek the information only individually and not by or
through his attorney holder or agent or representative.

Period of Preservation (Sec 128(5))

 Not less than 8 years or entire period immediately preceding the relevant
financial year (whichever is less)
 However, the CG may direct that the books of account may be kept for longer
than 8 years, as it may deem fit and give directions to that effect.

Person responsible for keeping the books of accounts(Sec 128(6))

i. MD,
ii. WTD, in charge of finance
iii. CFO, or
iv. Any other Authorised person.

Default:
Not be less than Rs. 50,000 but up to Rs. 5 Lakhs.

Maintenance of Books of Accounts in Electronic form  permitted and is

optional.

Branch Office Accounts

"Branch Office" means any establishment described as a branch by the company.
The branches of the company, if any, in India or outside India shall also keep
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Accounts

the books of account in the same manner, for the transaction effected at the
branch office. Further the branch' offices are required to send the proper
summarized return at quarterly intervals to the company at its registered office.

Financial Statement (Sec 129)

Meaning of "Financial year” [Sec 2(41)]
In relation to any company or body corporate to mean the period ending on the
31st March every year, and where it has been incorporated on or after the
1stJanuary of a year, financial year means the period ending on 31st March of the
following year, in respect whereof the financial statement is made up.

Alignment of Financial Year

Existing companies or bodies corporates, not adopting 1 st April to 31st March as
financial year for Companies Act, 2013 presupposes to align themselves with 1 st
April - 31st March within 2 years of commencement of the Companies Act,
2013.

Exception for different financial year

Exception is given to companies which are holding/subsidiary or associate co. of a
company incorporated outside India and requiring consolidation outside India, who
can have a different financial year with the approval of Tribunal. If the NCLT is
satisfied, it may allow the company to follow a different period as its financial year.

Financial Statement Section 2 (40)

It include -
 Balance Sheet
 P& L account or Income and Expenditure account
 Cash flow Statement
 Statement of change in equity, if applicable
 Any explanatory notes annexed to or forming part of financial statements,
giving information required to be given and allowed to be given in the form
of notes.
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Accounts

However, the financial statement with respect to OPC, small company and
dormant company, and private company (start-up) may not include the cash flow
statement.

Financial statements should be prepared for financial year and shall be in form
as per Schedule III.

The financial statements shall give a true and fair view of the state of affairs
of the company or companies, comply with the accounting standards and shall
be in form or forms as may be provided for different class or classes of
companies in Schedule III.
According to amended Rules the Companies which are required to comply with
Companies (IndAS) Rules, 2015 shall forward their statement in Form AOC-3A.

Consolidated Financial Statements

All companies including:
 Unlisted companies and
 Private companies having one or more subsidiary company or associate company

Is required to prepare consolidated financial statements of all the subsidiary and

associated companies and shall be filed with ROC in Form AOC-l.

Periodical financial results (Sec 129A)

The CG may require such class of unlisted companies as may be prescribed –
a) to prepare the financial results of the company on such periodical basis and
in prescribed form;
b) to obtain approval of the BOD and complete audit or limited review of
such periodical financial results in prescribed manner; and
c) file a copy with the ROC within 30 days of completion of the relevant
period with prescribed fees.

Re-Opening of Accounts on Court's or Tribunal's Orders (Sec 130)

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i. A company shall not re-open its books of accounts and shall not recast its
financial statements, unless an application in this regard is made by anyone or
more of the following -
a) the Central Government, or
b) the Income-tax authorities, or
c) the SEBI, or
d) any other statutory regulatory body or authority or any person concerned,
and
e) An order in this regard is made by a court of competent jurisdiction or the
NCLT.

ii.The re-opening and recasting of financial statements is permitted only for the
following reasons -
a) the relevant earlier accounts were prepared in a fraudulent manner; or
b) The affairs of the company were mismanaged during the relevant period,
casting a doubt on the reliability of financial statements.
iii.The Court or the Tribunal, as the case may be, shall give the notice to the
authorities mentioned above.

Note: The accounts so revised or re-cast under this section shall be final.
BUT No order shall be made in respect of re-opening of books of account relating
to a period earlier than 8 FY immediately preceding the current financial year:

Provided that where a direction has been issued by the CG for keeping of books of
account for longer than 8 years, the books of account may be ordered to be re-
opened within such longer period.

Voluntary Revision of Financial Statements or Board's Report (Sec 131)

1. This provision allows the directors to prepare revised financial statement or a
revised Board's report if it appears to them that the company's financial
statement or the Board's Report did not comply with the requirements of
Section 129 or Section 134, after obtaining approval of the NCLT.
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2. The application to the NCLT shall be made within 2weeks of the decision
taken by the Board and the company shall disclose in the application if the
majority of directors and auditors have been changed immediately before such
decision. The Tribunal will issue notice and hear the auditor of original
financial statement.
3. Tribunal shall give notice and take into account the representations, if any,
of the CG and of the Income Tax Department.
4. A certified copy of the order of the Tribunal shall be filed with the ROC
within 30 days of the date of receipt of the certified copy.
5. The detailed reasons for revision of such financial statements or report shall be
disclosed in the Board's report in the relevant financial year in which such
revision is being made.
6. On receipt of approval from Tribunal a GM may be called. Notice of such GM
along with reasons for change in Financial Statements may be published in
Newspaper in English and in vernacular language.
7. In such GM, the said revised financial statements, statement of directors
and the statement of auditors may be put up for consideration before a
decision is taken on adoption of the revised financial statements.
8. On approval of the General Meeting, the revised financial statements along
with the statement of auditors or revised Board report, as the case may be
shall be filed with the ROC within 30 days of the date of approval by the
general meeting.

It may also be noted that while the present section sets out a 3 year’s limit for
voluntary revision of financial statements or Board's Report, but no such time limit
has been prescribed for re-appointment of accounts due to order of Court or NCLT
u/s 130.

National financial Reporting Authority (Sec 132)

The CG has introduced a new regulatory authority named as NFRA with wide
powers to recommend, enforce and monitor the compliance of accounting and auditing
standards. The Companies Act, 2013 empowers the Central Government to form
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a Committee for recommendations on Accounting Standards which is National

Advisory Committee on Accounting Standards (NACAS). This is now being renamed
with enhanced independent oversight powers and authority as NFRA.
 NFRA shall be responsible for monitoring and enforcing compliance of auditing
and accounting standards and for that purpose, oversee the quality of
professions associated with ensuring such compliances.
 The Authority shall investigate professional and other misconducts which may be
committed by Chartered Accountancy members and firms. There is also a
provision for appellate authority.
 The NFRA shall be a quasi - judicial body to regulate matters related to
accounting and auditing.
 NFRA shall give its recommendations on accounting standards and auditing
standards.

Constitution of NFRA
The constitution of NFRA shall be as follows:
i. A chairperson, to be nominated by CG, and such other prescribed members
not exceeding 15.
ii. The chairperson and all members shall make a declaration about no conflict of
interest or lack of independence in respect of their appointment.
iii. The chairperson and all full - time members shall not be associated with any
audit firm or related consultancy firm during course of their appointment and
2 years after ceasing to hold such appointment.
iv. The head office of NFRA shall be at New Delhi and it may, meet at such
other places in India, as it deems fit.
v. Its accounts shall be audited by Comptroller & Auditor General of India
(CAGI) and such accounts as certified by CAGI, together with audit report,
shall be forwarded annually to the CG.

Jurisdiction, Powers of and Imposition of Penalties by NFRA

The Authority shall have powers as are vested in a civil court under CPC in
respect of following matters:
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It provides non-obstante authority, providing a bar on anybody or any

institute, in initiating or continuing the proceedings in matters relating to
misconduct as referred to in Chartered Accountants Act 1949.
The Authority shall have powers to make an order in relation to:
A. Imposing penalty of
 not less than Rs. 1 lakh & up to 5 times of the fees received in case of
individuals and
 not less than (Rs. 5 Lakhs) & up to 10 times of the fees received in case
of firms
B. Debarring member or the firm from –
i. being appointed as an auditor or internal auditor or undertaking any audit in
respect of financial statements or internal audit of the functions and
activities of any company or body corporate; or
ii. performing any valuation as provided u/s 247,
For a period of 6 months to 10 years.

CG to prescribe Accounting Standards

[Section 133 Read with Rule 7 of Companies (Accounts) Rules 2014]

The CG may prescribe the standards of accounting or any addendum thereto,

as recommended by the ICAI, in consultation with and after examination of
the recommendations made by the NFRA.

Authentication of Financial Statement, Board's Report Etc. (Sec 134)

1) The FS shall be approved by the BOD before being signed by chairperson on
behalf of BOD for submission to auditor for his audit report thereon.
2) Auditor’s report shall be attached to every FS.
3) Board Report shall also be attached to such FS which shall include -
a) The web address, where annual return has been placed;
b) No. of Board Meetings.
c) Director’s responsibility statement.
d) Statement of declaration by Independent Directors.
3A) CG may prescribe an abridged BR for OPC or small co.
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Penalty:
a) Company is punishable with Penalty of Rs. 3 Lakhs; and
b) Every officer in default is liable with Penalty of Rs. 50,000.

Every listed company shall disclose in its Board Report the following:
a. The ratio of the remuneration if each director to the median remuneration if
the employees of the company for the financial year;
b. Percentage increase in remuneration of each director and CEO;
c. Percentage increase in the median remuneration of employees;
d. Number of permanent employees on the rolls of company;
e. Explanation on the relationship between average increase in remuneration and
company performance;
f. Comparison of the remuneration of the KMP against the performance of the
company;
g. The key parameters for any variable component of remuneration availed by the
directors;
h. Affirmation that the remuneration is as per the remuneration policy of the
company.

Right of Member to Copies of Audited Financial Statement (Sec 136)

This section seeks to provide that a copy of FS including CFS, if any, auditor's
report along with annexures I attachments shall be sent to every member,
every trustee for the debenture holder and all other persons who are so
entitled, at least 21 days before the date of general meeting Otherwise they
shall be approved by 95% of members entitled to vote at the GM.

Members and Debenture Trustee's Right to Get Copies of Annual

Accounts
Every member of the company, the trustee for the debenture holders and
every other person being the person so entitled, is entitled to get from the
company, every year, a copy of FS including CFS.
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Right to Inspect
Every member or trustee of debenture holder shall have right to inspect the
FS and documents to be attached thereto, at its registered office during
business hours. However, this right is not available to debenture holders.

Obligation of Listed Company

Listed company may make available the copies of the documents for inspection
at its registered office during working hours 21 days before the date of the
meeting and a statement containing the salient features of such documents in
Form AOC-3 prescribed by the CG or the documents and sent the same to
every stake holder.
Rule 11 of Companies (Accounts) Rules, 2014,
All listed companies and
public companies having *net worth of more than Rs.1 Cr. and
*turnover of more than Rs. 10 Cr.,
may send the financial statements:
a. By E- mode also to such members whose shareholding is in De-mat form and
whose email Ids are registered with Depository for communication purposes;

Filing of Financial Statement with ROC [Sec 137]

If for any reason, the AGM does not adopt the FS or is adjourned without
adopting the FS or if the AGM of a company for any year has not been held,
a statement of the fact and of the reasons therefore must also be annexed to
the FS and to the copies thereof to be filed with the ROC within 30 days
from the last date on which AGM should have been held.

The ROC shall take them in his record as provisional, until the adoption at
AGM.
The OPC shall file the copy of financial statements duly adopted by its
members within 180 days from the closure of FY.
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The company shall also attach the accounts of subsidiaries incorporated outside
India and which have not established their place of business in India with the
financial statements.

 Every company have to file the FS including CFS together with Form AOC-
4 with the ROC within 30 days from the day on which the AGM held and
adopted the FS with prescribed fees.

Default in Filing Financial Statements is a Compoundable Offence

Default of section 137 of the Act is compoundable u/s 441 of the Act, but
first the default should be made good and only then application for
compounding of offence u/s 441 will be maintainable.

Maintenance of Costing and stock records (Sec 138)

A company engaged in production, processing, manufacturing or mining
activity, is also required to maintain particulars relating to utilization of
material, labour or other items of cost.

Extensible Business Reporting Language (XBRL)

Extensible Business Reporting Language" means a standardised language for
communication in electronic form to express, report or file financial
information by companies.

XBRL is a data rich dialect of XML (Extensible Mark-up Language), the

universally preferred language for transmitting information via the internet. It
was developed specifically to communicate information between business and
other users of financial information, such as analysts, investors and regulators.
XBRL provides a common, electronic format for business reporting.

Mandatory Requirement
As per Companies (Filing of documents and forms in XBRL) Rules, 2015
 Every Indian Listed Company &their Indian subsidiaries;
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 Every Company having PSC of Rs. 5 Cr. or more;

 Every company having T.O of Rs. 100 Cr. or more
 All companies which are required to prepare their financial statements in
accordance with Companies (Ind AS) Rules, 2015.