COURSE MATERIAL - WordPress.com · Quality Education beyond your imagination...! COURSE MATERIAL CA...

Book No - 8Fast Track Material in Company Law_31e

Quality Education

beyond your imagination...!

COURSE MATERIALCA - IPCC

1

Visit us @ www.gntmasterminds.com, Mail : [email protected]

2

Index for Fast Track Material in COMPANY LAW

Book No - 8

Chapter No. Chapter Name Starting

Page

1. Company Basic Concepts 3

2. Classes of Companies 9

3. Incorporation of a Company 21

4. Memorandum & Articles of Association 25

5. Promoters and Contracts 39

6. Prospectus 42

7. Allotment of Shares & Underwriting 59

8. Deposits 68

9. Membership 75

10. Share Capital 82

11. Share Certificate & Warrant 94

12. Calls & Forfeiture / Surrender of Shares 99

13. Transfer & Transmission of Shares 103

14. Debentures 113

15. Charge 117

16. General Meeting 123

17. Miscellaneous Matters in Company Law 145

FAST TRACK MATERIAL IN COMPANY LAW

PAGE 3

1. COMPANY BASIC CONCEPTS

Company and its Features.

Definition-Sec.2(20) Of companies Act, 2013: Company formed and registered under companies Act 2013 / previous Acts.

Features:

1. Voluntary Association: • An association • contribute money • share the profit and loss & form voluntarily

2. Separate Legal entity / Corporate Personality:

SALOMON VS. SALOMON & CO. LTD:

Facts:

• 'S' sold his shoe business for £.38,782 - 'S' took 20,000 shares of £ 1 each, debentures worth £ 10,000 & balance in cash.

• Wife, daughter and 4 sons took up one share each.

• Company liquidated with assets worth £ 6,000 & liabilities £.17,000. Payment made first to 'S' being secured creditor.

Petition: Unsecured creditors argued that 'S' can’t be treated as secured creditor.

Judgement: Co. is different from its members.

LEE VS. LEE AIR FARMING LTD:

Facts:

• 'L' had 2999 shares out of 3000 shares. He was the MD & chief pilot.

• 'L' died while working.

• His wife claimed compensation.

Copy Rights Reserved

To MASTER MINDS, Guntur

www.gntmasterminds.com

PAGE 4

Petition: Insurance Co. challenged her claim.

Judgement: Compensation is payable to widow.

KANDOLI TEA CO. LTD.:

Facts: Persons transferred their properties on which tax was payable.

Petition: Claimed exemption from tax.

Judgement: Co. is separate from shareholders.

3. Artificial Person: It is an artificial person and therefore it has to depend upon natural persons.

4. Limited Liability:

• Limited by shares - Limited to the unpaid value.

• Co. limited by guarantee - Limited to the amount guaranteed.

5. Separate property

6. Perpetual existence:

• Members may come, members may go but company goes on forever

• Change or death of some or even all members do not affect continuity of a Co.

7. Transferability of shares: Freely transferable (Except for Pvt. companies)

8. A Company can sue or can be sued.

9. Termination / Death: Can die by operation of law only.

10.Common seal: It acts as the official signature of the Co.

11.It has Nationality: It is not decided by the nationality of its shareholders.

12.No Citizenship and fundamental rights.


PAGE 5

Implications of the concept of separate legal entity

• Government Co. is not ‘Government’.

• Managing Director can also be an employee.

• Common directors or shareholders don’t mean that both companies are same.

• Wholly owned subsidiary is different from its holding co.

• Perpetual Succession.

• The nationality of the co. is not governed by the nationality of its shareholders.

• Any of its members can enter contract with it.

• The company’s money and property belong to the co and not to the shareholders.

• Members can’t have any insurable interest in the company’s property

Lifting of Corporate Veil.

Corporate Veil Meaning: A Company is a person created by law, having a distinct entity. This principle is referred as Veil of Incorporation.

Misuse: If the veil is used as a mask of fraud, then the courts will lift the veil and look at the persons behind the company.

Lifting or piercing the corporate veil:

• It means ignoring the separate identity of a company.

• Disregarding the corporate personality and looking behind the real persons who are in the control of the company.




PAGE 6

Cases Falling Under Judicial Interpretation

1. Enemy character of Co.:

Daimler Co. Ltd vs. Continental tyre & Rubber Co. Ltd:

• German company incorporated as England Company for the purpose of selling tyres made in Germany.

• During First World War, Co. started recovering its debts.

• Court held this as trading with an enemy.

2. Prevention of Fraud or improper Conduct:

Gilford Motor Co. Ltd. Vs. Horne:

• H a former employee of ‘G’ was subject to not solicit its customers.

• H incorporated a company to solicited customers of 'G'.

• The court passed an injunction order.

3. Protection of Revenue.

Sir Din Shaw Maneckjee Petit Vs CIT

• D was enjoying large profit and income in the form of interest and dividend

• Formed four new private companies and transferred interest income to them

• Returned income to ‘D’ in the form of pretended loan

• D and all the four companies were treated as one.

4. Avoidance of welfare legislation:

Workmen Employed in Associated Rubber Industries ltd.:

• A subsidiary Co. was formed wholly by the Holding company only to receive dividends from shares transferred.

• Court held that the new company was formed to reduce the bonus to workmen.


PAGE 7

5. Company acting as agent of the shareholders:

F.G.FILMS LTD. CASE:

• An American company produced a film in India, actually in the name of a British company.

• The sensor board refused to register the film as a British film.

6. Subsidiary acting as an agent:

MERCHANDISE TRANSPORT LIMITED VS BRITISH TRANSPORT

COMMISSION:

• As the transport co. would not get licences on its own name, it formed a subsidiary co.

• Court held that both are same & application was rejected.

7. Experience of directors is experience of the company:

Progressive Aluminium Ltd.

• prospectus stated that the company has vast experience

• In fact only directors of the company had vast experience

• It was held that the experience of the directors is the experience of the company.

8. To protect the public policy

9. In quasi criminal cases

CASES FALLING UNDER STATUTORY PROVISIONS

1. Reduction in membership - Sec.45:

• The no. of members should not fall below the statutory minimum.

• If the Company continue to carryon business for more than 6 months with reduced members.

• Every member who knows this fact is jointly liable for the whole of the debts.




PAGE 8

2. Failure to refund application money (Sec.69(5)):

• Must be refunded with in 130 days.

• Otherwise, directors shall be personally liable to pay money with interest.

3. Misrepresentation in prospectus: Every person who authorises issue of such prospectus shall be personally liable.

4. Misdescription of name: Every officer who signs on behalf of the co. shall be personally liable.

5. Non-Payment of tax: Every director of the company at any time during the previous year shall be jointly and severally liable.

6. Sec.542: If the company is formed with an intention to defraud the creditors, the persons who are knowingly responsible are personally liable at the time of liquidation.

NOTES

________________________________________________________

________________________________________________________

________________________________________________________

________________________________________________________

________________________________________________________

________________________________________________________

________________________________________________________

________________________________________________________

________________________________________________________


PAGE 9

2. CLASSES OF COMPANIES

Classification on the basis of incorporation

Chartered Companies: Incorporated under a special charter granted by the king or queen of England.

Statutory Companies:

• These are created by a special act of the parliament/state assembly.

• Nature and powers of such companies are laid down in the special Act

• Audit is conducted under the control and supervision of the Auditor General of India

Body Corporate: Sec.2 (11) Of companies Act, 2013 defines ‘Body corporate’ or ‘corporation’ includes a company incorporated outside India but does not include:

a. a co-operative society registered under any law relating to co-operative societies;

b. any other body corporate not being a company which the Central Government may by notification in the Official Gazette, specify in this behalf”.

Registered Companies: Which are registered under the companies Act, 1956 or under previous companies Acts.

Classification on the basis of liability

Companies Limited by Shares:

• Liability is limited to the unpaid value of the shares.

• Shares are fully paid- liability nil.


PAGE 10

Companies Limited by Guarantee:

1. Liability is limited to a fixed amount which the members undertake.

2. to contribute to the assets of the company in the event of its being wound up.

3. It is in the nature of Reserve Capital.

4. The liability of shareholder’s is limited to:

• Guarantee co. without share capital - To the extent of guarantee.

• Guarantee co. with share cap. - To the extent of guarantee + Un paid value on shares.

5. Requirement of own articles is mandatory

Unlimited Companies: Means a company not having any limit on the liability of its members.

1. The liability of each member extends to the whole amount of the company's liabilities.

2. It may or may not have share capital.

3. Articles must state the amount of share capital and the amount of each share

4. Unlimited liability of members is towards creditors only, not towards company.

5. May alter or reduce its share capital without any restriction.

Classification on the basis of its members

Private Company (Sec.2(68) Of companies Act, 2013): Private company means which has a minimum paid up capital of Rs.1 lakh or such higher paid-up share capital as may be prescribed, and which by its articles —

1. Restricts the right to transfer its shares:

• Persons to whom: Transfer only to those who have director’s approval.


PAGE 11

• Preference: To existing holders first.

• Communication in writing: To the directors of such intention of the shareholder.

• Calculation of the price: By specifying the method for calculating the price.

• Employees leaving the company: Shall offer the shares to specified persons only.

2. limits the number of its members to 200 not including: • Employee + Member (Present and Past employees). • Joint shareholders are to be treated as a single member.

Issues:

• No exemption if member+ employee.

• Directors or MD are not considered to be employees, they will be counted as members.

• The limit of 50 is only for shareholders.

3. Prohibits from making an invitation to the public to subscribe for any securities of the company.

4. Prohibits from making an invitation for acceptance of deposits from persons other than its members.

Public Company: A public company is a company which:

• Is not a private company & Has a minimum paid up capital of Rs.5 lakhs. or such higher paid-up capital, as may be prescribed.

• Further a subsidiary of a public company will be a ‘Public Company’ even if it is incorporated as a private company.

Holding and subsidiary Company

Holding company [Sec 2(46) of companies Act, 2013]: in relation to one or more other companies, means a company of which such companies are subsidiary companies.


PAGE 12

Subsidiary company or subsidiary [Sec 2(87) of companies Act, 2013]: in relation to any other company (that is to say the holding company), means a company in which the holding company—

a. controls the composition of the Board of Directors; or

b. exercises or controls more than one-half of the total share capital either at its own or together with one or more of its subsidiary companies:

Provided that such class or classes of holding companies as may be prescribed shall not have layers of subsidiaries beyond such numbers as may be prescribed.

Explanation: For the purposes of this clause.

a. a company shall be deemed to be a subsidiary company of the holding company even if the control referred to in point (i) &(ii) is of another subsidiary company of the holding company;

b. the composition of a company‘s Board of Directors shall be deemed to be controlled by another company if that other company by exercise of some power at its discretion can appoint or remove all or a majority of the directors;

c. the expression – company includes any body corporate;

d. layer in relation to a holding company means its subsidiary or subsidiaries;

e. Control [Sec 2(27) Of companies Act, 2013]- shall include the right to appoint majority of the directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their shareholding or management rights or shareholders agreements or voting agreements or in any other manner.

Note: MCA General Circular No. 20 /2013: The Ministry clarified that the shares held by a company or power exercisable by it in another company in a 'fiduciary capacity' shall not be counted for the purpose of determining the holding subsidiary relationship in terms of the provision of section 2(87) of the Companies Act, 2013.


PAGE 13

Other classification of companies

Government Company - (Sec.2(45) of the co.Act 2013):

1. Not less than 51% of the paid-up share capital is held by

• The Central Government Or

• Any State Government or Governments Or

• Partly by the Central Government and partly by one or more State Governments.

2. The subsidiary of a Government company is also a Government company.

3. Popularly known as public sector companies.

Foreign Companies: A Company incorporated outside India and having a place of business in India.

Investment Co.: Principal business is the acquisition of shares, debentures etc.

Finance Co.: It means a non-banking company, which is a financial Company.

Public Financial Institutions:

1. Illustrations

1. ICICI 2. IDFC Ltd. 3. IDBI 4. UTI 5. LIC etc.

C.G. by issuing a notification can include any institute.

such other institution as may be notified by the Central Government in consultation with the Reserve Bank of India:

However, no institution shall be so specified unless:

a. Established or constituted by or under any Central Act, or

b. >50% of the paid up capital held by C.G.




PAGE 14

2. MCA Circular No.34/2011- Criteria to be declared as PFI:

• Established under a Special Act or the Co’s Act

• Main Business should be Industrial / Infrastructural Financing.

• In existence for at least 3 years and income from main business exceed 50% of their total income.

• Net worth Rs. 1000 crores

• Registered as IFC with RBI or as an HFC with NHB.

• For CPSUs/SPSUs no restriction shall apply with respect to financing specific sector(s) and net worth

Association not for profits Or Non profit oriented companies (sec25):

1. Registration of an association not for profit- C.G. permission.

2. With limited liability without using "Limited"/ "Private Limited".

3. Conditions for grant of licence:

• For promoting commerce, art, religion etc. • Prohibits payment of any dividend. • A licence subject to other conditions as think fit by C.G. • can't alter its objects clause in MOA without the approval of C.G.

4. C.G may also grant exemption for other provisions.

5. Revocation of licence:

• The C.G. may revoke if objects clause changed without the approval of the C.G.

• Upon revocation, the registrar shall add the word "Limited" or "Pvt. Ltd".

• Before a licence is revoked, the C.G. shall give an opportunity of being heard.

6. Advantages:

• Need not pay stamp duty.

• A partnership firm can be a member.

• Adopt in lieu of Co. a suitable name.




PAGE 15

• The C.S. need not be a qualified C.S.

• May hold it’s AGM on a public holiday.

• 14 days notice is sufficient

• BOA preserved for 4 years only

• Need not have the minimum paid capital

Conversion of Private Company into a Public Company.

Conversion by Volition / Voluntary Conversion - Sec.44

Remove Sec. 3(1) (iii) [corresponding Sec 2(68) of Companies Act, 2013] restrictions of AOA.

• If present members - below seven, increase to 7.

• If present directors are only two, increase to at least 3.

• If paid up capital is less than 5 lakhs, increase to Rs.5 lakhs.

• Get approval of alteration by shareholders by way of special resolution in general meeting and file copy of SR +form 23+prospectus/statement in lieu of prospectus.

• ROC will issue a fresh certificate of incorporation.

• The change of name should be noted in the MOA&AOA, letterheads, bills etc.

• Becomes a public company from the date of passing the S.R.

Conversion by Default / Automatic Conversion - sec.43

Fails to comply Sec.3 (1)(iii), [corresponding Sec 2(68) of Companies Act, 2013]

• Such company becomes a Public company.

• Shall cease to enjoy the privileges and exemptions

• Provisions applicable as if a public company.

• Central Government may condone


PAGE 16

Procedure for Conversion of a Private Co. into a Public Company.

a. B.M: Should take the necessary decision and fix the time, place and agenda of a general meeting.

b. Must issue notices.

G.M.: Convene the general meeting & pass S.R. (i) for altering MOA & AOA and (ii) For deleting sec3(1)(iii) restrictions.[Corresponding Sec 2(68) of Companies Act, 2013]

c. Prospectus / Statement in lieu of prospectus: File either within 30 days.

d. Caution: Adopt abundant caution, because inclusion of untrue statement will attract penalty.

e. Resolutions - ROC: File with ROC special resolution(s) + ex-planatory statement within 30 days.

f. Apply to ROC: Apply to the Registrar a fresh Certificate of Incorporation.

g. Increase no. of members.

h. Increase capital.

i. Becomes a public company from the date of passing the special resolution.

Procedure for Conversion of a Public Co. into a Private Company?

a. B.M: Should take the necessary decision and fix the time, place and agenda of a general meeting.

b. C.G.: Approval of the central government has to be obtained u/s 31.

c. Must issue notices.

d. G.M.: convene the G.M. to pass S.R. (i) For altering MOA & AOA; and (ii) For inclusion of restrictions contained in Sec.3(1) (iii) .

e. Stock exchanges: File with the concerned stock exchange




PAGE 17

f. Resolutions - ROC: File with ROC special resolution(s) + ex¬planatory statement within 30 days.

g. Apply to ROC: apply to the Registrar for the issue of a fresh Certificate of Incorporation

h. Paid up capital: Ensure that the paid up capital of the company is at least Rs.1 lakhs.

i. Add the word “private” in its name

Explain the composition of National Company Law Tribunal?

Constitution of National Company Law Tribunal:

1. Central Government shall, by notification, constitute, a Tribunal to be known as the National Company Law Tribunal

2. consisting of a President and such number of (Judicial and Technical) members,

3. to exercise and discharge such powers and functions as conferred on it by or under this Act or any other law for the time being in force.

4. President shall be a person who is or has been a Judge of a High Court for five years.

5. A person shall not be qualified for appointment as a Judicial Member unless he is or has been—

a. a judge of a High Court; or

b. a District Judge for at least five years; or

c. an advocate of a court for at least ten years.

6. A person shall not be qualified for appointment as a Technical Member unless he is or has been—

a. for at least 15 years a member of the Indian Corporate Law or Indian Legal Service out of which at least three years shall be in the pay scale of Joint Secretary to the Government of India or equivalent or above in that service; or


PAGE 18

b. in practice as a chartered accountant, or a cost accountant practice, or as a company secretary for at least fifteen years

c. a person having special knowledge and experience, of not less than fifteen years, in various disciplines ,

d. a presiding officer of a Labour Court, Tribunal or National Tribunal constituted under the Industrial Disputes Act, 1947 for at least five years.

Term of office of President, Chairperson and other Member

1. shall hold office for a term of five years from the date on which he enters upon his office,

2. but shall be eligible for re-appointment for another term of five years.

A Member of the Tribunal shall hold office as such until he attains,—

a. in the case of the President, the age of sixty-seven years;

b. in the case of any other Member, the age of sixty-five years.

Exception: A person who has not completed fifty years of age shall not be eligible for appointment as Member.

Provided further that the Member may retain his lien with his parent cadre or Ministry or Department, while holding office for a period not exceeding one year.

Explain the formation National Company Law Appellate Tribunal.

Constitution of Appellate Tribunal:

1. Central Government shall constitute, an Appellate Tribunal to be known as the National Company Law Appellate Tribunal

2. consisting of a chairperson and number of Judicial and Technical Members,


PAGE 19

3. not exceeding eleven,

4. to be appointed for hearing appeals against the orders of the Tribunal.

Qualifications of Chairperson and members of Appellate Tribunal:

1. the chairperson shall be a person who is or has been a Judge of the Supreme Court or the Chief Justice of a High Court.

2. A Judicial Member shall be a person who is or has been a Judge of a High Court or is a Judicial Member of the Tribunal for five years.

3. A Technical Member shall be a person having special knowledge and experience, of not less than twenty-five years in various disciplines related to management, conduct of affairs, revival, rehabilitation and winding up of companies.

Term of office of President, Chairperson and other Members: The chairperson or a Member of the Appellate Tribunal shall hold office for a term of five years from the date on which he enters upon his office, but shall be eligible for re-appointment for another term of five years.

A Member of the Appellate Tribunal shall hold office as such until he attains,—

a. in the case of the Chairperson, the age of seventy years;

b. in the case of any other Member, the age of sixty-seven years.

Exception: A person who has not completed fifty years of age shall not be eligible for appointment as Member.

Provided further that the Member may retain his lien with his parent cadre or Ministry or Department, while holding office for a period not exceeding one year. Selection of Members of Tribunal and Appellate Tribunal:

1. the President of the Tribunal and the chairperson and Judicial Members of the Appellate Tribunal, shall be appointed after consultation with the Chief Justice of India.


PAGE 20

2. The Members of the Tribunal and the Technical Members of the Appellate Tribunal shall be appointed on the recommendation of a Selection Committee.

Committee consisting of—

a. Chief Justice of India or his nominee—Chairperson;

b. a senior Judge of the Supreme Court or a Chief Justice of High Court — Member;

c. Secretary in the Ministry of Corporate Affairs—Member;

d. Secretary in the Ministry of Law and Justice—Member; and

e. Secretary in the Department of Financial Services in the Ministry of Finance— Member.

The Secretary, Ministry of Corporate Affairs shall be the Convener of the Selection Committee.

The Selection Committee shall determine its procedure for recommending persons for appointment.

No appointment of the Members of the Tribunal or the Appellate Tribunal shall be invalid merely by reason of any vacancy or any defect in the constitution of the Selection Committee.

NOTES

________________________________________________________

________________________________________________________

________________________________________________________

________________________________________________________

________________________________________________________

________________________________________________________

________________________________________________________


PAGE 21

3. INCORPORATION OF A COMPANY

Procedure for Incorporation of Co.

Stage 1:

1. Type of Company:, (i) Public companies and (ii) Private companies.

2. Name of company:

• Not allowed to use a name which is prohibited under the Emblems & Names (Prevention of improper use) Act, 1950.

• Give min. 3 names in order of preference, to ROC in form IA

• ROC informs availability within reasonable time.

• Such name shall be available for 60 days. ROC may extend this.

Stage 2:

1. Preparation of MOA & AOA.

2. Vetting & Printing of MOA&AOA: promoters can approach ROC for vetting the draft M & A, for this no fees need to be paid.

3. Stamping of Memorandum and Articles:

4. Signature of Memorandum and Articles:

• Signed by at least 7 persons - Public co. & 2 persons - Pvt. co.

• An agent may sign the M&A if he is authorised by a power of attorney.

• Subscribers need not have personal interest.

• Minor can’t be a subscriber

• Foreigners can be subscribers.

• Attested by at least 1 witness.

• 1 witness can attest all the signatures.

• Subscribers should take at least 1 share.




PAGE 22

5. Power of Attorney: The promoters may appoint a person giving power of attorney.

6. Preparation of other documents:

• Form No. 29 (Consent to act as Director)

• E-Form No 32 (Particulars of Directors): To be filed within 30 days of incorporation.

• E-Form No 18 (Address of Registered Office)

• Statutory declaration in E-Form No.1

7. Payment of registration fees: paid to the ROC as given in Sch.X.

8. Certificate of incorporation (C.O.I.)

9. CIN (Corporate Identification Number)

Effect of Registration of a company

Effect of Registration [Section 34]:

• Becomes a legal person separate from the incorporators

• Perpetual existence and can have common seal

• A shareholder, who buys shares, does not buy any interest in the property

• Juristic person separate and distinct from its members

• If a Company purchases all the shares of another company will not put an end to the corporate character of another company.

A Certificate of Incorporation is the Conclusive Evidence.

• As per Sec.35, a COI issued by the ROC is conclusive evidence. COI however it does not legalise the illegal objects.

• Prevents anyone from alleging that the company does not exist due to irregularities related to procedural matters.


PAGE 23

MOOSA GOOLA ARIF VS. EBRAHIM GOOLA ARIF:

• M & A signed by 2 persons and a guardian on behalf of 5 minor members.

• The ROC issued COI.

• Plaintiff contended that COI should be declared void.

• The Court held that certificate to be conclusive.

JUBILEE COTTON MILLS LTD.:

• The ROC issued a C.O.I. on Jan 8th but dated it Jan 6th.

• On Jan 6th, the company made an allotment.

• Held, that the certificate was conclusive evidence and that the allotment was not void.

Certificate of Commencement of Business.

C.C.B: A Private Ltd. Company can start its business immediately after getting COI. But a Public Ltd. company requires to obtain another certificate called as ‘Certificate of Commencement of Business’ (CCB).

Conditions:

1. Where company having share capital has issued a prospectus unless:

• Shares upto the minimum subscription have been allotted.

• No calls in arrears from Directors.

• Application for Stock Exchange Listing is filed and permission is obtained.

• A statutory declaration in Form No.19 signed by one of the directors or the secretary.




PAGE 24

2. Where a company having share capital has not issued a prospectus unless:

• It has filed with the Registrar a statement in lieu of prospectus.

• No calls in arrears from Directors.

• A statutory declaration in Form No.19 signed by one of the directors or the secretary.

3. Non compliance with Sec.149 shall attract a fine of Rs.5,000 per day of contravention.

Effect of issue of The CCB:

• Every contract entered into by the company before issue of CCB is provisional in nature.

• Until the CCB is issued, the company cannot carry on business.

• The company cannot exercise any borrowing powers.

NOTES

________________________________________________________

________________________________________________________

________________________________________________________

________________________________________________________

________________________________________________________

________________________________________________________

________________________________________________________

________________________________________________________

________________________________________________________




PAGE 25

4. MEMORANDUM & ARTICLES OF ASSOCIATION

Memorandum of association and its clauses.

MOA is a Charter (Constitution) & defines its raison d'etre i.e. reason for its existence.

Means: the MOA of a company as originally framed or as altered from time to time in pursuance of any previous company law or of this Act.

Objects of it:

• Can know the purpose for which the funds are going to be used.

• Whether the contractual relation they wish to enter is within its corporate objects.

Form

Type of Company Form

Limited by shares Table B

Limited by guarantee only. Table C

Limited by guarantee + share capital. Table D

Unlimited Company Table E

Requirements of MOA (Sec. 15): The Memorandum shall -

• Printed.

• Divided into paragraphs and numbered consecutively,

• Signed by each subscriber to memorandum

• At least 1 witness.

MEMORANDUM OF ASSOCIATION - SEC.13

There are 6 clauses in MOA.




PAGE 26

NAME CLAUSE

1. Very important asset and identity.

2. Undesirable name to be avoided: When does a name become undesirable? • Too similar to the name of another existing company: • Misleading

3. Injunction if identical name adopted: Can apply to the NCLT for stopping the new company from using such name.

4. Limited or Private Limited: Now all the companies are allotted a Corporate Identity Number (CIN) in addition to the name.

5. Name of defunct company can be used: Defunct (non operational) for a long time then its name can be used.

REGISTERED OFFICE (R.O.) / SITUATION CLAUSE / LOCATION CLAUSE

1. Shows where Registered Office of the Co. is situated.

2. Importance of Registered office: Nationality of a company is determined.

• Any notice is served to the registered office.

• Any case filed at R.O.

• Several statutory registers are maintained at the R.O.

• Annual General Meetings

• Legal advertisements

3. Time limit: Day it commences its business or from the 30th day after the date of its incorporation, whichever is earlier.

4. AOA: Address of the RO need not be stated in the MOA.

OBJECTS CLAUSE

Objects to be achieved




PAGE 27

1. Importance:

• Should start its business with an object, specified as the ‘Main Object’

• Object clause sets the boundary

• If abandoned-court may order winding up of the company under Sec.433(c)

2. Restrictions on selection of object:

• Should not include anything which is illegal or against to public interest.

• Can’t be against to the companies act, 1956.

3. What to be stated?:

• Main objects and Ancillary or Incidental or Implied objects and Other objects

• Powers limited to:

a. “Express powers” b. “Implied powers”

Evans vs. Burner: (Case for implied power)

a. Facts of the case: A company - manufacturing chemicals-donated a big sum for scientific research.

b. Petition: beyond the powers.

c. Decision: incidental to the company’s objects.

• ‘Other Objects’ clause cannot be commenced without obtaining prior approval of shareholders, in a general meeting, by special resolution - Sec.149(2A).

5. It should not contain any ‘negative’ clauses

6. In case of object oriented names like ‘Hindustan Sugar Ltd.’ the main object should constitute of only that object.

7. End / Loss of main object: A company, which has a main object together with a number of incidental / subsidiary objects, cannot continue with the subsidiary objects after the main object has come to an end.


PAGE 28

LIABILITY CLAUSE

1. Co. limited by Shares: Limited to the amount remaining unpaid or

2. Guarantee Company:

• Guarantee co. without share capital - To the extent of guarantee.

• Guarantee co. with share capital - To the extent of guarantee + unpaid value of shares.

Unlimited Company: This clause is entirely omitted.

CAPITAL CLAUSE

• States the amount of share capital

• “Nominal” or “Authorised” capital.

• The minimum limit is 1 lakh in case of private companies and 5 lakhs in case of public companies.

• Stamp duty and Registration fee determined on this basis

• No share capital is not required to have the capital clause

Unlimited Company: Not required to have capital.

ASSOCIATION CLAUSE

• At least 2 and 7 subscribers.

• Shall be attested by at least 1 witness.

• Has to take at least one share.

Alteration of “Name Clause” of MOA

Situation 1: Change of name voluntarily (Sec 21)

• By S.R. and prior approval of C.G.

• For conversion of a Private company into a Public company-no C.G.


PAGE 29

Situation 2: Name in the opinion of the CG, is identical with or similar to existing company- By O.R. (Sec.22)

a. May change- O.R. and approval of the C.G. Or

b. Shall change if a direction is received from the Regional Director.

ROC shall enter the new name in his Register and issue Fresh COI

Rights or Obligations remain unaffected

Alteration of “Registered Office Clause” of MOA

Case A: Within the state:

• From one place to another place. • From one city to another city • From one city to another city - change in jurisdiction of ROC

Case B: From one state to another state.

Procedure for case A:

In case of (A) (a) above:

• Approval of BOD and

• Notice to ROC within 30 days.

In case of (A) (b) above:

• Approval of BOD and Shareholders-SR.

• Copy of resolution together with e-form no.18 –ROC in 30days

In case of (A) (c) above:

• Approval of BOD and Shareholders-SR.

• Sec.17A - RD: Apply to the Regional Director- confirmation within 4 weeks.

• ROC: File with ROC a S.R. and Form 23 within 30 days of passing SR and confirmation by RD to new ROC within 2 months.




PAGE 30

• The Registrar shall register the same within 1 month from the date of filing.

• Conclusive evidence

Procedure for Case B:

Only for Purposive Limits as specified

Procedural Limits:

1. Alteration of MOA

2. S.R.:

3. CG: confirmed by the CG on petition.

Before confirming the alteration, the CG will see that:

• A sufficient notice has been given to every debenture holder, and

• Who objected to such alteration, permission has been obtained from him

4. File with ROC

5. Registration - ROC

6. Conclusive evidence

7. If the documents required to be filed with the registrar are not filed within the prescribed time, the alteration shall become void at the expiry of such period.

Note: Can the state government prevent a company to shift its registered office on the grounds of loss of revenue & employment? MINERVA MILLS LTD. VS. GOVERNMENT OF MAHARASHTRA, the court refused the contention of the State on the ground of loss of revenue.




PAGE 31

Alteration of “Objects Clause” of MOA

The power of alteration is subject to 2 limits:

Purposive limits:

• To carry on business more economically or more efficiently.

• To attain its main purpose by new means.

• To enlarge or change the local area of operations.

• To start new business, which, under existing circumstances can advantageously be combined

• To sell or dispose the whole or any part of the undertakings of the company.

• To amalgamate with any other company.

Procedural limits:

• S.R.

• File with ROC

• Certification of registration

• Conclusive evidence

• If not filed as such, the alteration shall become void, at the expiry of such period.

Alteration of “Liability Clause” of MOA

1. Limited to Unlimited:

a. After incorporation a member can’t be compelled to undertake more liability

b. A limited company can change its liability to unlimited if all S.H.s agree in writing.

2. Unlimited to Limited: a. By passing a SR stating:

• The manner in which liability of members is to be limited and

• Providing for appropriate alteration in MOA and AOA.




PAGE 32

b. Does not affect any debts, liabilities etc.

c. Must be intimated to ROC within 30 days.

An unlimited company having a share capital may, by a resolution, for registration as a limited company do either or both of the following things—

a. increase the nominal amount of its share capital , but that no part of the increased capital shall be capable of being called up except in the event and for the purposes of the company being wound up;

b. by providing that a specified portion of its uncalled share capital shall not be capable of being called up except in the event and for the company being wound up.

c. If any default is made in complying with the order of the Tribunal then-

• the company shall be punishable with fine which shall not be less than 1 lakh rupees but which may extend to 5 lakh rupees and

• Every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to 1 year or with fine which shall not be less than 1 lakh rupees but which may extend to 3 lakh rupees, or with both.

Alteration of “Capital Clause” of MOA

1. By passing an O.R. if authorised by its AOA:

• By increasing its nominal capital

• Diminishing its share capital

• Consolidation

• Subdivision

• Converting fully paid shares into stock and vice versa.

2. Shall be filed with ROC within 30 days.


PAGE 33

Articles of Association

Meaning: Contain the rules & regulations for the internal management. Means: the AOA as originally framed or as altered from time to time or applied in pursuance of any previous company law or of this Act.

Form of Articles of Association:

Type of company Form of AOA

Public company limited by shares (Also called no article company)

Adopt Table A of Schedule I in full (Or) Complete Own articles (Or)

Own articles + adopt Table A in part.

Private company limited by shares Complete Own articles

Company limited by guarantee and not having share capital.

Own articles in a form as in Table C.

Company limited by guarantee and having share capital.

Own articles in a form as in Table D.

Company with unlimited liability Own articles in a form as in table E.

Companies required to have own Articles:

• Unlimited Companies,

• Companies limited by guarantee, and

• Private Companies Limited by shares.

Special disclosures

1. Unlimited Companies:

• Number of members with which the company is registered.

• If it has the share capital then the amount of capital with which the company is registered.




PAGE 34

2. Co. Ltd. by Guarantee: AOA shall state the number of members with which the Co. is registered.

3. Private Co. limited by shares: Articles shall have restrictions as given in Sec.3(1)(iii).

Form and signature: Same as for MOA

Procedure and limitations - alteration of the AOA.

Alteration of Articles - Sec.31:

• By passing a S.R.

• File with ROC within 30 days of its passing.

Limitations to alteration:

• Only by passing a special resolution.

• Must not exceed the powers given by MOA.

• Must not be against Companies Act.

• Must not be against any other law.

• Shall not be illegal or opposed to public interest.

• For the benefit of the company as a whole.

• Must not be against to an order of the court.

• The articles should not be in fraud on minority or inflict hardship on minority without corresponding benefit to the company as a whole.

• For converting a Public Co. into a Private Co., the approval of the C.G. is necessary.

On registration of MOA & AOA-contractual relationship is established between different parties?

The object behind is to impart contractual forces to the Memorandum and the Articles.


PAGE 35

a. Between the company and the members:

• Memorandum and Articles constitute a contract between the members and the company.

• members are bound to the company

BORLAND’S TRUSTEE VS. STEEL BROS & CO. LTD

• AOA contained on bankruptcy of a member should sale shares to other person and at a price fixed by Directors

• On bankruptcy trustee of ‘B’ claimed that he was not bound by these provisions

• Held, Trustee was bound by Articles

b. Between the company and the members:

• M&A develop a contract between the members and the company

• Opinion varies on the question how far they bind the company to the members.

• It is bound to the extent it affects his right as a member of the company.

• An individual member has the power to file a suit against the company to enforce his individual rights.

• In his capacity as a member and not in any other capacity

c. Between the members inter-se:

• No express agreement between the members of the company. (Wood V. Odessa Water Works Company).

• The articles regulate the rights of the members interse but such right can be enforced only through the company or through the liquidator representing the company.

• The articles can’t regulate the rights arising out of commercial contract in which other share holders have no interest.

d. Between the company and the outsiders: Do not constitute a contract between the company and outsiders


PAGE 36

Doctrine of constructive notice.

M & A are Public documents

Doctrine of Constructive notice:

• It is assumed that every person dealing with the company had already read the M&A irrespective of whether he actually read it or not.

• Cannot argue that he is not aware of the provisions of the M&A.

• It operates in favour of the company and against the person who failed to enquire.

KOTLA VENKATA SWAMY VS. RAM MURTHY’S CASE:

• Articles required that all deeds should be signed by Managing Director, the Secretary and a Working Director on behalf of the company.

• The plaintiff accepted the deed of mortgage signed by the secretary and a working director.

• Held that the plaintiff could not claim any thing under this deed.

Doctrine of Indoor Management (or) Turquand rule.

1. Exception to: doctrine of constructive notice.

2. Meaning:

• Persons dealing with the Co. are presumed to have read the M&A, but they need not enquire into the regularity of internal proceedings as required by M&A.

• They can presume that all this was done regularly.

ROYAL BRITISH BANK VS. TURQUAND:

• Directors were authorised by Articles to borrow on bonds by obtaining approval of shareholders by way of a resolution in general meeting.




PAGE 37

• Directors issued a bond to ‘T’ without authority of such resolution.

• Held, that ‘T’ could sue the company on the strength of the bond, as he was entitled to assume that necessary resolution had been passed.

Exceptions:

a. Knowledge of irregularity:

HOWARD VS. PATENT IVORY CO. CASE:

• The directors of the company, under the articles, had no power to borrow more than 1,000 pounds without the resolution of the company in General Meeting.

• Without a resolution, directors have issued 31,500 pounds worth of debentures to themselves.

• It was held that the directors had the notice of internal irregularity and hence the company was liable to them only to the extent of 1,000 pounds.

b. Void acts

c. Forgery:

RUBEN VS. GREAT FINGAL LTD.:(V.Imp)

• The plaintiff was the transferee of a share certificate issued by the defendant company under its seal.

• The certificate was issued by the company’s secretary, who affixed the seal and forged the signature of two directors.

• The certificate was held void.

d. Lack of authority:

ANAND BIHARILAL VS. DINSHAW & CO

• In this case, the plaintiff accepted a transfer of the company’s property from its accountant.




PAGE 38

• Since it is beyond the scope of an accountant’s authority, it was held void.

e. Negligence

f. No knowledge of articles: (Very difficult to prove this).

Doctrine of ultravires.

1. Meaning: ‘Ultra’ means ‘Beyond’ and ‘Vires’ means ‘Powers’.

2. Effect:

• An act of ultravires to the Company’s act / MOA is illegal and void and it cannot be ratified

• An act ultravires the articles, but intravires the Companies act / MOA, can be ratified by a resolution

• An act ultravires the directors, but intravires the company (i.e. MOA/AOA) can be ratified by the shareholders, but such ratification shall not be inconsistent to the Companies Act.

(ASHBURY RAILWAYS CARRIAGE & IRON CO. LTD VS. RICHE)

Purpose of Doctrine:

• To protect the interest of shareholders.

• Protect the interest of creditors.

Further effects of ultravires transactions:

• Injunction

• Personal liability of Directors

• Property acquired under ultravires acts: is still valid

• No Ratification

• Ultravires lending of money: Can sue for the recovery of money.






PAGE 39

5. PROMOTERS AND CONTRACTS

Who is a Promoter?

Defenition:

a person—

a. Who has been named as such in a prospectus or Is identified by the company in the annual return; or

b. who has control over the affairs of the company, directly or indirectly whether as a shareholder, director or otherwise; or

c. in accordance with whose advice, directions or instructions the Board of Directors of the company is accustomed to act.

• Question of Fact: It is a question of fact depending upon the role performed by him. Those who appointed as professional -not be a promoter. If professional renders more than professional assistance-promoter.

• More than one promoter. A company also a promoter.

• May be an individual, firm, an AOP or a body corporate

Duties of Promoter (Fiduciary Position).

• Not to make any profit at the expense of the company.

• To give benefit of negotiations to the company.

• To make a full disclosure of interest or profit: Promoter fails to disclosure-co. may sue for damages &recover secret profit made. Law does not prohibit. If full disclosure is made, the profit is permissible.

• Not to make unfair use of position.


PAGE 40

Remuneration of Promoter.

No right if there is no express contract. If there is an express contract, the remuneration in one of the following ways:

• Sell his own property at a profit provided he makes a disclosure of it.

• Option to buy shares at a lesser price.

• Commission on the shares sold.

• Fixed sum.

Remedies available to the company against the promoter

If the promoter fails to disclose any secret profits made by him:

• Cancel the contract or

• Retain the property & pay not more than what the promoter actually paid for purchase of it.

• Claim damages for violation of duty of disclosure.

Pre-Incorporation Contracts

1. Meaning: Entered by promoters on behalf co. before its existence.

2. Legal Position:

• There must be two parties to a contract. But before incorporation, it is not an entity.

• Hence, contract never binds the company.

3. Cannot ratify –Only option is to enter into a new contract.

4. Specific Relief Act: Can be enforced if it is warranted by the terms of incorporation, if:

• Promoters entered into a contract before the incorporation


PAGE 41

• For the purposes of the company

• Within the scope of company’s objects

• Company accepted the contract after the incorporation and communicated to other party.

5. Personal liability: Promoters are personally liable. But exception is, if the agreement provides that:

• Liability shall cease if co. adopts and

• Either party may rescind the contract.

Provisional Contracts.

• In the case of a public company, contracts made after incorporation but before CCB.

• They are not binding until the co. is entitled to commence business.

• On getting CCB-automatically become binding, i.e., without any ratification.

• If the co. goes into liquidation, without commencing business- cannot be enforced at all.

NOTES

________________________________________________________

________________________________________________________

________________________________________________________

________________________________________________________

________________________________________________________

________________________________________________________

________________________________________________________


PAGE 42

6. PROSPECTUS

Prospectus

Meaning of prospectus: As per Sec 2(70) prospectus means

• any document described or issued as a prospectus and includes

• a red herring prospectus or

• shelf prospectus referred 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.

• It is an invitation to offer.

Important conditions to be satisfied:

• Invitation to the public in written form.

• By or on behalf of the company.

• An application made, constitutes an offer by the subscriber on its acceptance a contract comes into existence.

Case studies:

• The test is not who receives the document, but who can apply it.

• NASH VS. LYNDE: In this case, some copies of a document marked “strictly confidential” and circulated in small circle of friends. The court held- no issue to the public.

• Offer to kith and kin of a director is not an invitation to the public

• An advertisement in newspaper was held to be a prospectus as it invited the public.

• Circular issued by a co. to the shareholders of other co. for acquiring the shares in such other company in exchange of shares of that company do not amount to Prospectus.


PAGE 43

Invitation for offer will not be treated as having been made to the public.

Deemed to be issued to public:

• If it is open to anyone who brings his money and applies in prescribed form

• The test is not who receives the document, but who can apply for shares in response to the invitation contained in it

• “Public” is a general word, and includes any section of the public

An issue will not be a Public issue if (Sec 67(3)):

• It is not directed to a specified persons

• Does not result into the shares or debentures becoming available to persons other than those who receive it.

Mass Mailing:

Even if the invitation is made to those who receive it, shall be treated as invitation to public, if it is made to 50 or more persons. But it is an exception to NBFC or public financial institution.

What are the different modes of issue of securities by a Company?

A public company may issue securities in the following manner -

a. to public through prospectus (herein referred to as "public offer"), or

b. through private placement; or

c. through a rights issue or a bonus issue, and

d. in case of a listed company or a company which intends to get its securities listed, with the provisions of the Securities and Exchange Board of India Act, 1992 and the rules and regulations made there under.


PAGE 44

Whereas a private company may issue securities —

a. by way of rights issue or bonus issue; or

b. Through private placement.

Prospectus is not required to be issued?

In the following cases issue of prospectus is not compulsory:

• Public company if the promoters feel that they can mobilise the resources within themselves.

• Rights issue

• Present issues which are similar to already existing shares or debentures.

• Sweat equity shares.

• Employees Stock Option Scheme.

• Underwriting agreement.

Other cases: A private company

Requirements as to registration and documents to be accompanied for a prospectus.

Intended to save the investing public from victimization

1. Deliver to ROC:

• A copy of the prospectus must be filed with the registrar on or before the prospectus is published.

• But the prospectus must not be issued more than 90 days after the date on which a copy of it is delivered to registrar for registration.

2. If in more than 1 language, a copy of each should be delivered to ROC.

3. Prospectus must be dated.




PAGE 45

4. Documents to be attached with ROC:

• Consent of the experts.

• The consent of director.

• The consent of auditor, legal adviser, issue house, bankers etc.

• Underwriting agreement.

• Contract relating to the appointment and remuneration of a MD or manager.

• A copy of every material contract entered before 2 years of the issue of the prospectus.

• A report required by part 2 schedule II.

5. Statement: The prospectus must state that -copy delivered & documents delivered to ROC.

6. Consent of expert: should be attached.

7. Prospectus has to be approved by

• All the lead managers,

• Each of the stock exchange,

• Lead financial institution under writing the issue.

8. The draft prospectus is vetted by SEBI to ensure adequacy of disclosures.

9. If these conditions are not satisfied, the ROC refuses to register the prospectus.

10. Non Registration: Company and every other party to the issue are liable for a fine of upto Rs. 50,000.

Issue of securities in dematerialized form:

a. Every company making public offer; and

b. Such other class or classes of public companies as may be prescribed, shall issue the securities only in dematerialised form by complying with the provisions of the Depositories Act, 1996 and the regulations made there under.


PAGE 46

Matters that are to be stated in the prospectus.

Every prospectus must state the matters specified in Part I of Schedule II and the reports specified in Part II

General information:

a. Name and address of the registered office

b. Dates of opening, closing and earliest closing of the issue

c. Names and addresses of lead managers, legal advisers, auditors etc.

Capital structure and issue details

a. Authorised, issued, subscribed and paid-up capital

b. Size of the issue with breakup of reservations

Details of the issue:

• amount payable on application, allotment and on calls

• Objects of the issue

• Tax benefits available

Company management:

Details about the project:

• Cost & Location of the project.

• Schedule of implementation of the project.

• Expected date of trial production and commercial production.

• Expected capacity utilisation for the next 3 years

• Export prospects.

• Expected cash profits and net profits for the next 3 years

Other information:

• Outstanding litigations relating to




PAGE 47

• Default in meeting statutory dues, dues to debenture holders, Deposits

• Consent of directors, auditors, Lawyers etc.

• Time schedule for allotment and issue of certificates

Financial information:

Statutory information:

• Underwriting arrangements, names of underwriters, amount underwritten.

• Details of public or rights issue during the last five years

• Debentures and redeemable preference shares outstanding

• Details of directors, managing directors

• Revaluation of assets, if any, during the last 5 years.

• Penalty for applying in fictitious name for subscribing or transferring.

Where an advertisement of any prospectus of a company is published, it shall specify therein-

• the contents of its memorandum as regards the objects, the liability of members and the amount of share capital of the company, and

• the names of the signatories to the memorandum and the number of shares subscribed for by them, and

• Its capital structure.

Abridged prospectus.

• Abridged Prospectus means: A memorandum containing such salient features of a prospectus as may be specified by the Securities and Exchange Board by making regulations in this behalf.

Every form of application issued for the purchase of any securities of a company shall be accompanied by an abridged prospectus.


PAGE 48

• Exception: Where form of application was issued bonafidely inviting a person to enter an underwriting agreement with respect to such securities, or in relation to securities which were not offered to the public.

A copy of the prospectus shall be furnished to any person, before the closing of the subscription list and the offer.

Contents: The contents of abridged prospectus shall be as per the rules prescribed by the Central Government.

Even now it is optional for a Co. to attach full prospectus along with the application form.

If any person acts in the contravention of the provisions of Section 33 of Companies Act, 2013, He shall be punishable with fine of Rs.50,000 for each default.

• Same number: The abridged prospectus (in Form 2A) and the share application form should bear the same printed number.

Does the SEBI is empowered to regulate issue and transfer of securities, etc. Under companies Act? Discuss.

Power of SEBI to regulate issue and transfer of securities, etc. Of the listed companies / companies which intend to get their securities listed, shall be administered by SEBI and

The Central Government, as required.

Where the provisions relate to-

a. Issue and transfer of securities; and

b. Nonpayment of dividend, by listed companies or those companies which intend to get their securities listed on any recognised stock exchange in India,

Except as provided under this Act, be administered by the SEBI by making regulations in this behalf;

In any other case, be administered by the Central Government.


PAGE 49

All powers relating to all other matters with respect to

• prospectus,

• return of allotment,

• redemption of preference shares and

• any other matter specifically provided in this Act,

• Shall be exercised by

• The Central Government,

• The Tribunal or

• The Registrar, as the case may be.

‘SEBI’ guidelines with regard to issue of prospectus.

1. Disclaimer clause: Vetting (Inspection) of the prospectus by SEBI does not make SEBI responsible for the financial soundness of any project.

2. Reservation for Non-Residents, Overseas Corporate Bodies (OCB’s) in Public Issues:

• Address of atleast one place in India.

• Only when the money is paid in foreign exchange.

3. Stock Invest: Manner of obtaining Stock invest.

4. Buy-back arrangements.

5. Performance vis-à-vis promises relating to previous issues:

6. Deployment (Usage) of the proceeds of the issue.

7. Stock market data: The high/low prices of shares of the Co. during the preceding 3 years.

Remedies available in case of false and misleading prospectus.

A prospectus will be called as false & misleading if it contains an untrue statement.


PAGE 50

An untrue statement or misstatement is one, which is misleading, in the form and context in which it has been included in the prospectus.

Where a certain matter which is material enough has been omitted from the prospectus to mislead those who act on the faith of the prospectus, the prospectus shall be deemed to be a prospectus in which an untrue statement is included.

Consequence: The inclusion of mis-statement in a prospectus may lead to criminal and civil liability.

Who can sue?

by any person,

group of persons or

any association of persons who have been affected by any misleading statement or the inclusion/ omission of any matter in the prospectus

Note:

1. Secondary market: Purchaser of shares in secondary market has no right to claim compensation.

2. A subscriber to the memorandum has no right to claim compensation.

Onus of proof of Misstatement is on allottee. He should prove the following: a. The misrepresentation was in respect of material fact. b. He acted on the base of such misrepresentation. c. He has suffered some loss. d. Misrepresentation or omission of a fact must be misleading.

Mere opinion, statement of expression or intention does not amount to misrepresentation.

Criminal liability for mis-statements in prospectus: every person who authorizes the issue of such prospectus shall be liable for fraud U/s 447 i.e Imprisonment between 6M to 10Y and Fine upto 3 times the amount involved in fraud.


PAGE 51

Exception: This shall not apply to a person if he proves that:

a. such statement or omission was immaterial, or

b. he had reasonable grounds to believe, and did up to the time of issue of the prospectus believe, that the statement was true or the inclusion or omission was necessary.

Civil liability for mis-statements in prospectus:

• the company and

• every person who -

• has authorized the issue of such prospectus or

• a director,

• promoter and

• the other (expert), whosoever is liable-

• shall have to compensate every person who has sustained such loss or damage.

Fraudulent Intention: Where a prospectus has been issued with intent to defraud the applicants for the securities of a company or any other person or for any fraudulent purpose, every person referred in this section shall be personally responsible, without any limitation of liability, for all or any of the losses or damages that may have been incurred by any person who subscribed to the securities on the basis of such prospectus. Exception: No person shall be liable, if he proves that—

a. having consented to become a director of the company, he withdrew his consent before the issue of the prospectus, and that it was issued without his authority or consent; or

b. the prospectus was issued without his knowledge or consent, and that on becoming aware of its issue, he forthwith gave a reasonable public notice that it was issued without his knowledge or consent.

Liability for Omission/Non compliance of Sec.56 - the subscriber may take an action for damages if he has suffered loss because of such omission.


PAGE 52

Penalties for fraudulently inducing a person to invest money.

Punishment for fraudulently inducing persons to invest money: any person shall be liable for fraud who, knowingly or recklessly, makes any statement, promise or forecast which is false, deceptive or misleading, or deliberately conceals any material facts, to induce another person to enter into, or to offer to enter into,—

a. any agreement for acquiring, disposing of, subscribing for, or underwriting securities; or

b. any agreement, the purpose of which is to secure a profit to any of the parties from the yield of securities or by reference to fluctuations in the value of securities; or

c. any agreement for obtaining credit facilities from any bank or financial institution.

Note: However a person can be punished either ―

a. U/s 34 of Companies Act, 2013-Criminal Liability for Mis-statement in a prospectus or

b. U/s 36 of Companies Act, 2013- Penalty for fraudulently inducing a person to invest money only.

Personation for acquisition of shares.

Punishment for personation for acquisition, etc., of securities-

a. those persons who apply in a fictitious name or make multiple applications or

b. otherwise induce a company to allot or register any transfer of securities in fictitious name

c. shall be liable for fraud.

d. And the amount so received through disgorgement of gain, seizure and disposal of such securities, shall be credited to the IEPF(Investor Education and Protection Fund).


PAGE 53

Punishment for personation of shareholder: if any person deceitfully personate as an owner of any security or interest in a company, or of any share warrant or coupon issued in pursuance of 2013 Act, and there by obtains or attempts to obtain any such security or interest or any such share warrant or coupon, or receives or attempts to receive any money due to any such owner, then such person shall be punishable with imprisonment for a term ranging from one year to three years and with fine from one lakh to five lakh rupees.

Director of a Co. is not liable to an aggrieved party for the issue of a prospectus containing a mis-statement.

If he can show / prove:

• He had withdrawn the consent before the issue of the prospectus or

• Issued without his consent and he has immediately given a public notice of the same or

• After the issue of the prospectus and before the allotment of shares, he had withdrawn his consent and has given a public notice or

• He had reasonable grounds to believe that the statements were true or

• Based on an expert’s report or

Defences available to avoid liability U/s 56:

• He had no knowledge of the matter that was not disclosed.

• The omission was an honest mistake.

• The matter not disclosed was immaterial (not so important).

Expert and liability for any mis-statement in the prospectus.

1. Meaning of an Expert: Expert includes

• an engineer,

• a valuer,


PAGE 54

• a chartered accountant,

• a company secretary,

• a cost accountant and

• any other person who has the power or authority to issue a certificate in pursuance of any law for the time being in force.

2. Unconnected: Can be included in prospectus only if he is unconnected.

3. Liability: For any mis-statement in his report.

4. When can report be included:

• Given his written consent and he has not withdrawn &

• A statement that he has given consent and has not withdrawn the same.

5. Liability for misstatement: Fine up to 50,000.

6. When an expert is not liable: if he proves that: That after giving consent he had withdrawn the same before the issue of the prospectus or

the prospectus was issued without his knowledge or consent, and that on becoming aware of its issue, he forthwith gave a reasonable public notice that it was issued without his knowledge or consent.

7. Remedies against the expert:

• Allottee is entitled to claim damages and compensation.

• Indemnity

Statement in lieu of prospectus.

1. Purpose:

• When promoters can tap their money from private resources.

• Need not prepare a ‘prospectus’ but they must prepare a document called SLP.


PAGE 55

2. When issued:

• Sec.44: When a private company is converted into a public company.

• Sec.70: When a public company having share capital which does not issue a prospectus or

Which has issued a prospectus but has not proceeded with allotment of shares or debentures to the public has to issue a statement in lieu of prospectus at least 3 days before the date of the allotment.

• Sec.149: Public company having share capital which has not issued a prospectus can get the certificate of commencement of business after filing a statement in lieu of prospectus.

3. Must be signed by every person who is named in the statement as director or proposed director.

4. Form: Schedule IV - For case 1a above & Schedule III - For case 1b & 1c above.

5. Penalty:

• The Co. and every director shall be liable to a fine up to Rs.10, 000.

• If there is any misleading statement, Sec.70(5) of Companies Act, 1956 imposes exactly the same criminal liability, penalties and defenses as Sec. 34 of Companies Act, 2013 imposes in respect of a prospectus.

Deemed prospectus / prospectus by implication / offer for sale.

Historical background:

• To evade the requirements of filing prospectus - allotting the entire issue of shares or debentures to an Issuing house at a certain price.

• The Issuing House then published an advertisement inviting public to buy at a higher price.


PAGE 56

Document containing offer of securities for sale to be deemed prospectus:

• issued by the company.

• Act lays down the following provisions-

Document by which offer for sale to the public is made: where a company allots or agrees to allot any securities of the company to all or any of those securities being offered for sale to the public, then any document by which the offer for sale to the public is made- shall be deemed to be a prospectus issued by the company.

Contents of prospectus and the liability: Remains same as that in the case of a prospectus.

Securities must be offered for sale to the public: if it is shown—

a. that an offer of the securities or of any of them for sale to the public was made within six months after the allotment or agreement to allot; or

b. that at the date when the offer was made, the whole consideration to be received by the company in respect of the securities had not been received by it.

Effect of an application of section 26 on this section [Sec 25(3)]: Section 26 relating to the matters stated in the prospectus, as applied by this section shall have effect, as if

1. it required a prospectus to state in addition to the matters required by that section to be stated in a prospectus—

a. the net amount of the consideration received or to be received by the company in respect of the securities to which the offer relates; and

b. the time and place at which the contract where under the said securities have been or are to be allotted may be inspected;

2. the persons making the offer were persons named in a prospectus as directors of a company.

[* This sub-section (3) is yet to be notified]


PAGE 57

Person making an offer is a company or firm: it shall be sufficient if the document, that is deemed to be prospectus, is signed on behalf of the company or firm by-

a. two directors of the company, or

b. by not less than one-half of the partners in the firm, as the case may be.

Shelf prospectus

Any class or Classes of companies as prescribed by SEBI May file a shelf prospectus with the ROC at the stage of the first offer of securities for a period of one year.

When the validity period starts: It shall commence from the date of opening of the first offer of securities under that prospectus.

Advantage: No further issue of prospectus is required in respect of a second or subsequent offer of securities included in such prospectus for a period of 1 year.

Whom it applies? To those prescribed by the SEBI

Information Memorandum: Company shall also file information memorandum on New charges created, Of any change in the financial position with the ROC prior to the issue of a second or subsequent offer under shelf prospectus.

Inform changes: the company or other person shall intimate the changes to such applicants.

Prospectus: information memorandum together with the shelf prospectus shall be deemed to be a prospectus.




PAGE 58

Red herring prospectus and information memorandum.

Red Herring Prospectus - means

a. a prospectus which does not include complete particulars of the quantum or price of the securities included therein.

b. it may be issued by a company

c. prior to the issue of a prospectus and shall be filed with the registrar at least 3 days prior to the opening of the subscription list and the offer.

d. Any variation between the red herring prospectus and the prospectus shall be highlighted as variations in the prospectus.

e. Upon closing of the offer of securities, the details of information which are not included in the red herring prospectus is to be filed with the registrar and the SEBI.

NOTES

________________________________________________________

________________________________________________________

________________________________________________________

________________________________________________________

________________________________________________________

________________________________________________________

________________________________________________________

________________________________________________________

________________________________________________________

________________________________________________________


PAGE 59

7. ALLOTMENT OF SHARES & UNDERWRITING

Restrictions of the Co.’s act on allotment.

Meaning of Allotment: The word “allotment” gives us the notion of a “lot”. Therefore, there must first be a lot of shares, then the division of them into value or classes and lastly allocation of them

In general it is the act of appropriation by the BOD of the Co. out of previously unappropriated capital of the company.

Reissue of forfeited shares is not allotment

Requisites of Valid Allotment

General:

• Only against appropriate application form.

• Should be made by the appropriate authority.

• Must be communicated to the applicant.

• Must be made within a reasonable time.

• Absolute and unconditional. If not according to terms and conditions, the applicant may refuse to accept the shares.

• Not be against any other law.

Statutory:

• File either Prospectus / Statement in lieu of prospectus with ROC, before allotment.

• It shall make an application to a recognized Stock Exchange(s).

• Application Money: Minimum 5% of nominal value – companies Act Minimum 25%of nominal value-SEBI.

• Restriction on use of Application Money:

- To be kept in a separate bank account shall not be utilized for any purpose other than


PAGE 60

a. Adjustment of excess moneys against allotment of securities permitted to list; or

b. Repayment of money,within the time specified by the SEBI, where the company is for any other reason unable to allot securities

c. Utilise only for the purposes stated in the prospectus.

• Opening of Subscription list: Beginning of the 5th day after the date of issue of prospectus or later date specified in the prospectus.

• An application of shares is not revocable until the end of the 5th day from the opening of the subscription list [Sec 72(5)].

• Time of Closing of Subscription lists- atleast 3 working days and Maximum – 10 working days in General and 21 in case of infrastructure Co.

• Minimum Subscription should be received.

• Listing Requirement: should be complied.

• Stock exchange has to approve the basis of allotment.

Allotment procedure:

• BOD Resolution

• Posting of allotment letters

• Filing the return of allotment to ROC

• Prepare register of members

• Dispatch of Share Certificates

Minimum subscription.

1. Meaning as per Companies Act: Amount which every prospectus for shares must contain an indication, as to the minimum amount which, in the opinion of the directors, must be raised by way of shares.




PAGE 61

2. Purpose: To meet expenditure for

• The purchase price of property, or to be purchased.

• Any preliminary expenses and underwriting commission,

• The repayment of money borrowed by the company for (a) and (b) above,

• The working capital,

• Any other expenditure

3. Allotment should be made when?

• Minimum subscription has been received &

• Money has been received by the co. either in cash or by cheque or any other, but should be converted into cash before the allotment.

4. Non receipt of Minimum Subscription: If not raised within 30 days from the date of issue of prospectus or such other period as may be specified by the SEBI, then the amount received shall be returned within such time and manner as may be prescribed.

5. Meaning and Rules as per SEBI:

• No company shall be allowed to make the allotment unless it has received a minimum subscription.

• If not, should be refunded within 60 days from the closure of issue.

• If delayed by more than 8 days, liable to repay along with 15% interest p.a.

• In case of default: The company and its officer who are in default shall be liable to fine varying from Rs 1000/- to 1 lakh, whichever is less.




PAGE 62

Listing of shares on stock exchange and consequences of failure to get the shares listed.

Securities to be dealt with in stock exchanges: every company before making public offer, shall, make an application to one or more recognized stock exchange(s) to obtain permission for the securities to be dealt with, there such prospectus has to mention the name of the stock exchange.

Allotment void: Any allotment made without permission shall be void.

Separate bank A/c:

a. All the moneys received on application from public for subscription to the securities shall be kept in a separate bank account.

b. In case of default, the company and every officer who is in default shall be punishable with fine/with imprisonment/both.

Moneys received on application shall be utilised for Sec 40(3) of Companies Act, 2013:

a. adjustment against allotment of securities where the securities have been permitted to be dealt with in the stock exchange(s) or;

b. the repayment of monies within the time specified by the SEBI, received from applicants in pursuance of the prospectus, where the company is for any other reason unable to allot securities.

c. A company may pay commission to any person in connection with the subscription to its securities.

Penalty for default:

a. For Company – Fine not less than 5 Lakh rupees but extend to 50 lakh rupees

b. For every Officer – Imprisonment for a term which may extend to 1 year or fine which shall not be less than 50,000 rupees but may extend to 3 lakh rupees, or with both.


PAGE 63

Note: A public company can either be listed on stock exchange or it may be an unlisted company.

Irregular allotment and its effect.

Meaning: Allotment in contravention of provisions of Sec.39, 40 of the co. Act, 2013 & 70

Remedy in case of avoidable allotment: He may avoid within the time specified in Sec.71 viz.:

Situation Time Limit allotment is made before SGM Within 2 months of SGM. No SGM. Within 2 months of allotment. After SGM. -do-

Valid Voidable Void

Allotment before

5th Day

• Allotment before receipt of minimum subscription Application money <5% of nominal value or as specified by SEBI

• Allotment without filing prospectus / statement in lieu of prospectus

• Application money not kept in scheduled Bank

• Allotment with applying to stock exchange for permission to lost shares

• Allotment stock exchange has refused listing

Irregular Allotment


PAGE 64

Steps: It is sufficient to intimate within the time limit .Legal proceedings can commence even after.

Punishment / Remedy against Directors:

• Every Director, who knowingly contravenes, is liable to compensate company and allottee.

• Proceedings for compensation- within 2 years from allotment.

Time for opening of subscription list in the matter of public issue of shares.

Delivery of prospectus to ROC

Opening of subscription list:

Situation Activity prohibited Time limit

Co. has issued a prospectus

Make an allotment of shares

Until the beginning of 5th day or such later time.

After the 1st issue of prospectus, a person responsible U/S.62

Allotment of shares / debentures

Until beginning of 5th

day from the issue of public notice.

Withdrawal of application: only before opening of subscription list.

Contents relating to return of allotment.

A company having a share capital, making any allotment of shares, is required to file the 'Return of Allotment' in Form No.2 within 30 days.

Not required to be filed in the following

• Reissue of shares forfeited shares

• Issue of shares to the signatories to MOA

• Allotment of debentures




PAGE 65

Note: Corresponding section in Companies Act, 2013 is 39(4) but yet to be notified – “Wherever any company makes any allotment of securities(any), it shall file with the registrar a return of allotment”.

It must state:

1. In case shares are allotted in cash:

• Number and nominal amount of the shares

• Names, addresses and occupations of the allottees and amount paid.

2. In case shares allotted are not bonus shares and allotted as fully or partly paid up otherwise than in cash: Must produce

• Contract in writing constituting the title of the allottee

• Contract of sale or contract of service or other consideration in respect of which the allotment was made

Also, state the number and nominal amount of the shares so allotted.

3. In the case of issue of bonus shares: nominal amount of the shares allotted; names and addresses and occupations of the allottees and a copy of the resolution authorising the issue.

4. In the case of issue of shares at a discount: return must also include a copy of the resolution authorising such an issue, a copy of the Tribunal’s order sanctioning the issue.

Penalty for Default:

• Showing shares as having been allotted for cash if the cash has not been actually received - Every officer and every promoter in guilty punishable with fine upto Rs.50,000.

• Other cases: Every officer and every promoter in guilty punishable with fine upto Rs.5, 000 per day.

Note: Corresponding section for penalty in Companies Act, 2013 is 39(5) but yet to be notified – “The company and its officer who are in default shall be liable to fine varying from Rs 1000/- to 1 lakh, whichever is less”.


PAGE 66

Underwriting & underwriting commission.

Underwriting: ‘Underwriting’ means ‘Guaranteeing’. It is a contract entered between the company and underwriters.

Not compulsory: Underwriting is not compulsory.

Underwriting commission: It is a return for the services rendered by underwriters.

Conditions:

a. Authorized by AOA

b. 5 % for shares and 2.5% for debentures or rate specified in AOA whichever is lower.

c. The rate, names & addresses of underwriters, their underwriting shall be disclosed in the prospectus or in the statement in lieu of prospectus.

d. A copy of the underwriting contract shall be filed with the Registrar along with the prospectus or the statement in lieu of prospectus for registration.

e. May be paid in cash or in kind.

f. Paid only in respect of those shares which are offered to the public for subscription. Exception in the following case:

• A person for a commission has subscribe the shares

• Before the issue of the prospectus some other person has subscribed for any or all of them.

• aggregate amount of commission payable is disclosed in such prospectus.

Then the company may pay commission to the underwriter in respect this subscription irrespective of the fact that the shares or debentures have already been subscribed.


PAGE 67

Distinction between underwriters and brokers.

Brokerage is the sum paid to a person by the company for placing shares.

Basis Underwriting Brokerage

Guarantee to take up

Given by Underwriters. Not personally liable to take.

Commission on

Amount Underwritten. Value of shares allotted.

Rate 5%/2.5% 1.5%

Authorisation AOA Not necessary.

Disclosure Name, address, occupation Not applicable

NOTES

________________________________________________________

________________________________________________________

________________________________________________________

________________________________________________________

________________________________________________________

________________________________________________________

________________________________________________________

________________________________________________________

________________________________________________________

________________________________________________________

________________________________________________________


PAGE 68

8. DEPOSITS

Deposit & Exempted Deposits.

‘Deposit’ means any deposit of money with the Co. and includes any amount borrowed by a company but shall not include amounts specified by RBI. “Deposits” does not include the following:

• From the Central or State Govt. or from any other source and whose repayment is guaranteed by C.Govt / S.Govt.

• Any amount received as a loan from a Banking company, SBI (incl. its subsidiaries), Nationalised banks including a co-operative bank.

• Any amount received from IDBI, IFCI, ICICI etc.

• Amount received by a company from another company.

• Security deposit received from the employee of the company.

• Security deposit or advance money received from any purchasing agent, selling agent in the ordinary course of business of the company.

• Advance received against orders for the supply of goods or selling of properties.

• Subscription amount in respect of any shares, debentures, bonds, pending allotment or any amount received as calls in advance.

• Amount received from a present director or amount received from its shareholders by a private company. Such director / shareholder shall declare in writing at the time of paying the money that it has not been borrowed by him or has not been accepted by him from others.

• Issue of bonds / debentures secured by the mortgage of any immovable property or with an option to convert them into shares.

• Amount received in transit or trust,

• Any amount brought in by the promoters by way of unsecured loans in pursuance of stipulations of financial institutions.


PAGE 69

Terms and conditions for issue of deposit.

Period:

• Maximum Period - 36 Months

• Minimum Period - 6 Months.

Exception: Deposits for a period less than 6 months if:

• They do not exceed 10% of the aggregate of paid-up capital and free reserves.

• Are repayable not earlier than 3 months.

Demand deposits: Public deposit payable on demand cannot be accepted.

Rate of Interest: Not exceeding 11% p.a. at rests, not shorter than monthly rests.

Brokerage:

Period of Deposits Rate on Deposits

Upto 1 year 1%

1-2 years 1.5%

More than 2 years 2%

Ceiling of Deposits:

Company

From S.H. of Public Co. or deposit guaranteed by any person who at the time of

giving such guarantee was a Director

Any other deposit Total

Government Company

Not Applicable (N.A.) N.A. 35%

Other Co’s. 10% 25% 35%


PAGE 70

Maintenance of Liquid Assets:

• Deposit or Invest: Shall not be less than 15% of the deposits maturing during the year ending on 31st of March of next following year.

• To provide limited safeguard to the deposit holders

• Shall not be utilised for any purpose other than for the repayment of deposits maturing.

Advertisement for Inviting Deposits - Text of Advertisement:

1. Every company willing to invite deposits should issue the advertisement.

2. It should be issued in a leading English Newspaper and in one vernacular (Local) newspaper.

3. In the name of the Board of Directors of the Company.

4. Advertisement should contain:

• Name of the company.

• The date of incorporation of the company.

• The business carried on by the company and its subsidiaries.

• Brief particulars of the management of the company.

• Names, address and occupation of the Directors.

• Profits of the company, before and after making provision of tax,

• Dividends declared

• A statement that the company has no overdue deposits, other than unclaimed deposits

• A declaration to the effect:

��That the company has complied with the provisions.

That the deposits accepted -ranking pari passu with other unsecured liabilities.

• Conditions subject to which deposits shall be accepted.


PAGE 71

Date of Validity: The advertisement is valid upto the earlier of:

• 6 months from the date of closure of the financial year or

• The date on which the Balance Sheet is laid in the General Meeting.

Statement in lieu of advertisement

Receipts of Deposits: It is to be issued within 8 weeks. It should also state:

• Date of deposit.

• Name and address of depositor.

• Rate of interest payable.

• Date of repayment.

• Amount received by the company as Deposits.

Register of Deposits:

• Name and Address of the depositor.

• Date and Amount of Deposit.

• Period of deposit.

• Date of repayment.

• Rate of interest

• Date(s) of payment of interest.

Repayment of Deposits – General provisions:

• If the withdrawal is above 3 months but upto 6 months, no interest will be paid on such withdrawal.

• If the same is above 6 months but upto 1 year then not exceeding 10%.

• If it is above 1 year then 1% less than the contracted rate.

Prohibition from accepting deposits: A company with a net worth of less than Rs.1 crore shall not invite public deposits.




PAGE 72

Net worth: means the aggregate value of the paid-up share capital and all reserves created out of the profits and securities premium account, after deducting the aggregate value of the accumulated losses, deferred expenditure and miscellaneous expenditure not written off, as per the audited balance sheet, but does not include reserves created out of revaluation of assets, write-back of depreciation and amalgamation.

Return of Deposits: It is to be filed on or before 30th day of June, of every year, with the Registrar of Companies.

The provisions of this Act relating to a prospectus shall, so far as may be, apply to an advertisement referred to in Section 58A.

Obligations on a Company for violation of CG rules for accepting deposits.

Deposits accepted in violation of CG rules shall be repaid within 30 days.

Penalty (Sec 58A(5)): If repayments are not made in 30 days every officer in default is punishable with imprisonment for a term extending upto 5 years and also with a fine equal to twice the amount not refunded.

Consequences when a Co. fails to repay matured deposits.

a. Application to NCLT: A deposit holder can apply to NCLT if public deposits are not repaid in time. NCLT can suo moto (on its own motion) can also initiate action.

b. Winding up petition: Can file winding up petition under Sec.433(e)

c. Penal interest if deposit not repaid on due date: penal interest @ 18% is payable for the overdue period. In case of deposits from small depositor, penal rate of interest shall be 20%.

d. Consumer forum


PAGE 73

e. Civil suit: A civil suit can be filed.

f. Company liable to repay deposit even if it is sick company.

g. Exceptions: In the following circumstances application cannot be made to the tribunal:

• Deposit made for the book or purchase of car, scooter etc.

• Deposit accepted by Hire purchase companies

• Deposits accepted by a sick industrial company.

• Deposits accepted by notified relief undertakings

Other Consequences:

• Prohibited from accepting deposits.

• Directors are disqualified.

• Consumer Protection Act also provides relief to depositors.

Provisions relating to small depositors (SEC.58AA)

The term small depositor has been defined as a depositor who has deposited in a financial year a sum not exceeding Rs.20,000 in a company. Sec.58AA provides the following:

1. Intimation by the company to NCLT: Every company which has accepted deposits from Small depositors, should intimate NCLT whenever there is any default in repayment of principal or interest thereon within 60 days of default.

2. Pass orders: NCLT on receipt of the intimation, pass appropriate orders within 30 days: • On its own motion or • After giving an opportunity of being heard to the small depositors.

3. Prohibition from accepting deposits from small depositors until default.

4. Future advertisements: shall mention that such default has been made.


PAGE 74

5. Waiver of interest: Should be mentioned by the company in every advertisement and application form inviting deposits issued after such waiver.

6. Working capital loans: Can eligible for repayment.

7. Provisions of Sec.58AA are in addition to provisions of section 58A.

NOTES

________________________________________________________

________________________________________________________

________________________________________________________

________________________________________________________

________________________________________________________

________________________________________________________

________________________________________________________

________________________________________________________

________________________________________________________

________________________________________________________

________________________________________________________

________________________________________________________

________________________________________________________

________________________________________________________

________________________________________________________

________________________________________________________


PAGE 75

9. MEMBERSHIP

Ways to become a member.

Member: Every 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.

Member - in relation to a company, means—

a. the subscriber to the memorandum of the company who shall be deemed to have agreed to become member of the company, and on its registration, shall be entered as member in its register of members;

b. every other person who agrees in writing to become a member of the company and whose name is entered in the register of members of the company;

c. every person holding shares (both equity and preference) of the company and whose name is entered as a beneficial owner in the records of a depository.

A person may become a member of the company in any one of the following ways:

1. Membership by subscription to Memorandum: Even the absence of an entry in the register of members will not alter the position. Neither application nor allotment is necessary.

2. By Application and Allotment (Primary Market)

3. By Transfer (Secondary Market)

4. In case of depository: Every person who holds equity share capital and beneficial owner- shall be deemed to be the member.

5. By Succession (Transmission of shares):

• Death- Legal Representative

• Insolvency-Official Receiver/assignee


PAGE 76

6. Membership by acquiring qualification shares

7. By estoppel: This situation arises when a person holds himself out as a member or knowingly allows his name to remain on the register when he has actually parted with his shares.

Circumstances where a member may not be a shareholder or a shareholder may not be a member.

Member need not be a shareholder and a shareholder need not be a member.

1. Transfer of shares: As and when transferred-ceases to be a holder, but he continues to be a member.

2. Death of a member: When a member dies- no longer a shareholder, but he is member. Legal representatives-shareholder but not a member

3. Member becoming insolvent: In case of insolvency

• Insolvent person-not a holder but member

• Official receiver-holder but not member

4. Holder of a share warrant: Holder but not member.

5. Subscribers to MOA: Immediately becomes the member, even though no shares are allotted to him.

6. Co. limited by Guarantee: Only members but not shareholders.

When membership ceases?

When name is removed from the register of members

• When transfer is made

• When shares are forfeited.

• When valid surrender of his shares is made.

• When shares are sold by the Co. to enforce a lien.

• He dies and his legal representative secures the registration.


PAGE 77

• The Co. is wound up.

• The member is a co. which is being wound up.

• He is adjudicated insolvent and the Official Assignee claims his shares.

• His redeemable preference shares are redeemed.

• He rescinds the contract of membership on the ground of misrepresentation or fraud in the Prospectus.

• When Share warrants are issued.

• When shares are purchased by another member of the co. or by the co. itself

Rights of members of the co.

• To get the share certificate

• To get his name entered in the register of members.

• To transfer the shares

• To get the right shares.

• To appoint an auditor / directors.

• To receive the surplus assets on co.’s liquidation.

• To get dividend when declared

• Right to inspect the statutory registers and to obtain copies

• Right to receive the copies of Notices of general meetings, Statutory report etc.

• Rights connected with general meetings:

Liabilities and duties of members.

• To take shares, when they are allotted in due time and in compliance with the Act.

• To pay for the shares allotted.

• To abide by the doing of the majority unless the majority acts oppressively.




PAGE 78

• Contribute to the assets - winding up-shares are partly paid.

• Members are severally liable for debts (Sec.45).

Can a minor become a member of a co.?

Contractual capacity should be taken into consideration. Since a minor has no contractual capacity the agreement with a minor is void. Minor can become a member provided 4 conditions are fulfilled:

• The Co. must be of a co. limited by shares.

• Shares are fully paid up.

• Application for transfer is made on behalf of minor by a lawful guardian.

• The transfer is manifestly for the benefit of the minor.

If the directors allot shares to a minor in response to application?: As soon as the co. comes to know of this fact, it shall avoid the allotment

On reaching majority: The name of the minor will be replaced in the place of guardian’s name.

Whether the following persons can be members

a. An Insolvent: So long as his name appears in the register of members, he is a member

b. Partnership Firm: A partnership firm may hold shares in a co. in the individual names of partners as joint shareholders.

c. Foreigner: Can become a member subject to RBI approval under FEMA act.

d. Government: Yes, it can.

e. HUF: Held the shares in the name of its kartha.

f. Trust: Cannot become a member of the company because it has no separate legal entity.


PAGE 79

g. Co-operative Society: Yes, because it has separate legal entity.

h. Society: Yes, if registered under the societies Registration Act, 1860.

i. Trade union: Yes, A trade union registered under the Trade union Act, 1926.

Difference between a member and a contributory.

Contributory: means a person liable to contribute towards the assets of the company in the event of its being wound up.

A person who is holding fully paid-up shares in a company shall be considered as a contributory but shall have no liabilities of a contributory under the Act whilst retaining rights of such a contributory,

Member means

Present members.

This difference between member and contributory arises only when the company is winding up.

Provisions relating to joint holders.

• Joint holders will be counted as 1.

• Jointly & severally liable.

• Notices etc. are served on the first named person.

• Voting rights-only by the first named person.

• Dividends are paid only to the first named person.

• The co. will issue only one share certificate.

• Joint holders shall sign the proxy form jointly.

• Transfer deed is signed by all the joint holders.

• Bonus and right shares are issued in the name of all the shareholders.

• Transposition and split off of their holding is possible.


PAGE 80

Can a public ltd. Co. become a member of another public Ltd. Co.

A company can become a member of another company if it is so authorised by its MOA. But according to section 19 of the Companies Act, 2013, no company shall, either by itself or through its nominees-

a. hold any shares in its holding company, and

b. no holding company shall allot or transfer its shares to any of its subsidiary companies, and any such allotment or transfer of shares of a company made to its subsidiary company shall be void.

Following are the exceptions -

a. where the subsidiary company holds such shares as the legal representative of a deceased member of the holding company; or

b. where the subsidiary company holds such shares as a trustee; or

c. where the subsidiary company is a shareholder even before it became a subsidiary company of the holding company.

Voting rights even for exceptions: only in respect of the shares held by it as a legal representative or as a trustee, as referred to in clause (a) or clause (b) of the said exceptions.

Company having no share capital and unlimited company: Where the holding company is a company limited by guarantee or an unlimited company, not having a share capital, the reference to the shares shall be construed as the interest of its members, whatever be the form of interest.

Register of members / Debenture holders (sec.150 -152)

1. Contents:

• Name, address and occupation, if any, of each member.


PAGE 81

• Shares held by each member, with its number and the amount paid.

• Date on which the name of each person was entered in the ROM.

• Date on which any person ceased to be a member.

2. Index: Every Co. having more than 50 members shall keep an index of the names

3. Power to close register of members or debenture holders or other security holders-

Closing of register of members, debenture holders or other security holder by giving previous notice: for any period or periods not exceeding in the aggregate forty-five days in each year, but not exceeding thirty days at any one time, subject to giving of previous notice of at least seven days or such lesser period as may be specified by SEBI for listed companies or the companies which intend to get their securities listed, in such manner as may be prescribed.

If the register of members or of debenture-holders or of other security holders is closed without giving the notice or after giving shorter notice than that so provided, or for a continuous or an aggregate period in excess of the limits specified above, the company and every officer of the company who is in default shall be liable to a penalty of 5,000/- for every day subject to a maximum of one lakh rupees during which the register is kept closed.

NOTES

________________________________________________________

________________________________________________________

________________________________________________________

________________________________________________________


PAGE 82

10. SHARE CAPITAL

Conditions for redemption of preference shares

The maximum time limit for redemption is 20 years. Conditions to be satisfied for the purpose of redemption:

1. Fully paid up shares only

2. redeemed only out of:

a. Profits available for dividend

b. Out of the proceeds of a fresh issue of shares

3. CRR must be created if redeemed otherwise than out of proceeds of fresh issue of shares.

4. Premium is to be provided out of the profits of the company or out of the company’s security premium.

5. Premium in any case is to be provided out of the profits of the company or out of the company’s security premium.

6. Subject to the provisions of sec 80.

7. Give notice to the ROC within 30 days of redemption

8. Default shall be punishable with fine which may extend upto Rs.10,000

Issue of shares for a consideration other than cash.

a. A company is permitted to issue shares for a consideration other than cash U/s.75.

b. Cancellation of a debt by mutual consent will be treated as payment in cash.

c. However, shares cannot be allotted without consideration.




PAGE 83

Issue of shares at a premium.

Meaning: Shares are said to be issued at a premium when they are issued at a price higher than the face value. The excess of issue price over the face value is called as the amount of securities premium.

1. Permission of AOA & TRIBUNAL is not required. 2. No prohibition- issue of shares at differential premium. 3. Securities premium may be demanded along with the

application money / allotment money / call money. 4. Utilisation of Securities Premium: Sec.78, the securities

premium can be utilised only for:

• Issuing fully paid bonus shares.

• Writing off preliminary expenses.

• Writing off commission paid or discount allowed

• Premium payable on redemption of any preference shares / debentures.

• For buy back of shares U/s.77A. 5. Amount vs. Value: The word 'amount' refers to cash premium&

'value' refers to premium other than cash. 6. BOD / SEBI: Will be decided by the BOD in accordance with

SEBI guidelines.

Issue of shares at a discount.

Meaning: Shares are said to be issued at a discount when they are issued at a price lower than the face value. The excess of the face value over the issue price is called the amount of discount.

• Must be of the class already issued.

• At least 1 year must have completed.


PAGE 84

• Authorised by a resolution in the general meeting specifying maximum rate of discount.

• To be confirmed by the TRIBUNAL or CG.

• The resolution must specify the maximum rate of discount. (Not more than 10%)

• The shares must be issued within 2 months.

• Prospectus should state.

• Applicability to debentures Penalties:

Default shall be punishable with fine upto Rs 500.

Director’s are liabile to the company in case of improper issue of shares at a discount.

Sweat equity shares and its conditions.

Meaning: Equity shares issued by the co. for providing know-how or making available any intellectual property. Conditions:

• Must be of class already issued.

• At least 1 year must have completed

• S.R.

• The resolution should specify the number of shares, Current maker price etc.

• Only to permanent employees

• Listed and Unlisted companies

• Listed co. - SEBI Regulations (Issue of Sweat Equity), 2002 to be followed.

• Unlisted Companies - Unlisted Companies (Issue of Sweat Equity Shares) Rules, 2003 to be followed.






PAGE 85

Voting rights of members.

1. Equity Shareholders:

• Have right to vote

• Poll and Show of hands: Poll-proportionate rights. Show of hands- only 1 vote.

• Calls in advance: not entitled for advance paid.

• Proxy

2. Preference Shareholder:

• Have only on matters relating to them.

• Exceptions

• Cumulative preference shares: If dividends are in arrears for aggregate period of two years

• Non-cumulative preference shares: If dividends are in arrears for two years Or for any 3 years during the period of 6 years

3. Restriction on voting rights:

• A private or public co. may restrict the rights if calls in arrears are there.

• In addition a private co. can put some more restrictions.

Rights of dissentient shareholders.

The rights of different class of sahres are given by the memorandum, the articles and the terms of issue of shares. 1. Conditions for varying rights:

• Consent or S.R.: The holders of at least ¾ of their consent in writing or a special resolution and

• MOA & AOA: Must provide Or

• Terms of issue: Must not be prohibited by terms of issue.


PAGE 86

2. Rights of Dissentient Members:

• Who can Dissent: The shareholders holding atleast 10% of class of shares.

• Remedy to Dissentient Members: Apply to tribunal by making petition.

• Time limit: Within 21 days of consent

• Action of tribunal

• Tribunal, after hearing, will either confirm variation or disallow

• Decision of the tribunal is final.

Alteration of share capital.

1st case: Sec.94. 2nd case: Sec.94A - Automatic increase

• When the C.G. directs that convert debentures into shares. and

• Where the C.G., on an application made by the public financial institutions, directs like so

• In this case:

� No need of passing O.R.

� No need of provision in articles for alteration.

Conversion of shares into stock.

1. Meaning: Stock is an aggregate of fully paid shares that have

been legally consolidated. 2. Procedure for issue:

• AOA + resolution

• However, the co. can’t issue stock ab-in-itio.




PAGE 87

3. Effects of conversion:

• Register of members shall show the amount of stock held by each member.

• Does not affect in any way the rights of a member

• Can be transferred in the same way as the shares 4. The main advantage claimed for stock is that it is transferable

in any denomination

Differences between shares and stock.

a. Numbering

b. Denomination

c. Issue

d. Fully paid up

e. Division

Pre-emptive right (sec.81).

1. Means that further shares must be offered to the existing equity

shareholders in proportion to the capital paid up on those shares.

2. Time limit: In the case of a public limited co., where at any

time,

• after the expiry of 2 years from the formation of the co. Or

• after the expiry of 1 year from the allotment of shares made for the first time after its formation whichever is earlier,

• wish to issue further shares, the co. must first offer such further shares to existing equity shareholders.

3. Contents of notice:

• Number of shares offered and




PAGE 88

• Giving not less than 15 days for acceptance of offer,

• Failing to give acceptance within that date is deemed as offer having been declined,

• Either decline the offer or can renounce in favour of any other person.

• Declines the offer - Issue for the benefit of the co.:

• Preference Shareholders: Not applicable

Issue of further shares to persons other than existing ESH’S.

The new shares of a co. may be offered to outsiders in the following situations:

a. S.R.

b. O.R. + C.G.

c. Can dispose for the benefit of the co. in case rights offer declined

d. Sec.81 do not apply to –

• A private co. or

• Exercise of conversion option attached to debentures issued / loans raised

• Sec.94A

• Issue out of unsubscribed shares of the previous issue.

• Issue of forfeited shares.

• Issue of Sweat Equity Shares.

• Issue of shares under ESOP.

Powers of CG to convert debentures into shares.

Sec.81 does not apply to increase of subscribed capital caused in the following situations:




PAGE 89

Situation Conversion option attached [Sec 81(3)] CG Direction [Sec 81(4)]

Description By exercise of conversion option attached to debentures/Loans.

Conversion of Whole / Part of debentures / Loans, in pursuance of CG direction.

Conditions Such issue a. Has been approved by

the CG before their issue and

b. Approved by SR

CG shall consider following: a. Financial position. b. Terms of issue of

debentures / loans. c. Rate of interest

payable. d. Capital of the Co. e. Loan liabilities of

Co. f. Reserves of

company g. Profits of the

previous 5 years. h. Current market

price.

Circumstances where a co. reduce its share capital

1. Sec.100 of the Companies Act provides that:

• By reducing or extinguishing the liability of members in respect of uncalled or unpaid capital

• By paying off or returning paid up capital not wanted for the purposes of the co.

• By paying off the paid up capital on the footing that it may be called up again

• By following a combination of any of the preceding methods.

• By writing off or canceling the capital which has been lost or is unrepresented by the available assets.


PAGE 90

2. Procedure for reduction (Sec.100 to 105):

• Articles

• S.R.

• Apply to Tribunal

• Notice to creditors: should be given to every creditor

• List: The Tribunal then settles a list of such creditors

• Does not consent: The Tribunal will order the co. to either pay his debt or provide any security.

• Pass an order: If the Tribunal is satisfied, it will pass an order confirming the reduction.

• The Tribunal can order the Co. to add ‘And reduced’ after its name, for a fixed time.

• Liability of members in respect of reduced share

• The amount paid on shares or reduced amount if any and

• The amount of shares as fixed by the minutes of reduction.

Can a co. purchase its own shares

• Private co.: A private co. can buy back its own shares and it can give loan or financial assistance to purchase its shares.

• Public and dependent private co.: Not permitted to buy its own shares or give loan or financial assistance.

• Exceptions. Cases of Loan:

• A banking Co. may lend the money for this purpose in the ordinary course of its business.

• Employees - Trustee

• Employees: The co. may advance a loan to its employees




PAGE 91

Provisions of the Companies act prohibiting Buy back of shares.

No Co. shall directly or indirectly purchase its own shares or other specified securities, etc.:

1. Through any subsidiary co. including its own subsidiary companies or

2. Through any investment co. or group of investment companies or;

3. If a default by the co. is subsisting in the following areas:

a. In repayment of deposit or interest payable thereon or

b. Redemption of debentures, redemption of preference shares or

c. Repayment of any term loan or interest to any financial institution or bank or

d. Payment of dividend to any shareholders or

e. Company has defaulted in:

• Filing of Annual Return (section 92),

• Declaration of dividend (section 123) or

• Punishment for failure to distribute dividend (section 127) and financial statement (section 129)

Sources of funds that can be utilized by the co. for purchasing its own shares.

1. Sources of funds:

• Its free reserves or

• The securities premium account or

• The proceeds of any shares /other specified securities.

Buy back cannot be made from the proceeds of earlier issue of same kind.


PAGE 92

Free reserves- means such reserves which, as per the latest audited balance sheet of a company, are available for distribution as dividend:

Provided that—

• Any amount representing unrealised gains, notional gains or revaluation of assets,

• Whether shown as a reserve or otherwise, or

• Any change in carrying amount of an asset or of a liability recognised in equity, including

Surplus in profit and loss account on measurement of the asset or the liability at fair value, shall not be treated as free reserves. Those reserves out of which dividend can be Distributed are treated as free reserves and not include share premium. 2. Source of shares: The buy-back may be:

• From the existing security holders on a proportionate basis or

• From the open market or

• From odd lots or

• By purchasing the securities issued to employees under stock option or sweat equity.

3. Conditions: No co. shall purchase its own shares or other

specified securities unless:

• AOA

• ASR

• BOD: A resolution by the B.O.D. is sufficient if the buyback of shares is less than or equal to 10% of the total paid up capital and free reserves.

• 365 days: No offer of buy back shall be made within a period of 365 days




PAGE 93

• Maximum limit: � In total: 25% of net worth � For equity capital: 25% of paid up capital

• Debt equity ratio: should not be more than 2:1.

• Fully paid up

• Listed: SEBI.

• Unlisted: guidelines of C.G.

4. Time limit: Every buy-back shall be completed within 12 months from the date of passing the S.R.

5. D.O.S.: Only a solvent co. is permitted to buy back its shares. 6. Destroy: A co. shall physically destroy the securities so bought-

back within 7 days of the last date of completion of buy-back.

7. Restriction on further issue: A co. shall not make further issue of same kind of shares within a period of 6 months.

C.R.R.: when a company buy-back shares out of free reserves or out of security premium account, then an amount equal to the nominal value of the shares needs to be transferred to the CRR. Such transfer details to be disclosed in balance sheet.

CRR may be utilized for paying un-issued shares of the Company to the members as fully paid bonus shares.

8. Filling of return: Within 30 days to ROC.

NOTES

________________________________________________________

________________________________________________________ ________________________________________________________

________________________________________________________


PAGE 94

11. SHARE CERTIFICATE & WARRANT

Share Certificate.

1. Meaning:

• A document showing title.

• Issued to the members

• By the Co.

• Under its common seal

• Specifying the number of shares held by him, and

• The amount paid on each share.

2. Time limit Sec. 113

• For shares allotted - Within 3 months.

• For transfer - Within 2 months.

• In case of demat form U/sec 113(4), issue of share certificate is not required.

• Burden of proving delivery of share certificate is on company.

3. Applicable for Debentures also

4. Extension of time: only in case of Debenture Certificates by NCLT -further period of 9 months.

5. Failure to deliver the share certificates with in the specified period consequences: A complaint may be made to CG for direction.

6. Penalty for default: The company, and its every officer in default shall be punishable with fine upto Rs.5,000 for every day during which default continues.

Form, contents etc. of share certificate.

Following are the requirements for issue of a share certificate:

a. Every share certificate shall specify




PAGE 95

• name of the person

• shares to which it relates

• Amount paid.

b. Issued under the common seal.

c. Signed by two directors and the Secretary or persons authorized.

d. The certificate shall state – name, date, distinctive no.

e. Properly stamped.

f. Approved by the concerned stock exchange.

g. In case IPO is > = 10Lakhs — only in dematerialized form.

Implications of share certificate.

a. It is a token of proof for owner of ‘shares.

b. Estoppel as to title:

• Once issued binds the co..

• Issued even by mistake- can’t deny

• Co. is liable for issuing wrong certificate.

c. Estoppel as to payment:

• Co. alone shall be liable for wrong endorsement.

• Entitled to assume that the shares are paid up to the extent given in the certificate.

C.G. issue of share certificate rules, 1960.

1. Rule 4(1) - Resolution:

• BOD resolution should be there

• Issued only after valid surrender of letter of allotment.

• If letter of allotment was lost or destroyed-issued after getting the indemnity bond+ amount sufficient for enquiry expenses


PAGE 96

2. Rule 4(2) - A renewed, replaced or duplicate certificate can be issued:

• Sub-division or consolidated shares or (Replaced)

• Defaced, mutilated, torn out or (Replaced)

• Where the reverse of the certificate for recording transfers is fully filled up. (Renewal)

• When the certificate is lost or destroyed. (Duplicate) 3. Rule 4(3) - Duplicate Certificate: The duplicate share certificate

can be issued in place of lost or destroyed share certificate, only if:

• BOD Permission

• Fees not exceeding Rs.2.

• Indemnity bond 4. Penalty (Sec 84(3)): If a company with intent to defraud renews,

a certificate or issues a duplicate

• Company shall be punishable – Fine upto Rs 1,00,000

• every officer in default - imprisonment up to 6 month, or with fine up to Rs 1,00,000 or with both.

5. Rule 5(1) - Contents:

6. Rule 5(2) - Replacement – Such fact should be stated on face of certificate

7. Rule 5(3) - Statement and stamp:

8. Rule 6 - Common seal & Signature:

9. Rule 7 - Maintenance of registers:

• New CT’s: must be entered in register, their names, date of issue

• Renewed, Replaced and duplicate certificates: Similarly entries must also be made

10. Rule 8 - Printing of certificates and Safe custody of blocks: must be printed under authority of BOD.




PAGE 97

11. Rule 9 - Safe custody of books and documents: The Managing Director, if any, or otherwise every director of the co. must be responsible.

Share warrant.

1. Share Warrant: Bearer is entitled to shares specified therein.

2. Main features - (Sec.114):

• Negotiable instrument.

• Does not contain the name of the owner.

• Transferable just by delivery.

• Registration- not necessary.

• Pvt. Co.: Private Co. can’t issue share warrants even if it is provided in the articles.

• Qualification shares: can’t be used as qualification shares.

• Not a Member

• No Voting rights

• Dividend Coupons

• Dividend coupons are attached to each share warrant and

• The dividend will be paid to the person who produces the appropriate coupon

3. Conditions:

• Direct issue- prohibited.

• Only fully paid-up shares can be converted.

• Articles should authorise.

• C.G.

• Seal. 4. Particulars to be entered in the Register of Members on the

issue of share warrants:

• Fact of issue and the date of issue.




PAGE 98

• Statement of shares included in the warrant, distinguishing each share by its number.

• On issue of warrant- name will be struck off. 5. Reconverting: By paying prescribed fee. 6. Penalty: In case of default-punishable with fine upto Rs.500 for

everyday of continuing defaults.

Can a person be regarded as member of a co. if he accidentally comes into possession of a share warrant without paying for the same.

Penalty for Impersonation as Shareholder [Sec.116]

• Disadvantage of Warrants: Any person can deceitfully impersonate as owner of any Share / Interest or of any Share Warrant / Coupon.

• Persons liable: Liable to be punished with imprisonment upto 3 years and / or fine

� Person obtaining / attempting to obtain

� Person receiving any money due to any such owner.

NOTES

________________________________________________________

________________________________________________________

________________________________________________________

________________________________________________________

________________________________________________________

________________________________________________________


PAGE 99

12. CALLS & FORFEITURE / SURRENDER OF SHARES

Calls on shares and its rules.

Calls on shares:

• A demand by the co.

• On its shareholders,

• To pay the whole or part of balance remaining unpaid on each share,

• At any time during the continuance of the Co. or

• By the liquidator in the event of winding up of the Co.

• Simply-installments other than application & allotment are calls. Requisites of a valid call: Must be made strictly in accordance with the Articles. If the articles are silent, then regulations 13 to 18 of Table ‘A’ shall be applicable. Rules (Regulations 13 to 18 of Table ‘A’ Schedule I):

• Reserve capital cannot be called up.

• Interest can be charged.

• Call should not exceed 1/4th of the nominal value.

• Gap between two calls- minimum of one month.

• If not paid, can forfeit the shares.

• Liability of joint shareholders - joint and several.

• Shares falling under the same class-must be uniform basis.

• The shares of the same nominal value on which different amounts have been paid-up, shall not be deemed to fall under the same class.

• Power of making calls-only by BOD-cannot be delegated.

• Comply with SEBI guidelines

• Bona fide in the interest of the co.

• BOD resolution shall specify the amount of call and the Time allowed.




PAGE 100

Payment of calls in Advance

If AOA permits-co. can Consequences:

• Not entitled to voting rights in respect of advance.

• a company may, if so authorised by its AOA, pay dividends in proportion to the amount paid-up on each share.

• Liability to extent of advance is extinguished.

• Can claim int.@ rate specified in AOA up to 6%p.a.

• Not refundable.

• In the event of winding up, int. should be paid first.

Forfeited & its procedure.

Meaning: Forfeiture of shares is compulsory termination of membership of a member and confiscation of his shares as a penalty for non-payment of a call or other sum due on shares.

• Remedy for non-payment of call.

• Procedure laid down in AOA-strictly followed.

• Only for nonpayment of calls & not for debt

• Name -struck off

• Must be in Interest of the Co.

• Even after forfeiture he remains liable to pay as contributory or debtor.

• No liability for uncalled value

• Reduction of capital

• BOD can either cancel or reissue.

• Reissue-not required to fill return of allotment.






PAGE 101

Procedure for forfeiture:

1. Due notice containing:

• Amount + int. accrued.

• At least 14 days to be given

• Even if not paid then forfeited.

• Improper notice invalidates forfeiture.

2. If calls are not paid, a duly verified declaration in writing that:

• The declarant is a Director / Manager / Secretary.

• Shares have been duly forfeited on the date stated in the declaration.

Procedure for reissue of forfeited shares.

• Reissued in accordance with the provisions of Articles

• Re-issue of forfeited shares is optional, if forfeiture is for non-payment of calls, and mandatory, if forfeiture is for other reasons.

• Reissue can be at any price provided that (sum paid by the original owner + reissue price) > discount allowed.

• If original holder has surrendered - transferred by execution of transfer deed.

• If original holder has not surrendered-a new certificate.

Distinction between Lien and Forfeiture.

• Reasons: A lien-in respect of debts due. Forfeiture-only when the shares are partly paid up.

• Lien- owner gets surplus sale proceeds. Forfeiture-nothing.

• Reduction of share capital: Lien-not. But forfeiture-yes.

• Purpose: A lien- security for any debt. Forfeiture is a penal provision.


PAGE 102

Surrender of shares.

• Meaning: Return of the partly paid shares by the shareholders to the co.

• It is opposite to forfeiture.

• Both the Act and Table A are silent.

• Empowered by AOA.

• Reissued: Surrendered shares may be re-issued

• No consideration shall be paid by the co.

NOTES

________________________________________________________

________________________________________________________

________________________________________________________

________________________________________________________

________________________________________________________

________________________________________________________

________________________________________________________

________________________________________________________

________________________________________________________

________________________________________________________

________________________________________________________

________________________________________________________

________________________________________________________


PAGE 103

13. TRANSFER & TRANSMISSION OF SHARES

Meaning and procedure of transfer.

1. Transfer: Voluntary passage of the rights and duties.

2. Right to transfer: Subject to the AOA- has an unrestricted right.

3. Procedure for transfer - Sec. 108

• Application for registration

• Transfer deed in Form 7B.

• Presented to prescribed authority

• After presentation only, instrument is to be signed by transferor and transferee

• Transfer deed is to be delivered to the CO. along with Share Certificates

4. Time limit:

• Quoted shares: 12 months from presentation or date of closure of register whichever is later.

• Others: Within 2 months.

• Central Government is empowered to extend the aforesaid time limit

5. Transfer of partly paid-up shares: Application only by transferor-after consulting transferee.

Position of ‘Transferor’ and ‘Transferee’ between the date when a contract to transfer shares is made and the date of placing of the transferee’s name on the Register of Members

a. Calls: The transferor must pay the calls, if any. However, he may, recover the amount from the transferee.




PAGE 104

b. Dividends: If dividends are declared and paid before the transfer is registered then the company must pay it to the transferor.

c. Voting Power: The voting power rests with the transferor but he must vote as the transferee directs.

Restrictions on transfer of shares in a Private and a Public company

General Rule: One of the most important features of a company is that its shares are freely transferable subject to provisions of Co Act

Private Company:

• The articles contain a provision restricting the right to transfer its shares.

• The right of transfer is generally restricted in the following manner:

a. Persons to whom directors refuse transfer of shares.

b. By compelling the members to offer his shares to existing shareholders first.

c. The directors must be communicated in writing of such intention of the shareholder.

d. By specifying the method for calculating the price

Public company:

• In the case of a public company also, there may be some restriction on the members to transfer the shares.

• Regulation 21(Table A) provides that the Board of Directors may refuse to register the transfer of partly paid shares to a person whom they do not approve.

• Further, the Board may refuse to register the transfer of any share, which has a lien by the company.


PAGE 105

A) Refusal to registration of transfer / transmission of securities B) Refusal for rectification of register of members by a Co. and the remedial measures to the aggrieved shareholder.

A) Refusal to registration of transfer / transmission

In a private company In a public company

Restriction on transfer of shares:

a) The Act requires to impose restrictions on transferability of shares.

b) However cannot prohibit.

c) The grounds in the Articles must be fair and reasonable.

d) If based on collateral or arbitrary grounds, such refusal is not valid.

Free transferability of shares:

a) General rule: freely transferable

b) Exception – justified if there is ‘sufficient cause’. IF contravention of - • SEBI Act, 1992 • SEBI guidelines • SICA • Any other law for the

time being in force. Giving notice of refusal: a. Compulsory issue of notice

b. Notice to whom?- The notice shall be given to-

• Transferor • Transferee • Person giving intimation of

transmission shall send the notice within 30 days of receipt of a valid transfer deed.

Notice of refusal must be given within 30 days from the date of receipt of instrument of transfer/intimation of transmission.




PAGE 106

Remedy available against refusal: a. Appeal to NCLT

b. Time limit for filling the appeal: • Within 30 days of receipt

of notice of refusal or • Where no reply has been

received, within 60 days of lodging documents for registration.

Remedy available against refusal a. Appeal in NCLT within 30 days from the date of delivery of instrument / intimation of transfer. Who can file the appeal: Transferee.

time limit for filling the appeal:

Within a period of 60 days of such refusal or where no intimation has been received from the company, within 90 days of the delivery of the instrument

Action by NCLT: direct the company to register the transfer if it is satisfied that the refusal was not justified.

company shall comply with such order within a period of ten days of the receipt of the order

Action by NCLT: direct the company to register the transfer if it is satisfied that the refusal was without sufficient cause.

company shall comply with such order within a period of ten days of the receipt of the order

Penalty: If a person contravenes the order of the Tribunal he shall be punishable with imprisonment for a term not less than one year but may extend to three years and with fine not be less than one lakh rupees but may extend to five lakh rupees.




PAGE 107

B) Refusal for rectification of register of members:

Rectification of register of members: a. Application to whom?-NCLT

or to a competent court outside India, specified by the Central Government

b. Grounds for rectification – Without reasonable or justifiable cause – � name of a person has

been entered or removed in register of members

� unnecessary delay is being made in entering membership.

Who can appeal: The person aggrieved, or any member of the company or the company may appeal in such form as may be prescribed.

c. Time limit for making application ��No time limit has been

prescribed. Application must be filed within reasonable time.

Action by NCLT: direct the company to register the transfer if it is satisfied that the refusal was not justified. Company shall comply with such order within a period of ten days of the receipt of the order; or direct rectification of the register and also direct the company to pay damages, if any, sustained by any party aggrieved.

Rectification of register of members: a. Application to whom? –

NCLT or to a competent court outside India, specified by the Central Government

b. Grounds for rectification: Transfer of shares is in contravention to any provisions of SEBI Act or Regulations etc.

c. Who can file? Depositary Company Holder of securities SEBI

d. Time limit for making the application – No time limit.

Right of transferee: shall not restrict the right of a holder of securities, to transfer such securities and any person acquiring such securities shall be entitled to voting rights unless the voting rights have been suspended by an order of the Tribunal. Action by NCLT: direct the company to register the transfer if it is satisfied that the refusal was not justified.


PAGE 108

Company shall comply with such order within a period of ten days of the receipt of the order; or direct rectification of the register and also direct the company to pay damages, if any, sustained by any party aggrieved.

Penalty: default is made in complying with the orders of Tribunal, then the company shall be punishable with fine from 1 to 5 lakh rupees and every officer in default punishable with imprisonment extending to 1 year or with fine levying from 1 lakh – 3 lakh rupees or with both.

Blank transfer.

1. Meaning: Transfer deed without date.

2. Procedure for Blank Transfer: The transferor delivers to the buyer (i) share certificate, and (ii) Blank transfer deed.

3. Effects of Blank Transfer:

• The buyer may become the owner of such shares

• The buyer may transfer such shares

4. Who is Transferee? a. The last holder of blank transfer deed

b. Until some buyer is registered the original holder of shares

5. Validity period: A blank transfer shall remain valid only for such period as is prescribed.

6. Why blank transfer?

• But in a blank transfer, the seller just fills his name and signs it.

• Enable the buyer to sell the shares again to a subsequent buyer

• The process of purchase and sale can be repeated any number of times




PAGE 109

7. Disadvantages / Evils: • Avoidance of transfer stamps. • Concealment of the identity • Evasion of tax b

What is a forged transfer.

1. A forged transfer is a nullity.

2. Buyer: • Does not get any title. • The Co. shall be liable to compensate

3. Restoration of name: • True owner name restored. • Can claim any dividend • On such request the Co. is bound to accept.

4. Transferee: Liable to indemnify the Co.

Transfer and transmission of shares.

1. Meaning: • By voluntary act of parties- ‘transfer of shares’. • By operation of la- transmission.

2. • Death of S.H. • Adjudicated insolvent, • Shareholder is the Co. and that Co. goes into liquidation, • Amalgamation, • Member becomes mentally ill (lunatic) • Minor becomes major.

3. Transfer deed and payment of stamp duty- not required.




PAGE 110

4. Evidence: Transmission will be done on the basis of evidence showing the entitlement of the transferee.

5. Transferee has right to sell.

Certification of transfer.

1. Procedure - Sec.112:

• Where a shareholder sells only part of his shares

• The share certificate is not handed over to the buyer along with the transfer deed.

• The Co. retains the share certificate, endorses the instrument with the words ‘certificate lodged’ and return it to the transferor.

• Then the transferor sends the certified transfer deed to the transferee

• The Co. cancels the original share certificate and in its place issues two new certificates

2. No obligation to certify any transfer deed.

3. Liability for returning: If the CO. negligently returns - liable to the transferee.

4. Liable for certification

Nomination facility in respect of shares.

Meaning: Nomination is the process of assigning or identifying the next person to whom the Shares / Debentures held by a person will vest in the event of his death.

Sec.109A:

1. Any shareholder or debenture holder, at any time, can nominate.

2. In case of joint holders, they may together, at any time nominate a person

3. Where a nomination is made, the nominee shall,


PAGE 111

• on the death of the shareholder or debenture holder or

• on the death of the joint holders automatically become entitled to such shares or debentures.

4. Where the nominee is a minor-the holder make a nomination to appoint a person to become entitled to shares.

Nomination facility in case of Transmission of Shares.

1. Eligible Nominators:

Who can appoint Nominee?

Who cannot appoint Nominee?

Individuals holding Shares Non individuals

2. Appointment of Nominee:

Eligible to be Nominee Not eligible to be Nominee

a. Any person including a Minor

b. Non-Resident Indian

Non-Individuals

3. Legal status: Nomination holds good against any Legal Successor.

4. Nomination Form: Nomination Form should be filed in duplicate - who will return one copy thereof to the share / Debenture / Deposit holder.

5. Process upon Death of the Share holder / Debenture holder [Sec.109B]

Activity Description

Option by Nominee

On production of evidence Nominee should either: a. Register himself as Holder b. Transfer

Notice If the Nominee opts to hold- should send a Notice in writing to the CO.


PAGE 112

Death Certificate

Notice should be accompanied by Death Certificate

Option by the CO.

a. Notice by Board: At any time, the Board can give Notice to the Nominee

b. Non - Compliance to Notice: If the Nominee does not exercise his option within 90 days, Board can withhold payment.

6. Rights of Nominee:

• Right as to Dividends

• No Voting Rights: unless he is registered as a member.

NOTES

________________________________________________________

________________________________________________________

________________________________________________________

________________________________________________________

________________________________________________________

________________________________________________________

________________________________________________________

________________________________________________________

________________________________________________________

________________________________________________________

________________________________________________________

________________________________________________________


PAGE 113

14. DEBENTURES

Debenture, Debenture certificate & time limit for its issue.

1. Debenture: Debenture includes

• debentures stock,

• bonds and

• any other securities of a company whether constituting a charge on the assets of the company or not.

2. Debenture certificate: Acknowledgement of indebtedness

3. Common seal

4. Certificate:

• In case of allotment - Within 3 months and

• In case of application for transfer - Within 2 months.

Extension: up to 9 months.

5. Penalty: upto Rs.5,000 per each day of default.

Differences between FCD & PCD.

Difference FCD PCD

Classified as - for debt equity ratio

equity Convertible portion- equity, Non-convertible portion- debt.

Favorable D/E ratio

Highly favourable. Favourable

Capital base High equity capital Relatively low equity

Suitability Without established track record.

With established record.

Servicing of equity

High burden Relatively less burden


PAGE 114

DRR Not required. To be created for 50% of the face value

Buy back arrangement

Not required. Required

Redemption of debentures.

Meaning: Repayment of debentures

Remedies for non payment:

1. Unsecured Debenture holders:

• Sue for recovery of principal and interest.

• Petition for compulsory winding up

• If the winding up is already in progress-unsecured creditors.

2. Secured Debenture holder::

• Sue for recovery of principal and interest by sale of security.

• Petition for compulsory winding up

• If the winding up is already in progress- secured creditors.

• May appoint a receiver.

• May have property sold by trustee.

Powers to reissue the redeemed debentures.

1. When possible:

• AOA Or conditions of issue or

• Not shown an intention to cancel.

2. Object: Formalities for issue need not be followed

3. Stamp duty is payable.

4. Similar rights.

5. The terms & conditions of reissue must be similar.


PAGE 115

Meaning and importance of the ‘Pari Passu’ clause in a debenture.

• Meaning: All the debentures of a particular class will receive the money proportionately in case the company is unable to discharge the whole debts.

• New issue: Cannot issue a new series of debentures so as to rank “Pari Passu”.

• ROC: Particulars are to be filed with the ROC within 30 days

Appointment & duties of debenture trustees.

1. Issue prospectus: A Co. shall not issue a prospectus for issue of debentures, unless the Co. before such issue, appointed one or more debenture trustees

2. Can be appointed for more than five years at a time.

3. Functions of debenture trustee(s):

a. Primary: To protect the interest of debenture holders

b. Secondary:

• To satisfy himself that the prospectus does not contain misstatement.

• To ensure that the Co. does not commit any breach

• To take steps on breach of trust deed.

• To call a meeting of debenture holders when required.

• In case of insufficiency to discharge the liability, the debenture trustee may file a petition before the NCLT

4. A person cannot be appointed as a trustee if:

• He beneficially holds shares.

• If a person is lender or creditor

• He has given guarantee for repayment of principal debts


PAGE 116

Provisions relating to duty to create security and debenture redemption reserve.

Sec.117C :

• Create: Every company shall create a debenture redemption reserve out of its profits every year until such debentures are redeemed.

• No profits: No obligation.

• Only to Non convertible portion:

• Utilisation: Shall be utilised by the company for the above purpose only.

Note: Fails to pay interest or principal, directors disqualified for a period of 5 years from date of default.

NOTES

________________________________________________________

________________________________________________________

________________________________________________________

________________________________________________________

________________________________________________________

________________________________________________________

________________________________________________________

________________________________________________________

________________________________________________________

________________________________________________________


PAGE 117

15. CHARGE

Charge & its types.

Meaning: as 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.

The term charge generally means making available property as a security for the payment of a debt.

• Fixed / Specific Charge: A charge is fixed specifically to cover assets

• Floating Charge: It is a charge on a class of assets-changing from time to time.

Features of floating charge.

Characteristics: • It is on a class of assets, but not simply on assets • Change from time to time. • Continue to deal with the assets charged • Possession is not given to creditors.

A floating charge crystallizes:• Liquidation. • Ceases to carry on the business. • Creditors taken steps to enforce the security • On happening of event specified.

Differences between fixed charge & floating charge.

Fixed Charge Floating Charge

On specific assets. No specific assets.




PAGE 118

Cannot deal with the assets Free to deal with the assets

Registration is not compulsory.

Registration is compulsory by law.

Have priority over floating charge

No such priority.

Types of charges to be registered with the ROC

• A fixed charge on any immovable property.

• A floating charge on the undertaking or any property of the Co. including stock in trade.

• A charge for the purpose of securing any issue of debentures.

• A charge on uncalled share capital of the Co..

• A charge on calls made but not paid.

• A charge on the book debts of the Co.. (Usually, this is a floating charge)

• A charge on Goodwill, Patent, License.

• A charge created outside India comprising property situated outside India.

• A charge created in India comprising property situated outside India.

• Purchase of a property in India but already subject to charge.

• Purchase of a property situated abroad but already subject to charge.

• Co. should file the details about charge with the ROC

• An unsecured debenture does not require any registration.

Consequences of non registration of a 'charge'.

1. The charge is void:

2. The money borrowed becomes immediately payable:

3. No right of lien on title documents:


PAGE 119

4. Penalties:

a. If a company makes any default with respect to the registration of charges then penalty shall be levied, ranging from 1 lakh to 10 lakhs.

b. Every defaulting officer is punishable with imprisonment for a term not exceeding 6 months or fine which shall not be less than 25,000 rupees, but not exceeding 1 lakh rupees or both.

Provisions with regard to the condonation of registration of charge.

1. First remedy - ROC:

• The ROC may allow - filed within 30 days following the expiry of 30 days,

• On payment of such additional fee not exceeding 10 times the amount specified in schedule X

• If the co. satisfies the Registrar that it had sufficient cause

2. Second remedy - NCLT:

• May apply to the NCLT for extension of time.

• Before passing any order the NCLT must be satisfied, that the non registration was accidental or due to some other sufficient cause.

Modification of a charge.

Meaning of Modification: The term ‘modification’ includes variation of any terms of the agreement including variation of rate of interest which may be by mutual agreement or by operation of law.

• Variation of terms & conditions.

• Enhancing or decreasing the limits.

• Change in rate of interest.

• Change in repayment schedule of loan.


PAGE 120

• Partial release of the charge.

• When rights of a charge holder are assigned to a third party.

Satisfaction of charge.

• Co. to intimate the ROC of payment in within 30 days from the date of such payment or satisfaction.

• To pay fees as prescribed in Schedule X.

• On receipt of intimation, the ROC shall issue a notice to the charge holder to show cause.

• If no objection is received, the Registrar will make an entry.

• Registrar is also authorised to record satisfaction of Charge on evidence being given to him

• Registrar will furnish the co. with a copy of memorandum of satisfaction of charge.

Register of charges? (Sec.143)

1. Shall: Every co. shall: • Keep at its registered office • A register of charges and • Enter all fixed and floating charges.

2. Contents: • Description of the property charged. • Amount of the charges. • Names of the persons entitled to charges.

3. Penalty: In case of default - Fine up to 5000.

4. Rights of inspection:

a. During business hours:

• Inspection by any creditor/member is allowed without charging any fee.

• Is permitted to an outsider on payment of a fee of one rupee for each inspection.




PAGE 121

b. On an application being made, NCLT may also compel an inspection of the register.

a) Second Charge b) Pari passu.

• Second Charge: The amount realised will be first used to clear first charge holder. If any amount is left, it will be paid to second charge holder.

• Pari Passu: Amount realised is proportionately distributed to first and second charge holders.

Procedure as to registration of charges.

1. Documents:

• Form 8 and 13 duly signed by the Borrower and Lender. • Deed creating evidence as to Charge. • Fees as per Schedule X.

2. Time Limit:

• Should be registered within 30 days after the date of its creation.

• Additional 30 days may be granted on payment of additional fees 3. Property acquired subject to Charge [Sec.127]:

Nature of Property Time Limit Property situated in India.

Within 30 days -acquisition is completed.

Property situated outside India.

Within 30 days -have been received in India.

4. Register of Charges kept by ROC [Sec.130/131] 5. Certificate of Registration [Sec.132]: The ROC shall give a

Certificate under his hand.

6. Effect of Registration [Sec.126]: Shall be deemed to have notice of the charge, as from the date of such registration.


PAGE 122

7. Endorsement of Debenture Certificate [Sec.133]: A copy of the Certificate of Registration of Charges shall be endorsed.

8. Copy of Instrument [Sec.136]: In case of a series of uniform

Debentures, a copy of one Debenture of that series shall be kept. 9. Appointment of Receiver or Manager {Sec.137]:

• If a person obtains an order for the appointment of a Receiver -a notice shall be given to the ROC, within 30 days of such order / appointment.

• The fact of appointment / cessation shall be noted in the Register of Charges maintained by the ROC.

• Non – compliance- fine upto Rs.5,000 per each day of default. 10. Co.’s Register of Charges [Sec.143]: Every Co. shall keep at

its Registered Office, a Register of Charges and enter therein all charges specifically affecting property of the Co. and all floating charges on the undertaking or on any property of the Co.

11. Special Provisions as to Foreign Charges:

Nature of Charge Special Provision Charge created outside India, on property situated

outside India

Such charge may be registered within 30 days after -have been received in India.

Charge created in India, on property situated outside

India

The Instrument creating Charge U/s.125 may be filed with ROC, even if further proceedings are required to make the Charge valid

NOTES

________________________________________________________

________________________________________________________


PAGE 123

16. GENERAL MEETINGS

Meeting and its classification.

Meeting: Meeting is a means of action for the purpose of taking a decision

Others:

1. Meeting of debenture holders

2. Meetings of creditors and contributories in winding up.

3. Meetings of creditors otherwise than in winding up.

4. Meeting of directors:

a. Board meeting.

b. Committee meeting.

Statutory Meeting

(Sec 165)

Annual General Meeting

EGM

Called by Company (Sec 166)

Called by C.G.

(Sec 167)

Called by Company

Called by NCLT (Sec 186)

Called by Members (Sec 169)

Types of Meetings




PAGE 124

The requirements for the conduct of valid general meetings

The essentials of a valid meeting are that the meeting should be:

Properly convened: a. Must be called by a proper authority: and b. Proper notice must be served

Properly constituted: a. Proper quorum must be present b. Proper chairman must preside the meeting

Properly conducted: a. The business must be validly transacted b. Proper minutes must be prepared.

Provisions relating to "statutory meeting".

Statutory meeting is the first meeting of the members of a public limited company having share capital and is held only once during the life time of the company. Purpose: To discuss matters arising out of the promotion. Who are required to hold

• Every Co. limited by shares.

• Every Co. limited by guarantee + having share capital. Who are not required to hold

• A private co.

• A Govt. co.

• Not having Share Capital.

• Unlimited Public Co.

• Limited by guarantee and not having share capital.




PAGE 125

Time limit: After the expiry of 1 month but before expiry of 6 months from the date on which the company is entitled to commence business. Period and contents of Notice:

• 21 clear days notice

• Shall specify it as Statutory Meeting.

• It must state place, date and time of the meeting.

• Explanatory statement should be added for each item, since each item is a special business.

Statutory Report: At least 21 days before the meeting. The report can be sent later, provided all the members have agreed for such. Features of Statutory Report:

• Number of shares allotted.

• Total cash received.

• Extent of non-carrying of underwriting contract.

• The arrears due on calls.

• Details of commission / brokerage paid

• A receipts & payments prepared up to the date of 7 days before the date of report.

• The names, addresses and occupations of the directors & auditors, manager and secretary (Present & past).

• Details of any contract. Certification:

• At least 2 directors-one should be the M.D.

• The auditor should also certify in the areas relating to cash.

• Send copy to Registrar

• Meeting can be adjourned

• Shareholders list should be kept




PAGE 126

Consequences of not holding SGM:

• Director and Officer of the co. in default- fine upto rupees 5,000.

• May be wound up under Section 433(b) by an order of the Court.

Provisions relating to AGM.

Sec.166:

• Every company must hold an ‘Annual General Meeting”.

Time limit for first AGM: If it is the First Annual General Meeting, It must be held within

(i) 18 months from the date of incorporation of the company.

(ii) 9 months of close of financial year (Section 210(3)). Whichever is earlier.

Time limit for second and subsequent AGM: If it is the Second and Subsequent Annual General Meeting

(i) It must be held in each calendar year. (Sec.166(1))

(ii) It must be held within 15 months of date of previous AGM. (Sec.166(1))

(iii) It must be held within 6 months of the end of the financial year. (Sec. 210(3))

• Extension:

� ROC can extend -3 months except for First AGM.

� Application for extension is made only before the expiry of the period given in 166(1).

When and where:

• During business hours

• Not on public holiday (*) - Sec.25 companies exempted.

• Only at Registered office.

• Two AGM’s-on the same day- provided separate notices.




PAGE 127

Subsequent Public holiday: No affect Annual Return: File within 60 days from the day on which each of the AGM with the Registrar. Fixation of place and/or time:

• Public co. or private co. subsidiary of public - by its AOA/ by a Resolution passed in one AGM.

• Private co. - By passing a unanimous resolution. Failure - Consequences & Penalties:

• For 166: Fine up to 50,000 + in the case of a continuing default fine up to 2,500 for every day.

• For 210: Imprisonment for a term up to 6 months or with fine up to 10,000 or with both.

• Sec.167 - Power of C.G.:

� On the application of any member, the C.G. is empowered, if the directors fail, to direct to convene the AGM.

� Can give such direction like one man meeting.

� Will prevail notwithstanding anything in the act or in the AOA.

Decided Cases

• Situation when Accounts are not ready - Holding of AGM:

� Not A sufficient ground

� Suggested that convene AGM and then adjourn.

� Even adjourned should be within time specified.

• Validity of a AGM held beyond the time fixed by the Companies Act:

� Cannot be void because there should be AGM

� Imposes only penalty and AGM is still valid.

• If BOD=members, then board meeting=AGM


PAGE 128

Types of Business which may be transacted at an AGM.

There are two kinds of business - Ordinary and Special. 1. At an AGM all business shall be deemed to be Special, except

the following (i.e. a to c below are ordinary business):

a. consideration of financial statements

b. Declaration of any dividend.

c. the appointment of directors in place of those retiring;

d. the appointment of, and the fixing of the remuneration of, the auditors.

In the case of any other meeting all businesses shall be deemed to be special.

Where any item of business which is to be considered at the meeting, the time and place where such document can be inspected shall be specified in the statement.

2. In case of non- disclosure or insufficient disclosure in any

statement made by

a. the promoter,

b. director,

c. manager or

d. other key managerial personnel

e. which results into any benefit for themselves or their relatives, shall have to be compensated.

f. Penal provision has been provided for any default in compliance.




PAGE 129

Provisions relating to EGM.

• Meaning: Meeting other than a SGM or AGM.

• Each and every business- special business

• Notice should specify that it is an EGM.

• An Explanatory Statement should be attached

• Subject to AOA - can be held at any time, place and day.

• No restriction on number of EGM’s in a year. EGM can be held / Called by:

I. BY BOD

A. On its own can convene

1. The directors’ power to call general meeting including extraordinary general meeting must, like their other powers.

2. It is not open to some of the directors to convene a general meeting of their own motion.

AGM Other Meeting

Every business other than ordinary Business is Special

All business is Special

Special Business




PAGE 130

B. On requisition of members:

1. Other points;

• Any call money is due - excluded in counting 1/10th.

• Preference shareholders can join- if their dividends are in arrears for specified period

• Subsequent changes will not invalidate the requisition.

• If >1 matter - each should satisfy the conditions.

• Even 1 member holding the requisite shareholding is entitled to request.

2. Compliance of requisition: The BOD must proceed within 21 days of the deposit - convene a meeting within 45 days of such deposit.

Extraordinary meeting by the requisitionists themselves U/s 169(6) and Tribunal U/s 186.

1. If the Board of Directors did not proceed to convene a meeting

on request, then requisitionists themselves hold such meeting. .

2. Who can call

• Co. having a share capital - Majority in value of the paid up capital Or not less than 1/10th of the paid up share capital having the right of voting whichever is less Or

Company having share capital

Company not having share capital

Member holding 1/10th of paid up share capital of the company

and having a right to vote

Member holding 1/10th of voting power

Number of members entitled to Requisition


PAGE 131

• Not having a share capital - Not less than 1/10th of the total voting power

3. Meeting must be held before expiry of 3 months from the date of deposit of requisition.

III. BY THE TRIBUNAL (SEC. 186)

Either on its own motion or on the application of any director or any member:

• Conduct in such a manner at its discretion.

• May direct for the modification of the provisions of the Act or AOA

• Give such directions including the direction that even one member will constitute a meeting.

Judicial Pronouncements

• Not necessary for the requisitionist to disclose reasons (LIC V. ESCORTS LIMITED).

• Directions not followed: A meeting which is not conducted in accordance with the directions of the TRIBUNAL is not a valid meeting & any business conducted is invalid.

The powers of the Tribunal while ordering a EGM to be called

Powers of company law board/tribunal:

1. Not ordinarily interfere with the domestic management of a company

To Call for To hold EGM Requisitionists

themselves

21 Days

45 Days

3 Months

Date of deposit of requisition with the company


PAGE 132

2. The discretion should be used sparingly with caution

3. The Tribunal should take a common sense view

4. The Tribunal should ordinarily keep itself far from participating in quarrels of rival groups of directors or shareholders.

5. Before the CLB/Tribunal exercise its discretion under Section 186, the CLB/Tribunal must be satisfied

Statutory provisions as regards notice for calling general meeting

Notice – Sec.172

Need: Unless all are duly served with the notice-decisions taken in meeting is not a valid. Authority-BOD. Who are entitled to receive? • To every member. • Persons entitled to hold shares-death or insolvency of a member. • Auditors. Should it be sent to Preference Shareholder's also?: yes Length of notice:

• 21 Clear days.

• Sec.25 companies - 14 clear days notice.

• Articles can provide for a larger but not shorter. A private company, which is not, a subsidiary of a public company may prescribe, by its Articles, persons to whom the notice should be given. Can a meeting be called by giving shorter notice?: Yes, if:

• In an AGM: Consent of all the members.

• Any other meeting: Consent of not less than 95% of the paid-up capital carrying voting rights.


PAGE 133

When consent to be obtained: Before or at or even subsequent to the meeting. Other Notes:

• Need not be given to members residents abroad.

• Co.'s responsibility ceases with of service of notice

• Accidental omission will not invalidate.

• A deliberate omission to give notice to even a single member shall invalidate the proceedings at the meeting.

• If member refuses -then also valid. Contents:

• Place, date and time.

• Agenda

• Explanatory Statement

• Intention to propose the resolution as a Special Resolution.

• Entitled to appoint a proxy and the proxy need not be a member. Is notice necessary for adjourned meeting? Yes, in the below cases:

• Adjourned sine die.

• Where a fresh business have to be considered

• Adjourned for 30 days Or more

Meaning and significance of “Explanatory statement” in GM’s

Explanatory statement - Sec.173:

• Explanatory Statement should be attached in case of special business

• Object: To enable members to take a decision.

• Contents of Explanatory Statement:

� Material facts.




PAGE 134

Following are the material facts-

a. the nature of concern or interest, financial or otherwise, if any, in respect of each items of—

• every director and the manager, if any;

• every other key managerial personnel; and

• relatives of the persons mentioned in point (i) and (ii).

b. any other information and facts that may enable members to understand the

� meaning, scope and implications of the items of business and to take decision thereon.

where any item of special business to be transacted at a meeting of the company, relates to or affects any other company, the extent of shareholding interest in that other company of

a. every promoter,

b. director,

c. manager, if any,

d. and of every other key managerial personnel

of the first mentioned company shall, if the extent of such shareholding is not less than two per cent of the paid-up share capital of that company, also be set out in the statement.

� If transaction relates to other co., then the shareholdings interest in that other co.

Quorum

Quorum – Sec. 103 of the Companies Act, 2013

Meaning: Minimum no. of members present at a meeting. In the case of a public company


PAGE 135

Quorum for the meeting Number of members as on date of a Meeting

5 members personally present not more than one thousand

15 members personally present more than one thousand but up to five thousand

30 members personally present exceeds five thousand

• Private co. - 2 members personally present.

• Personally present excludes proxies. PSH’s: only when the business affecting them. Representatives:

• A representative of a body corporate-member & counted

• Representative of a President or Governor of the State -counted

• Present in more than one capacity -counted as ‘two’. Absence of quorum: Proceedings of the meeting- void. When quorum should be present: Present at the commencement of meeting. Consequences of no quorum: If the quorum is not present within half-an-hour from the time appointed for holding a meeting of the company- a. the meeting shall stand adjourned to the same day in the next

week at the same time and place, or

b. to such other date and such other time and place as the Board may determine; or

c. the meeting, if called by requisitionists- shall stand cancelled. Notice of an adjourned meeting: the company shall give at least 3 days notice to the members either individually or by publishing an advertisement in the newspapers. No quorum in an adjourned meeting: within ½ an hour from the time fixed for meeting, then the members present shall be a quorumun.


PAGE 136

Circumstances under which one member can constitute a quorum:

• Class meeting or debenture-holder’s meeting

• Central government direction-sec.167

• Sec.186- TRIBUNAL can call a EGM

• Present in more than one capacity When quorum is immaterial: If all the members are present. General Circular No. 27/2011 dated 20th May, 2011: According to the circular a shareholder of the company may participate in a general meeting under the provisions of the Companies Act, 1956 through electronic mode. For this purpose, the company shall also comply with the following requirements:

a. Electronic mode means video conference facility

b. The notice of the meeting must inform shareholders regarding availability of participation through video conference.

c. The Chairman of the meeting and Secretary shall assume the following responsibilities:

• Safeguard the integrity of the meeting via videoconferencing.

• Ensure proper videoconference equipment/facilities.

• Prepare the minutes of the meeting.

• Ensure that no one other than the concerned shareholder or proxy to the shareholder is attending the meeting through electronic mode.

It is recommended that these places would be situated all over India in such a way that it covers top five States/Union Territories based on maximum number of members or at least 1000 members, whichever is more.


PAGE 137

Statutory provisions as regards to voting in a general meeting

Voting

Voting rights –means the right of a member of a company to vote in any meeting of the company or by means of postal ballot.

• Whose name appear in the Register- entitled to vote.

• A representative of a body corporate - can vote.

• A representative of President/Governor t- can vote.

• In the case of joint holders-first named person can vote

• Minor can exercise the voting tights.

• Casting vote (C.V.): � Can be cast by Chairman only in case of equality of votes.

� Exercised at the show of hands or on a poll.

� May even decide not to use.

� Need not cast in the same way in which he voted originaliy.

• no member shall exercise any voting right in respect of any shares registered in his name on which any calls or other sums presently payable by him have not been paid, or on which company has exercised any right of lien.

• A company shall not, prohibit any member from exercising his voting right on any other ground except on the grounds as specified above,

Statutory provisions as regards voting by poll in a general meeting

Poll – Sec. 179

1. Demand?:

• Can be demanded before or after the proposal

• Can be demanded even after the declaration of the result.

• Chairman on his own motion may order a poll.


PAGE 138

2. Time limit :

• For election of the Chairman or adjournment of meeting -taken forthwith.

• On any other question-by the Chairman within 48 hours

3. Who can demand?

• Public co. with share capital: Holding not be less than 1/10th of total voting power or not less than Rs. 50,000 has been paid up.

• Private Co. with share capital

• Members personally present is not more than seven-By a single member having right to vote.

• Members personally present is more than seven-By two members having right to vote

• Public or private without share capital: Not less than 1/10th

of the total voting power.

Statutory provisions as regards voting by poll in a general meeting

Proxies – Sec. 105 of Companies Act, 2013 Read With Regulations

58 To 63 of Table A

Only if permitted by AOA.

Who is entitled to appoint?

• Any member entitled to attend & vote, However the CG may prescribe a class or classes of companies whose members shall not be entitled to appoint another person as a proxy. and

• Any person who represents a body corporate or president / governor. The proxy need not be a member.

Note: A person appointed as proxy shall act on behalf of such member or number of members not exceeding fifty and such number of shares as may be prescribed.


PAGE 139

Signed:

• By the appointer or his attorney.

• If the appointer is a body corporate- under the seal of the co. & be signed by an authorised officer.

• JSH: Unless AOA otherwise prescribes-all must sign.

Depositing of Proxy: To be deposited with the Co. 48 hours before the meeting.

Can a proxy be appointed before adjourned meeting:

• If AOA permits-can appoint

• In case of public company limited by shares if its articles are silent even just before meeting

• Where articles prohibit as such, then proxies cannot be lodged before adjourned meeting.

Lodging of proxy at or before taking up poll: • Public company – Yes, if articles are silent. • other companies – No, if articles are silent.

Stamped: Must be duly stamped.

The proxies lodged for the original meeting - valid for the adjourned meeting.

A proxy can: Attend meeting, demand a poll, vote only on a poll.

Proxies cannot: Be counted for the purpose of quorum. Sunday is included in computation of 48 hours.

Invalid: Two proxies by the same member on the same date- invalid.

INSPECTION OF PROXY FORMS: Every member entitled to vote at a meeting of the company, or on any resolution to be moved thereat, shall be entitled during the period beginning twenty-four hours before the time fixed for the commencement of the meeting and ending with the conclusion of the meeting, to inspect the proxies lodged, at any time during the business hours of the company, provided not less than three days’ notice in writing of the intention so to inspect is given to the company.


PAGE 140

Minutes

Minutes – Sec.193

• Official recording of the proceedings of meeting.

• Recorded within 30 days.

• Shall be maintained at registered office

• Pages consecutively numbered.

• No attachment shall be made.

• Inclusion or Non inclusion powers: Chairman has the power

• Loose leaf and Binding:

��Must be a bound book and must be hand-written

Can be maintained in loose sheets, provided the co. takes appropriate safeguards

�Loose-leaf minutes to be bound into books at regular intervals of six months.

• Signing:

��Signed by the chairman if - (i) Same meeting, or (ii) next succeeding meeting.

Last page of the record of proceedings of each meeting in the minutes book should be dated and signed

• Sec.25 Co.’s: -applicable

• Signed by whom: Each page of the minute book and the last page shall be dated and signed by the Chairman

• Penalty: Fine upto Rs.500 for the co. and every officer of the co. in default.




PAGE 141

Provisions relating to postal ballot (Sec.192A)

Meaning of Postal Ballot: “Postal Ballot” includes voting by share holders by postal or electronic mode instead of voting personally by presenting for transacting businesses in a general meeting of the company.

1. When?: A listed Public Co., may and in the case of notified resolutions by the Central Government shall, get such resolution passed by means of a postal ballot, instead of transacting the business in general meeting of the Co..

2. Applicability: Only for listed public companies-only in respect of notified

3. List of businesses

• Alteration in the object clause of MOA.

• Alteration of AOA in relation to sec.3(1)(iii)

• Buy-back of own shares.

• Change in place of registered office from one city, town or village to another city etc.

• Variation in the rights.

4. Procedure:

• Shall send a notice to the shareholders-draft resolution-within a period of 30 days.

• Registered post acknowledgement due

• Received after due date-ignored.

• The BOD shall appoint one scrutinizer

5. Effect: Deemed to have been duly passed at a general meeting.

6. Penalty:

• Non-Compliance: Fine upto Rs.50,000 .

• Destruction of Ballot Paper: Punishable with imprisonment upto 6 months and/or fine.


PAGE 142

Ordinary and special resolution.

Meaning: Resolution is a formal proposal put to the meeting for approval.

Basically there are 2 kinds of resolutions, ordinary and special.

Ordinary resolution: A resolution is said to be an ordinary resolution when the notice of general meeting required under the Act has been duly given, the votes cast in favour of the resolution including the casting vote if any, exceed the votes cast against the resolution.

Special resolution: A resolution is said to be special when the notice of general meeting required under the Act has been duly given, the votes cast in favour of the resolution, are not less than 3 times the number of the votes cast against the resolution by the members so entitled and voting.

Write a note on Circulation of Members Resolution (Sec.188)

1. Notice to members- a company shall, on requisition in writing of such number of members, as required in section 100 of Companies Act, 2013 (Calling of EGM)-

a. give notice to members of any resolution which may properly be moved and is intended to be moved at a meeting; and

b. circulate to members any statement with respect to the matters referred to in proposed resolution or business to be dealt with at that meeting.

2. Requisite number of members:

a. In case of company having share capital, members having atleast10% of the paid-up share capital of the company and having a right to vote at the date of deposit of requisition, on the matter to be discussed or


PAGE 143

b. In case of Company having no share capital, members having atleast 10% of the voting power of all members having a right to vote at the date of deposit of the requisition, on the matter to be discussed.

3. Exemption from serving notice- A company shall not be bound under this section to give notice of any resolution or to circulate any statement, unless—

a. a copy of the requisition signed by the requisitionists (or two or more copies which,between them, contain the signatures of all the requisitionists) is deposited at the registered office of the company,—

• in the case of a requisition requiring notice of a resolution, not less than six weeks before the meeting;

• in the case of any other requisition, not less than two weeks before the meeting; and

b. there is deposited or tendered with the requisition, a sum reasonably sufficient to meet the company‘s expenses in giving effect thereto.

Note: Where however, after a copy of a requisition requiring notice of a resolution has been deposited at the registered office of the company, an AGM is called on a date within six weeks after the copy has been deposited, the copy, although not deposited within the time required by this sub-section, shall be deemed to have been properly deposited for the purposes thereof.

4. Exception from circulation of any statement: The company shall not be bound to circulate any statement, if on the application either of the company or of any other person who claims to be aggrieved, then the Central Government, by order, declares that the rights conferred are being abused to secure needless publicity for defamatory matter.

5. DefauIt in contravention of the provision: the company and every officer of the company who is in default shall be liable to a penalty of 25,000 rupees.


PAGE 144

Resolutions requiring Special notice [Sec.190]

Meaning: For certain purposes, the Act require a special notice, i.e., 14 days notice, to be received by the company from a shareholder of his intention to move the resolution such notice is called special notice.

The notice shall be sent to members at least 7 days before the GM.

What resolutions require special notice?

a. A resolution providing expressly that the retiring auditor shall not be reappointed (Sec 225).

b. A resolution appointing a person, other then the retiring auditor, as an auditor of the company (Sec 225).

c. A resolution for removing a director before the expiry of his term of office (Sec 284).

d. A resolution for appointing another director at the meeting at which the director is removed (Sec 284).

The beneficial owner and the registered holder - in case of benami share holding.

• 1st Declaration: Registered holder shall make a declaration -specifying the name and other particulars of beneficial owner within 30 days.

• 2nd Declaration: Beneficial owner shall, within 30 days, make a declaration - specifying the particulars of registered holder.

• Change: within 30 days from such change, make a declaration to the Co.

• Co.’s duty: Shall make a note and shall file within 30 days to the ROC. Pay the dividend to the registered share holder.


PAGE 145

17. MISCELLANEOUS MATTERS IN COMPANY LAW

Illegal association

Definition:

• more than 10 persons carrying on the business of banking Or

• more than 20 persons carrying on any other type of business

Conditions of illegality:

• More than the number prescribed as above.

• For the purpose of carrying on a business.

• Must be to acquire profit for itself or for its members.

• Must not have been registered under the Companies Act.

Exception:

• HUF

• Stock Exchange

• Non- profit Earning Associations

Consequences:

• Not recognised by law and has no legal existence.

• It cannot be wound up under the Companies Act

• Every member shall be personably liable.

• Punishable if carry on business under any name or title of which ‘limited’ is the last word

• Every member - Punishable with fine which may extend to 10000.




PAGE 146

a. Forms of contracts (sec 46) b. Drawing of bills of exchange and promosary notes by the

company(sec 47) C. Authentication of documents (sec 54)

Forms of contracts [Sec 46]: The following contracts shall bind the company-

a. Made on behalf of the company by any person acting under his authority.

b. Contracts, which though oral are valid.

Execution of bills of exchange, deeds etc: Section 22 of the Companies Act, 2013 It says that-

A bill of exchange, hundi or promissory note shall be deemed to have been made, accepted,drawn or endorsed on behalf of a company if made,

a. accepted, drawn, or endorsed in the name of, or on behalf of or on account of the company,

b. by any person acting under its authority, express or implied.

A company may, by writing under its common seal, authorise any person, either generally or in respect of any specified matters, as its attorney to execute other deeds on its behalf in any place either in or outside India.

A deed signed by such an attorney on behalf of the company and under his seal shall bind the company and have the effect as if it were made under its common seal.

Authentication of documents, proceedings and contracts: document or proceeding requiring authentication by a company or contracts made by or on behalf of a company may be signed by –

a. any key managerial personnel, or

b. an officer of the company duly authorised by the Board in this behalf.


PAGE 147

Circumstances under which a co. can hold the investments in the name of others.

• General rule- all investments must be in its own name.

• Exceptions:

��Qualification Shares

Subsidiary Co.

Invest. Co.

��Loan/Guarantee

Deposit shares etc.

• The following details must be entered in the register, for this type of investments:

��The nature of share.

Value of share.

��Other particulars that may be necessary.

The bank or person in whose name or custody, the shares or securities are held.

• Inspection

Provisions relating to the service of documents on a company.

1. On Company - Sec.51: At registered office by post

2. On Registrar - Sec.52: on ROC by post under a certificate of posting

3. On Members of Company - Sec.53:

a. Notices/Documents may be served: Either personally or by post

b. Where a document is sent by post: �deemed to be effected by properly posting.

�If the member has intimated to the Company in advance




PAGE 148

c. Time limit: ��Notice of a meeting - After 48 hours from the time of posting.

In any other case -at the time at which the document would be delivered.

4. Newspaper advertisement.

5. Notice to Joint holder.

Relative – Definition

Relative: with reference to any person, means any one who is related to another, if—

a. they are members of a Hindu Undivided Family;

b. they are husband and wife; or

c. one person is related to the other in such manner as may be prescribed

The detailed list of relatives would be provided under the Rules to the Act.

Provisions relating to dividend & dividend rules.

Meaning of dividend: Dividend means the portion of the profits of the company which is distributed to the shareholders.

1. No dividend shall be declared or paid for any financial year except: • Out of profits of the current year Or • Out of moneys provided by the Central/State Government.

2. No dep. No dividends.

3. If a Co. has incurred loss in any previous financial year(s), the amount of the loss or an amount equal to the depreciation provided in that year(s) whichever is less shall be set off.

4. Sec. 205 (2A) - T/s of profits to reserves: No dividend shall be declared by a company out of its profits for the current year without transferring to the reserves such a percentage.


PAGE 149

5. Transfer to reserves exceeding 10% - conditions:

• Minimum rate: Equal to the average rate of dividend for the immediately preceding 3 years.

• Minimum amount: Equal to the average amount of dividend declared over the 3 years immediately preceding the financial years is to be maintained.

6. Declaration of Dividend out of Reserves, Rules 1975:

• The rate of dividend declared shall not exceed the average of the last 5 years preceding the current year or 10% of its paid-up capital, whichever is less.

• The total amount to be drawn from reserves shall not exceed an amount equal to 1/10th of the sum of its paid-up capital and reserves.

• The amount so drawn from general reserves shall first be utilised to set off the losses incurred in the financial year before any dividend (E.S/P.S) is declared.

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

7. Capital profits but only if:

• The capital profits are realised.

• The capital profits remain after the revaluation of all the assets and

• The distribution of dividend of such profits is permitted by the company’s Articles.

8. Recommendation & Declaration - BM & AGM:

9. Bank: The amount shall be deposited in a separate bank account within 5 days.

10.Used for payment of dividend/Interim dividend.

11.30 days: The dividends must be paid within 30 days.


PAGE 150

E – Filing.

1. What is e-Governance: To bring about simple, moral, accountable, responsive and transparent (SMART) Governance.

2. Launch of MCA-21 Programme: Ministry of Company Affairs (MCA) has launched a major E-Governance initiative (MCA-21).

3. Advantages of e-filling:

• Enable to register a company and file statutory documents quickly and easily.

• Public to get easy access to relevant records and get their grievances redressed effectively.

• Professionals to be able to offer efficient services to their client companies.

• Financial institutions to find registration and verification of charges easy.

• Government to ensure proactive and effective compliance of relevant laws and corporate governance.

• Enable employees to deliver best services.

4. Proposed unique approach:

• A new set of electronic forms of e-Forms have been evolved to suit e-Filling.

• Electronic payment mechanisms are envisaged.

• Five banks, including two private banks, with 200 branches nation-wide have been authorized to accept all MCA payments.

• Digital Signatures Certificates are mandatory

• Facilitation Centers (physical Front Offices or PFO) have been established.

• Digitization of documents including Memorandum and Articles of Association, other permanent documents, subsisting charge documents and annual statutory filing of the previous two years have been carried out for each access over the Internet.


PAGE 151

• Stamp Duty is proposed to be collected.

• Solution Architecture based approach for solution development.

• Robust and Scaleable Computing Infrastructure established for reliable 24 x 7 access.

Write about MCA – 21 / E-Governance.

Ministry of Corporate Affairs (MCA) has launched an ambitious program of introducing e-governance.

Highlights of MCA – 21 Scheme:

• Existing forms meant for physical filing have been converted into e-forms.

• Some old forms have been eliminated and combined with new form (e.g. form 29 merged with Form 32).

• Filing of forms and applications will be through Internet.

• Form can be filed online. Alternatively, these can be downloaded, filled offline and then filed.

• Pre-scrutiny is done in the portal before the form is accepted for submission.

• E-form should be digitally signed by MD/D/M/S. They will have to obtain DSC (Digital Signature Certificate).

• Documents to be attached must be in PDF format.

• Paper documents which are to be submitted will have to be scanned and attached to the forms.

• In cases where payment of stamp duty is required, original document bearing stamp duty will have to be filed in office of ROC, after e-filing is done.

• Payment of fees can be through Internet through credit card / Internet banking/ Banks.


PAGE 152

• Many forms require certification by CA /CWA/CS in practice. In some cases, Secretary in full time employment of company can certify the form.

• If a company has sufficient equipment and facilities, the documents can be filed by company Firm its office itself. This is called Virtual Office.

• Those who do not have adequate facilities can file documents through Facilitation centers.

• 'Certified Filing Centers will facilitate e-filing of documents.

• Every director will have to obtain DIN (Director's Identification Number).

• Physical filing of documents is discontinued w.e.f, 15-9-2006 and e-filing is compulsory from that date.

• Issuance of certificates find approvals will continue to remain on paper. This will be dispatched by post or courier to applicant.

Key Benefits:

• Expeditious incorporation of Companies.

• Simplified and ease of convenience in filing of Forms / Returns.

• Better compliance management.

• Total transparency through e-Governance.

• Customer-centric approach.

• Increased usage of professional certificate for ensuring authenticity and reliability of Forms / Returns.

• Building up a centralized database repository of corporate data.

• Enhanced service level fulfillment.

• Inspection of public documents of companies anytime from anywhere.

• Registrations as well as verification of charges anytime from anywhere.

• Timely redressal of investor grievances.

• Availability of more time for MCA employees for monitoring and supervision.


PAGE 153

Steps for offline e-filing

The following are the steps for e-filing:

1. Select a category to download an e-Form from the My MCA portal with or without the instruction kit.

2. At any time, you can read the related instruction kit.

3. You have to fill the downloaded e-Form.

4. You have to attach the necessary documents as attachments.

5. There is an option of Pre-fill facility in the e-form

6. The applicant shall sign the document using a digital signature.

7. You need to click the Check Form then System will check the mandatory fields.

8. You need to upload the e-Form for Pre-scrutiny.

The system will verify (pre-scrutinise) the documents. And the user will be asked to rectify the mistakes.

9. The system will calculate the fee, including late payment fees based on the due date of filing, if applicable.

10. Manner of Payment:

• Payments will have to be made through appropriate mechanisms - electronic or traditional.

• Electronic payments can be made at the Virtual Front Office (VFO) or at PFO

• If the user selects the traditional payment option, the system will generate 3 copies of pre-filled challan in the prescribed format.

11. Acceptance or rejection of any transaction will be explicitly communicated

12. MCA 21 will provide a unique transaction number, the Service Request Number (SRN).

The applicants will be provided an acknowledgement.


PAGE 154

Some important definitions as per companies Act, 201

Banking company: means a banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949.

Board of Directors or Board - in relation to a company, means the collective body of the directors of the company.

Book and paper and book or paper: “Book and paper” and “book or paper” include books of account, deeds, vouchers, writings, documents, minutes and registers maintained on paper or in electronic form.

Branch Office: in relation to a company, means any establishment described as such by the company.

Chief Executive Officer (CEO): means an officer of a company, who has been designated as such by it.

Chief Financial Officer (CFO): means a person appointed as the Chief Financial Officer of a company.

Director: means a director appointed to the Board of a company.

Document: includes summons, notice, requisition, order, declaration, form and register, whether issued, sent or kept in pursuance of this Act or under any other law for the

time being in force or otherwise, maintained on paper or in electronic form.

Employees’ Stock option: means the option given to the directors, officers or employees of a company or of its holding company or subsidiary company or companies, if any, which gives such directors, officers or employees, the benefit or right to purchase, or to subscribe for, the shares of the company at a future date at a pre-determined price. (here director includes whole time as well as part time)

Financial institution: includes a scheduled bank, and any other financial institution defined or notified under the Reserve Bank of India Act, 1934.


PAGE 155

Financial statement: in relation to a company, includes—

a. a balance sheet as at the end of the financial year;

b. a profit and loss account, or in the case of a company carrying on any activity not for profit, an income and expenditure account for the financial year;

c. cash flow statement for the financial year;

d. a statement of changes in equity, if applicable; and

e. any explanatory note annexed to, or forming part of, any document referred to in subclause (i) to sub-clause (iv): Provided that the financial statement, with respect to One Person Company, small company and dormant company, may not include the cash flow statement.

Interested director: means a director who is in any way, whether by himself or through any of

a. his relatives or

b. firm,

c. body corporate or

d. other association of individuals in which he or any of his relatives is a partner, director or a member, interested in a contract or arrangement, or proposed contract or arrangement, entered into or to be entered into by or on behalf of a company.

Key Managerial Personnel: in relation to a company, means—

a. the Chief Executive Officer or the managing director or the manager;

b. the company secretary;

c. the whole-time director;

d. the Chief Financial Officer; and

e. such other officer as may be prescribed. Listed company: means a company which has any of its securities listed on any recognised stock exchange.


PAGE 156

Officer: includes

a. any director,

b. manager or

c. key managerial personnel or

d. any person in accordance with whose directions or instructions the Board of Directors or

e. any one or more of the directors is or are accustomed to act.

Officer who is in default: for the purpose of any provision in this Act which enacts that an ‘officer of the company who is in default' shall be liable to any penalty or punishment by way of imprisonment, fine or otherwise, means any of the following officers of a company, namely:—

a. whole-time director;

b. key managerial personnel;

c. where there is no key managerial personnel, such director or directors as specified by the Board in this behalf and who has or have given his or their consent in writing to the Board to such specification, or all the directors, if no director is so specified;

d. any person who, under the immediate authority of the Board or any key managerial personnel, is charged with any responsibility including maintenance, filing or distribution of accounts or records, authorises, actively participates in, knowingly permits, or knowingly fails to take active steps to prevent, any default;

e. any person in accordance with whose advice, directions or instructions the Board of Directors of the company is accustomed to act, other than a person who gives advice to the Board in a professional capacity;

f. every director, in respect of a contravention of any of the provisions of this Act, who is aware of such contravention by virtue of the receipt by him of any proceedings of the Board or participation in such proceedings without objecting to the same, or where such contravention had taken place with his consent or connivance;


PAGE 157

g. in respect of the issue or transfer of any shares of a company, the share transfer agents, registrars and merchant bankers to the issue or transfer.

Register of companies: means the register of companies maintained by the Registrar on paper or in any electronic mode under this Act.

Registrar: means

a. a Registrar,

b. an Additional Registrar,

c. a Joint Registrar,

d. a Deputy Registrar or

e. an Assistant Registrar, having the duty of registering companies and discharging various functions under this Act.

THE END

Note: For MCQ’s in Company Law & Other Laws. Refer our Website www.gntmasterminds.com.

Date post:	25-Mar-2020
Category:	Documents
Upload:	others
View:	6 times
Download:	0 times