1: By C.S. NEERAJ MUDGAL 9910965137 Visiting Faculty ICSI www.neerajmudgal.com SUMMARY SUMMARY SUMMARY SUMMARY OF OF OF OF IMPORTANT TOPICS IMPORTANT TOPICS IMPORTANT TOPICS IMPORTANT TOPICS FOR FOR FOR FOR CA FINAL LAW CA FINAL LAW CA FINAL LAW CA FINAL LAW BY : NEERAJ MUDGAL STUDENTS ARE ADVISED TO MAKE THOUROUH ANALYSIS OF TOPICS DIRECTORS, SEBI ACT AND SEBI(ICDR)REGULATION & FEMA 1999 “WISH U HAVE GREAT KNOWLEDGE AND LUCK WISH U HAVE GREAT KNOWLEDGE AND LUCK WISH U HAVE GREAT KNOWLEDGE AND LUCK WISH U HAVE GREAT KNOWLEDGE AND LUCK”
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VVIMP Corporate Law Summary CA Final Corporate Allied Laws Specially for Nov 12 Attempt (1) Neeraj Mudgal
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SUMMARYSUMMARYSUMMARYSUMMARY OFOFOFOF IMPORTANT TOPICS IMPORTANT TOPICS IMPORTANT TOPICS IMPORTANT TOPICS
FOR FOR FOR FOR CA FINAL LAWCA FINAL LAWCA FINAL LAWCA FINAL LAW
BY : NEERAJ MUDGAL
STUDENTS ARE ADVISED TO MAKE THOUROUH ANALYSIS OF TOPICS
DIRECTORS, SEBI ACT AND SEBI(ICDR)REGULATION & FEMA 1999
““““WISH U HAVE GREAT KNOWLEDGE AND LUCKWISH U HAVE GREAT KNOWLEDGE AND LUCKWISH U HAVE GREAT KNOWLEDGE AND LUCKWISH U HAVE GREAT KNOWLEDGE AND LUCK””””
Power to put restriction on the rights of the member [ Sec. 7] a recognised stock exchange is empowered to amend rules to provide for all or any of the following matters:
(a) Restriction of voting right to members only.
(b) Regulation of voting rights by specifying that each member is entitled to one vote only irrespective of
number of shares held.
(c) Restriction on right of members to appoint proxy.
Establishment of Clearing Corporation [ sec. 8A]
A recognized stock exchange may, with the prior approval of the Securities Exchange Board of India,
transfer the duties and functions of a clearing house to a clearing corporation, being a company
incorporated under the Companies Act, 1956 for the purpose of:
(a) The periodical settlement of contracts and differences there under
(b) The delivery of, and payment for, securities;
(c) Any other matter incidental to, or connected with, such transfer
Sebi may grant the approval if it is in the interest of trade/public.
Additional Trading floor [ sec. 13A] Additional Trading Floor' means a trading ring or trading facility offered by a recognized stock exchange
outside its area of operation.
a Stock Exchange may establish additional trading floor with the prior approval of the Securities Exchange
Board of India.
Power to Suspend Trading of the STX [Sec. 12]
Central Government is vested with power to suspend business in case of emergency for a period not
exceeding 7 days by notification in Gazette. Central Government also have power to extend this period by a like
notification. However, extension can be ordered by the Central Government only after giving the ROOBH to
the Governing Body of the STX..
Corporatization and Demutualisation [ sec. 4B]
(1) All recognised stock exchanges shall, within the time specified by the Securities and Exchange Board of
India, submit a scheme for corporatisation and demutualisation for its approval:
(2) On receipt of the scheme , the Securities and Exchange Board of India may, make enquiry and obtaining
further information, and if it is satisfied that it would be in the interest of the trade and also in the public
interest, then it may approve the scheme with or without modification.
(4) Where the scheme is approved , the scheme so approved shall be published immediately by—
(a) the Securities and Exchange Board of India in the Official Gazette;
(b) the recognised stock exchange in such two daily newspapers circulating in India, as may be specified by
the Securities and Exchange Board of India,
and upon such publication, the scheme shall have effect and be binding on all persons and authorities.
Mandatory to use the words bank, banker ,banking or banking co. [sec.7]
Above mentioned words are mandatorily required to be used as part of the name by a company
carrying on the business of banking. Others cannot use these words.
However for a subsidiary of a banking company and an association of banks, this section is not
applicable.
Disposal of Non-Banking assets(sec.9)
A Banking Co may hold the immovable property for its own use for a period of 7 years from the date
of acquisition and for an extended period upto 5 year with the permission of RBI.
Board of Directors to include persons with professional or other experience [10A.] Minimum fifty-one per cent of the total number of members of the Board of Directors of a banking company
shall consist of persons, who- shall have special knowledge or practical experience in respect of one or more
of the following matters, namely,- accountancy,agriculture and rural economy,banking, co-operation,
economics,finance,law,small-scale industry, any other matter the special knowledge of, and practical
experience, which would, in the opinion of the Reserve Bank, be useful to the banking company: However out of the aforesaid number of Directors, not less than two shall be persons having special
knowledge or practical experience in respect of agriculture and rural economy, co-operation or small-scale
shall not have substantial interest in any company, not being a company registered under section 25 of the
Companies Act, 1956 or any firm, which carries on any trade, commerce or industry and which, in either case,
is not a small-scale industrial concern, or
shall not be proprietors of any trading, commercial or industrial concern, not being a small-scale industrial
concern.
Reserve Fund [Sec. 17]
Every banking co shall transfer to its reserve fund min. 20% of its profits before declaring the dividend. Howev
er CG may give exemption if the balance of reserve fund and securities together is not less than paid up capital
of the co.
CASH RESERVE.[Sec. 18]
Every banking company, not being a scheduled bank, shall maintain in India by way of cash reserve a sum
equivalent to at least three per cent of the total of its demand and time liabilities in India as on the last Friday of
the second preceding fortnight and shall submit to the Reserve Bank before the twentieth day of every month a
return showing the amount so held on alternate Fridays during a month with particulars of its demand and time
liabilities in India on such Fridays or if any such Friday is a public holiday, at the close of business on the
preceding working day.
Rates of interest charged by banking companies not to be subject to scrutiny by courts. [Sec 21A.] —
a transaction between a banking company and its debtor shall not be re-opened by any court on the ground that
the rate of interest charged by the banking company in respect of such transaction is excessive.
. Amendments of provisions relating to appointments of managing directors, etc., to be subject to
previous approval of the Reserve Bank. [Sec. 35B ]— appointment or re-appointment or termination of appointment or remuneration of a chairman, a
[managing director or any other director, whole-time or otherwise or of a manager or a chief executive
officer by whatever name called, shall not have effect unless approved by the Reserve Bank; and
provisions of co act shall not apply.
If the appointment or reappointment is found to be invalid then the acts done upto such date shall be
valid and after such date the acts shall be invalid.
Power of Reserve Bank to remove managerial and other persons from office.[Sec. 36 AA] —
RBI may in the public interest or for preventing the affairs of a banking company being conducted in a
manner detrimental to the interests of the depositors or for securing the proper management of any
banking company it is necessary so to do
By order remove [any chairman, director,] chief executive officer (by whatever name called) or other officer or employee of the banking company. The removed person shall be disqualified for a period upto 5 years in future to hold similar position in
The aggrieved person may make an appeal within 30 days of RBI order to CG.
The decision of the Central Government on such appeal, and subject thereto, the order made by the
Reserve Bank under sub-section (I), shall be final and shall not be called into question in any court.
RBI may appoint a suitable person in place of the removed person.
Power of Reserve Bank to appoint additional directors, [36AB.]
RBI may, in the interest of banking policy or in the public interest or] in the interests of the banking
company or its depositors, appoint one or more additional director for a period of 3 years at a time and
may extend the time in future upto 3 years at a time. Such director shall not incur any liability, shall
not be liable to hold the qualification shares and shall not be considered in total no of directors of the
banking co.
Power of Central Government to acquire undertakings of banking companies in certain cases
[36AE] RBI may, in the interests of the depositors of such banking company, or in the interest of banking
policy, or for the better provision of credit generally or of credit to any particular section of the
community or in any particular area,
by order and after give a reasonable opportunity of showing cause against the proposed action
acquire the undertaking of any banking co.
such undertaking may vest in the CG or in any other banking co. all the assets and liabilities and
documents etc. shall get transferred to the CG or any other banking co as the case may be.
36AG. Compensation to be given to shareholders of the acquired bank.
If the amount of compensation offered is not acceptable to any person to whom the compensation is
payable, such person may, before such date as may be notified by the Central Government in the
Official Gazette, request the Central Government in writing, to have the matter referred to the Tribunal
. Inspection. [Sec.35]
the Reserve Bank at any time may, and on being directed so to do by the Central Government shall,
cause an inspection to be made of any banking company and its books and accounts; the Reserve Bank, at any time, may also cause a scrutiny to be made by any one or more of its officers, of the affairs of any banking company and its books and accounts; and Central Government, if it is of opinion after considering the report that the affairs of the banking company are being conducted to the detriment of the interests
of its depositors, may, after giving reasonable opportunity to the banking company to make a
representation in connection with the report, by order in writing—
(a) prohibit the banking company from receiving fresh deposits; (b) direct the Reserve Bank to apply under section 38 for the winding up of the banking
An Act to prevent money-laundering and to provide for confiscation of property derived from, or
involved in, money-laundering and for matters connected therewith or incidental thereto.
Money Laundering [ sec.2(1)(p) & 3]
Whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is
actually involved in any process or activity connected with the proceeds of crime and projecting it as
untainted property shall be guilty of offence of money-laundering.
Proceeds of Crime[sec. 2(1)(u)]
"proceeds of crime" means any property derived or obtained, directly or indirectly, by any person as a
result of criminal activity relating to a scheduled offence or the value of any such property;
Punishment for money-laundering.[Sec.4]
Whoever commits the offence of money-laundering shall be punishable with rigorous imprisonment
for a term which shall not be less than three years but which may extend to seven years and shall
also be liable to fine which may extend to five lakh rupees: In case of offences in paragraph 2 of Part A of the Schedule, imprisonment may extend to 10 years
Banking companies, financial institutions and intermediaries to maintain records.—
Sec.12
(1) Every banking company, financial institution and intermediary shall—
(a) maintain a record of the prescribed transactions, whether such transactions comprise
of a single transaction or a series of transactions within a month;
(b) furnish information of transactions referred to in clause (a) to the Director within
such time as may be prescribed;
(c) verify and maintain the records of the identity of all its clients, in such manner as
may be prescribed:
The records referred to in sub-section (1) shall be maintained for a period of ten years
Powers of Director to impose fine. [Sec. 13] --
If the Director, in the course of any inquiry, finds that a banking company, financial institution or an
intermediary or any of its officers has failed to comply with the provisions contained in section 12,
then, he may, by an order, levy a fine on such banking company or financial institution or intermediary
which shall not be less than ten thousand rupees but may extend to one lakh rupees for each failure.
Appeal to Appellate Tribunal. [Sec. 26]-- the Director or any person aggrieved by an order made by
the Adjudicating Authority under this Act, may prefer an appeal to the Appellate Tribunal. Any banking company, financial institution or intermediary aggrieved by any order of the Director
made under section 13, may prefer an appeal to the Appellate Tribunal. Every appeal shall be filed within a period of forty-five days from the date on which a copy of the
order made by the Adjudicating Authority or Director is received.
the Appellate Tribunal may, after giving the parties to the appeal an opportunity of being heard, pass
such orders thereon as it thinks fit, confirming, modifying or setting aside the order appealed against.
The appeal filed before the Appellate Tribunal shall be dealt with by it as expeditiously as possible
and endeavour shall be made by it to dispose of the appeal finally within six months from the date of
filing of the appeal.
Appeal to High Court. [Sec. 42]-- Any person aggrieved by any decision or order of the Appellate
Tribunal may file an appeal to the High Court within sixty days from the date of communication of the
decision or order of the Appellate Tribunal to him on any question of law or fact arising out of such
order: Provided that the High Court may, if it is satisfied that the appellant was prevented by sufficient cause
from filing the appeal within the said period, allow it to be filed within a further period not exceeding
professional experience of not less than fifteen years in international trade, economics, business,
commerce, law, finance, accountancy, management, industry, public affairs, administration or in any
other matter which, in the opinion of the Central Government, may be useful to the Commission. (3) The Chairperson and other Members shall be whole-time Members.
Term of office of Chairperson and other Members[sec10] The Chairperson and every other Member shall hold office as such for a term of five years from the
date on which he enters upon his office and shall be eligible for re-appointment: Provided that no Chairperson or other Member shall hold office as such after he has attained the age of
65 years.
Resignation, removal and suspension of Chairperson and other members[SEC. 11] The Chairperson or any other Member may, by notice in writing under his hand addressed to the
Central Government, resign his office:
Provided that the Chairperson or a Member shall, unless he is permitted by the Central Government to
relinquish his office sooner, continue to hold office until the expiry of three months from the date of
receipt of such notice or until a person duly appointed as his successor enters upon his office or until
the expiry of his term of office, whichever is the earliest.
Restriction on employment of Chairperson and other Members in certain cases [Sec 12] The Chairperson and other Members shall not, for a period of 2 years from the ' date on which they
cease to hold office, accept any employment in, or connected with the management or administration
of, any enterprise which has been a party to a proceeding before the Commission under this Act: Provided that nothing contained in this section shall apply to any employment under the Central
Government or a State Government or local authority or in any statutory authority or any corporation
established by or under any Central, State or Provincial Act or a Government company as defined in
section 617 of the Companies Act, 1956 (1 of 1956).
company or reconstruction company from qualified institutional buyers by issue of security receipts
representing undivided interest in such financial assets or otherwise;
Sec. 2(o)"non-performing asset" means an asset or account of a borrower, which has been classified by
a bank or financial institution as sub-standard, doubtful or
loss asset,-- (a) in such authority or body; (b) in any other case, in accordance with the directions or guidelines relating to assets
classifications issued by the Reserve Bank;
Provisions of this Act not to apply in certain cases[Sec 31] The provisions of this Act shall not apply to--
(a) a lien on any goods, money or security ; (b) a pledge of movables (c) creation of any security in any aircraft
(d) creation of security interest in any vessel (e) any conditional sale, hire-purchase or lease or any other contract in which no security
interest has been created; (f) any rights of unpaid seller
(g) any properties not liable to attachment (h) any security interest for securing repayment of any financial asset not exceeding one
lakh rupees;
(i) any security interest created in agricultural land;
(j) any case in which the amount due is less than twenty per cent of the principal amount
and interest thereon.
Registration of securitisation companies or reconstruction companies [Sec.3]
securitisation company or reconstruction company shall not commence or carry on the business of
securitisation or asset reconstruction without-- (a) obtaining a certificate of registration and (b) having the owned fund of not less than two crore rupees or such other amount not
exceeding fifteen per cent of total financial assets acquired or to be acquired by the
securitisation company or reconstruction company, as the Reserve Bank may, by
notification, specify:
Registration procedure co shall make an application for registration to the Reserve Bank.
Conditions to be satisfied
(a) company has not incurred losses in any of the three preceding financial years; (b) company has made adequate arrangements for realisation of the financial assets
acquired for the purpose of securitisation or asset reconstruction and shall be able to
pay periodical returns and redeem on respective due dates on the investments made in
the company by the qualified institutional buyers or other persons;
(f) that the directors of securitisation company or reconstruction company have adequate
professional experience in matters related to finance, securitisation and reconstruction
that the board of directors of such company, does not consist of more than half of its
total number of directors who are either nominees of any sponsor or associated in any
manner with the sponsor or any of its subsidiaries; (g) that any of its directors has not been convicted of any offence involving moral
turpitude; (h) that a sponsor, is not a holding company of the securitisation company or
reconstruction company, as the case may be, or, does not otherwise hold any
controlling interest in such company; (i) that securitisation company or reconstruction company has complied with or is in a
position to comply with prudential norms specified by the Reserve Bank. (j) that company has complied with one or more conditions specified in the guidelines
issued by the Reserve Bank for the said purpose.
Grant of certificate of registration
The Reserve Bank may, after being satisfied that the conditions are fulfilled, grant a certificate of
registration to commence or carry on business of securitisation or asset reconstruction, subject to such
conditions which it may consider, fit to impose.
RBI may also reject the application after giving an opportunity of being heard to the applicant.
Any substantial changes and changes in the location of registered office shall be done only with the
approval of RBI.
Sec 4. Cancellation of certificate of registration The Reserve Bank may cancel a certificate of registration granted to a securitisation company or a
reconstruction company, if such company-- a. ceases to carry on the business of securitisation or asset reconstruction; or b. ceases to receive or hold any investment from a qualified institutional buyer; or
c. has failed to comply with any conditions subject to which the certificate of registration has
been granted to it; or d. at any time fails to fulfil any of the conditions referred to in clauses (a) to (g) of sub-section (3)
of section 3; or e. fails to--
a comply with any direction issued by the Reserve Bank under the provisions of
this Act; or b maintain accounts in accordance with the requirements of any law or any
direction or order issued by the Reserve Bank under the provisions of this Act;
c submit or offer for inspection its books of account or other relevant documents
when so demanded by the Reserve Bank; or d obtain prior approval of the Reserve Bank required under sub-section (6) of
section 3:
Appeal to Central government
(2) A securitisation company or reconstruction company aggrieved by the order of cancellation of
certificate of registration may prefer an appeal, within a period of thirty days from the date on which
such order of cancellation is communicated to it, to the Central Government: PROVIDED that before rejecting an appeal such company shall be given a reasonable opportunity of
being heard.
Sec. 13 Enforcement of security interest (1) any security interest created in favour of any secured creditor may be enforced, without
the intervention of court or tribunal, by such creditor in accordance with the provisions of this Act.
(2) Where any borrower, who is under a liability to a secured creditor under a security
agreement, makes any default in repayment of secured debt or any instalment thereof, and his account
in respect of such debt is classified by the secured creditor as non-performing asset, then, the secured
creditor may require the borrower by notice in writing to discharge in full his liabilities to the secured
creditor within sixty days from the date of notice failing which the secured creditor shall be entitled to
exercise all or any of the rights under sub-section (4).
(3) The notice referred to in sub-section (2) shall give details of the amount payable by the
borrower and the secured assets intended to be enforced by the secured creditor in the event of non-
payment of secured debts by the borrower. (4) In case the borrower fails to discharge his liability in full within the period specified in sub-section
(2), the secured creditor may take recourse to one or more of the following measures to recover his
secured debt, namely:-- (a) take possession of the secured assets of the borrower including the right to transfer by
way of lease, assignment or sale for realising the secured asset;
(b) take over the management of the business of the borrower including the right to transfer
by way of lease, assignment or sale for realising the secured asset: PROVIDED that the right to transfer by way of lease, assignment or sale shall be
exercised only where the substantial part of the business of the borrower is held as
security for the debt: PROVIDED FURTHER that where the management of whole of
the business or part of the business is severable, the secured creditor shall take over the
management of such business of the borrower which is relatable to the security for the
debt. (c) appoint any person (hereafter referred to as the manager), to manage the secured assets
the possession of which has been taken over by the secured creditor;
* Paid Up Capital includes both the equity and preference share capital.
Sec 620
Following are certain privileges granted to the government companies by way of exemptions:
� It shall not be required to add the word “private” after its name.(All)
� All the directors of the company shall be non-rotational.[WOG]
� Approval of CG is not required for increasing the number of directors. [All]
� Approval of the CG is not required for the appointment of Managerial person or a non- rotational director. [All]
� Sole-selling agent can be appointed with out CG approval even if the appointee has substantial interest.[ All]
� Sole-selling agent can be made with out CG approval and SR even if the PUC of the company is 50 lacs or
more.[All]
� Restrictions on payment of Managerial Remuneration do not apply to a government company.[All]
� A person can be appointed as MD or MGR in 2 or more companies without the approval of the CG[WOG]
Audit [sec.619]
� The auditor of the government companies shall be appointed by the CAG[ Comptroller and Auditor General of
India]
� The remuneration shall be fixed by the shareholders.
Applicability of the provisions of audit of government companies to certain companies [ sec. 619B]
Provisions of section 619 shall apply to the following companies.
Any company in which not less than 51% of the PUC is held by the one or more of the following or any combination
thereof:
� CG and government company
� SG and government company
� CG , SG and government company
� CG, SG and corporations controlled by CG.
� Corporation owned or controlled by CG or SG.
� More than one Government company.
======================================================================================= FOREIGN COMPANYFOREIGN COMPANYFOREIGN COMPANYFOREIGN COMPANY Sec. 591 Foreign company means a company registered outside india
AND having PLACE OF BUSINESS in india
Controlled foreign company
in terms of section 591(2),
company incorporated outside india
in which at least 50 % of the PUC is held by
Indian Citizens or bodies corporate incorporated in india
And having a place of business in india
Filing of the Documents in terms of section 597, a foreign company shall file all the document and returns with the following ROC:
institute any legal proceeding in respect of any such contract, dealing or transaction, until it has complied with
the provisions of this Part.
Cessation of place of business [sec. 597] If a foreign company ceases to have a place of business in india, it shall forthwith give notice of the fact to the
ROC and thereafter it will have no other obligation to file any document with the registrar, provided it has no
other place of business in india.
Wining up of foreign companies[sec. 584] Where a foreign company ceases to carry on business in india, it may be wound up as an unregistered company
under part X. winding up is possible even where the company has been dissolved or otherwise cease to exist
under the laws of the country under which it was incorporated.
DIVIDENDDIVIDENDDIVIDENDDIVIDEND Meaning of dividend Sec. 2(14A) : Dividend includes interim dividend.
Sources of Paying the dividend � Current financial year profit ( revenue profit) after providing for depreciation.
� Accumulated profits of previous financial years( revenue) after providing for the depreciation.
� Amount provided by CG or SG for the payment of dividends in pursuance of a guarantee given by that
government.
Payment of dividend without providing for depreciation The CG may allow any company to pay dividend with out providing for depreciation in the public interest.
The company shall make an application to the CG in form 23AAC
It shall give a certificate from the CS or the Director that the company has not concealed any material facts.
It shall give an undertaking that the company shall not come with an IPO or invite the Public deposits in the
next 18 months
Transfer to Reserves sec. 205(2A) in terms of companies( transfer of profits of reserves) rules 1975
these rules are applicable to the equity shares and the participating preference shares.
Dividend proposed (%of PUC) Transfer to reserves(as % of current profits)
Declaration of dividend out of Past reserves sec. 205 A(3) read with co(declaration of dividend out of
reserves)rules 1975.
Dividend can be declared out accumulated profits subject to the following conditions:
The rate of dividend declared does not exceed the average of the rates at which dividends was declared by it in
the 5 immediately preceding years or 10% of its PUC which ever is les.
The total amount to be drawn from the accumulated profits does not exceed 10% of the sum of the PUC and
Free reserves. The amount so drawn shall first be utilized to set off the losses incurred in the financial year
before declaring the dividend.
The balance of reserves after such drawl does not fall below 15% of the its PUC.
Brief Procedure of Payment of Dividend
the Company shall declare dividend at the AGM
with in 5 days it shall deposit the amount of dividend in the “separate bank account”
within 30 days of AGM the company shall dispatch the dividend warrants.
If on the expiry of 30 days of AGM any amount of dividend is unpaid or unclaimed , then with in 7 days
thereafter it shall be deposited in the “Special Bank Account” by the name of Unpaid dividend Account of XYZ
Ltd. in a scheduled bank.
It may remain in that account for 7 years. If on the expiry of 7 years , there remains some amount as unclaimed ,
with in 30 days the amount shall be transferred to the “investor Education and Protection Fund under section
205C.
The BOD shall be given the acknowledgement receipt.
Where the amount is not transferred with in 7 days to Special Bank Account the company shall pay an interest
@ 12% after the expiry of 30 days
Investor Education and Protection Fund [section 205C] (1) The Central Government shall establish a fund to be called the Investor Education and Protection Fund
(hereafter in this section referred to as the "Fund") .
(2) There shall be credited to the Fund the following amounts, namely:-
(a) amounts in the unpaid dividend accounts of companies: (b) the application moneys received by companies for allotment of any securities and due for refund
(c) matured deposits with companies:
(d) matured debentures with companies:
(e) the interest accrued on the amounts referred to in clauses (a) to (d):
(f) grants and donations given to the Fund by the Central Government, State Governments, companies or any
other institutions for the purposes of the Fund: and
(g) the interest or other income received out of the investments made form the Fund:
Provided that no such amounts referred to in clauses (a) to (d) shall form part of the Fund unless such
amounts have remained unclaimed and unpaid for a period of seven years from the date they become
due for payment.
Payment of Interest out of Capital [section 208] (1) Where any shares in a company are issued for the purpose of raising money to defray the expenses of the
construction of any work or building, or the provision of any plant, which cannot be made profitable for a
WINDING UPWINDING UPWINDING UPWINDING UP Modes of Winding UP
Section 425 of the companies act 1956 lays down the following 3 modes of winding up:
� Winding up by the Court i.e. Compulsory winding up
� Voluntary Winding up ;and
� Winding up subject to supervision of the court
Compulsory Winding Up
Jurisdiction of court for winding up petitions Section 10 of the companies act, 1956 provides that the jurisdiction for entertaining winding up petition
vests in the High Court having jurisdiction in relation to the place where the registered office of the
company is situated. For the purposes of jurisdiction to wind up companies, the expression registered office
means the place, which has longest been the registered office of the company during 6 months immediately
preceding the presentation of the petition for winding up.
Grounds on which a company may be wound up by the court.[sec. 433]
A company may be wound up by the Court,
(a) if the company has, by special resolution, resolved that the company be wound up by the Court ;
(b) if default is made in delivering the statutory report to the Registrar or in holding the statutory
meeting ;
(c) if the company does not commence its business within a year from its incorporation, or suspends its
business for a whole year ;
(d) if the number of members is reduced, in the case of a public company, below seven, and in the case
of a private company, below two ;
(e) if the company is unable to pay its debts ;
(f) if the Court is of opinion that it is just and equitable that the company should be wound up
Who may file the petition for winding up [sec. 439] An application for the winding up of a company has to be made by way of petition to the court. A petition may
be presented under section 439 by any of the following persons:
1) The company
2) any creditor or creditors , including any contingent or prospective creditor(s)
However employee, worker and trade union can not make the petition for winding up.
Power of the Court to declare dissolution of the company void[sec. 559]
Sec. 559 empowers the court to make an order at any time within 2 years of the date of dissolution, declaring
the dissolution to be void in appropriate cases.
Kinds of voluntary winding up
Sec. 488 divides voluntary winding up in to two kinds:
a) Members’ Voluntary winding up [ solvency Declaration is made]
b) Creditors’ Voluntary winding up[company is not solvent]
Appointment of liquidator[ sec. 502]
The creditors of the company, at their respective meeting, may nominate a person to be liquidator for the
purpose of winding up the affairs and distributing the assets of the company. if the creditors and the company
nominate different persons, the person nominated by the creditors shall be liquidator, subject to an application
to the court by any director, member or creditor of the company within seven days after the date on which the
nomination was made by the creditors.
If no person is nominated by the creditors , the person nominated by the members shall be liquidator and vice-
versa.
Appointment of committee of inspection[sec.503] The creditors, at the same or subsequent meeting, may appoint a committee of inspection, consisting of not
more than 5 persons. If such a committee is appointed , the company may appoint such number of persons, not
exceeding 5,as they think fit to act as members of committee, provided that the creditors may resolve that all or
any of the persons so appointed by the company ought not be members of the committee of inspection. If the
creditors so resolve, the persons appointed by the company shall not , unless the court otherwise directs, be
qualified to act as members of the committee of inspection.
Contributories[ section 426 to 432]
In terms of section 428 a Contributory means a person liable to contribute to the assets of a company
in the event of its being wound up, and includes a holder of fully paid-up shares. It may be noted that
holders of fully paid up shares will not be liable to contribute to the company’s assets, but shall be
eligible to participate in the distribution of surplus assets, if any.
� In case of a deceased member, his legal representatives is contributory
� In the case of insolvent member, his assignee is contributory
� If a contributory happens to be body corporate, which has been ordered to be wound up , the
liquidator of the body corporate will be treated as contributory
� But the term contributory does not include ordinary debtor of the company.
It provides that when in the course of winding up of a company, it appears that the business of the
company has been carried on with intent to defraud creditors or any other persons or for any fraudulent
purpose, the court may declare that any persons who are knowingly parties to the carrying on the
business in the manner aforesaid shall be personally responsible, without any limitation of liability, for
all or ay of the debts or other liabilities of the company. the court may pass an order on the application
of the OL or Liquidator or any creditor or any contributory of the company.
The person guilty of fraudulent conduct of the business shall be punishable with imprisonment up to 2
years or with fine up to rs. 50000/- or with both.
Recovery of damages from Delinquent Persons/ officers[sec. 543] 1) If in the course of winding up a company, it appears that any person who has taken part in the promotion or
formation of the company, or any past or present director, manager, liquidator or officer of the company
(a) has misapplied, or retained, or become liable or accountable for, any money or property of the
company ; or
(b) has been guilty of any misfeasance or breach of trust in relation to the company ;
the Court may, on the application of the Official Liquidator, of the liquidator, or of any creditor or contributory,
made within the time specified in that behalf in sub-section (2), examine into the conduct of the person,
director, manager, liquidator or officer aforesaid, and compel him to repay or restore the money or property or
any part thereof, respectively, with interest at such rate as the Court thinks just, or to contribute such sum to the
assets of the company by way of compensation in respect of the misapplication, retainer, misfeasance or breach
of trust, as the Court thinks just.
(2) An application under sub-section (1) shall be made within five years from the date of the order for winding
up, or of the first appointment of the liquidator in the winding up, or of the misapplication, retainer, misfeasance
or breach of trust, as the case may be, whichever is longer.
(c) manufacture, sale or supply of machinery, equipment or consumables mainly to its Members;
(d) providing education on the mutual assistance principles to its Members and others;
(e) rendering technical services, consultancy services, training, research and development and all other
activities for the promotion of the interests of its Members;
(f) generation, transmission and distribution of power, revitalisation of land and water resources, their
use, conservation and communications relatable to primary produce;
(g) insurance of producers or their primary produce;
(h) promoting techniques of mutuality and mutual assistance;
Sec. 581C. Formation of Producer Company and its registration. (1) Any ten or more individuals, each of them being a producer or any two or more producer
institutions, or a combination of ten or more individuals and producer institutions, desirous of forming
a Producer Company having its objects specified in section 58IB and otherwise complying with the
requirements of this Part and the provisions of this Act in respect of registration, may form an
incorporated Company as a Producer Company under this Act.
Sec. 581-I. Amendment of articles. (1) Any amendment of the articles shall be proposed by not less than two-third of the elected directors
or by not less than one-third of the Members of the Producer Company, and adopted by the Members
by a special resolution.
Membership of producer company
Sec. 581 D
No person, who has any business interest which is in conflict with business of the Producer Company,
shall become a Member of that Company.
A Member, who acquires any business interest which is in conflict, with the business of the Producer
Company, shall, cease to be a Member of that Company and be removed as a Member in accordance
with articles.
581ZB. Share capital. (1) The share capital of a Producer Company shall consist of equity shares only.
(8) If default is made in complying with the provisions of this section, every officer of the company who is in default shall
be punishable with fine which shall not be less than fifty thousand rupees, and also with imprisonment for a term not
exceeding one year.
VACATION OF OFFICEVACATION OF OFFICEVACATION OF OFFICEVACATION OF OFFICE
(9) Where a director or any other officer of a company has been convicted of an offence under this section he shall, on and
from the date on which he is so convicted, be deemed to have vacated his office as such and on such vacation of office,
shall be disqualified for holding such office in any company, for a period of five years from such date
POWER OF THE ROC TO SEIZE THE DOCUMENTS[SEC. 234A]POWER OF THE ROC TO SEIZE THE DOCUMENTS[SEC. 234A]POWER OF THE ROC TO SEIZE THE DOCUMENTS[SEC. 234A]POWER OF THE ROC TO SEIZE THE DOCUMENTS[SEC. 234A]
The ROC can seize books and papers of a company after obtaining an order from the Magistrate of the First Class or
Presidency Magistrate if he has reason to believe that they may be destroyed, mutilated, falsified, altered or secreted. The
Magistrate by order authorize the ROC to enter the place where such books and papers are kept and to search that place and
to seize such books and papers.
ROC shall return the books and papers within 30 days after seizure under intimation to the Magistrate. Before returning
such books and papers, registrar may take copies or extracts from them or place identification marks on them.
Investigation on the application of the members 235(2)Investigation on the application of the members 235(2)Investigation on the application of the members 235(2)Investigation on the application of the members 235(2)
(a) in the case of a company having a share capital, an application has been received from not less than two
hundred members or from members holding not less than one-tenth of the total voting power therein, and
(b) in the case of a company having no share capital, an application has been received from not less than one-fifth
of the persons on the companyies register of members,
the Company Law Board may, after giving the parties an opportunity of being heard, by order, declare that the affairs of
the company ought to be investigated by an inspector or inspectors, and on such a declaration being made, the Central
Government shall appoint one or more competent persons as inspectors to investigate the affairs of the company and to
report thereon in such manner as the Central Government may direct
INVESTIGATION OF INVESTIGATION OF INVESTIGATION OF INVESTIGATION OF SUBSIDIARY COMPANYSUBSIDIARY COMPANYSUBSIDIARY COMPANYSUBSIDIARY COMPANY
the rights conferred by subsection 2 upon members of a company may be exercised in respect of any subsidiary, by
members of the holding company as if they alone were members of the subsidiary company.
INVESTIGATION ON SPECIAL RESOLUTIOINVESTIGATION ON SPECIAL RESOLUTIOINVESTIGATION ON SPECIAL RESOLUTIOINVESTIGATION ON SPECIAL RESOLUTION/ COURT ORDER [ SEC. 237(A)]N/ COURT ORDER [ SEC. 237(A)]N/ COURT ORDER [ SEC. 237(A)]N/ COURT ORDER [ SEC. 237(A)]
the CentralGovernment
shall appoint one or more competent persons as inspectors to investigate the affairs of a company and to report thereon in
such manner as the Central Government may direct, if
(i) the company, by special resolution ; or
(ii) the Court, by order,
declares that the affairs of the company ought to be investigated by an inspector appointed by the Central Government
POWER OF SEIZURE OF DOCUMENTS POWER OF SEIZURE OF DOCUMENTS POWER OF SEIZURE OF DOCUMENTS POWER OF SEIZURE OF DOCUMENTS
Sec. 240A of the act provides where an inspector has reasonable grounds to believe that relevant books or papers may be
destroyed/ falsified/ altered or secreted, he may make an application to the Magistrate of First Class or Presidency
Magistrate, as the case may be , and obtain an order for seizure of such books and papers. The order may authorize him to
enter the place, where such books and papers are kept , to search the place and seize them
FOLLOW UP ACTION ON THE REPORTFOLLOW UP ACTION ON THE REPORTFOLLOW UP ACTION ON THE REPORTFOLLOW UP ACTION ON THE REPORT
On receipt of the report of the inspector, the CG may take one or more of the following actions:
1. Prosecution for criminal offence[ sec. 242]1. Prosecution for criminal offence[ sec. 242]1. Prosecution for criminal offence[ sec. 242]1. Prosecution for criminal offence[ sec. 242]
if the report reveals that any person has,in relation to the company or in relation to any other body corporate whose affairs
have been investigated by virtue of section 239, been guilty of any offence for which he is criminally liable, the central
govt. after taking such legal advice as it thinks fit, prosecute such person along with officers
2. Winding up of the company[ sec. 243]2. Winding up of the company[ sec. 243]2. Winding up of the company[ sec. 243]2. Winding up of the company[ sec. 243]
if the report reveals that
� the affairs of the company are being conducted with the intent to defraud the creditors, members or other persons
or for a fraudulent or unlawful purpose or in a manner oppressive of any of its members or
� the persons concerned with the formation of the company or the management of its affairs have been guilty of
fraud or misconduct
the CG may take the following actions
� present application to the court for winding up of the company on the ground that it is just and equitable to do so,
or
� make an application to the CLB for an order under section 397 or 398 for grant of relief against oppression or
mismanagement of the company or
both.
RECOVERY OF DAMAGES[SEC. 244]RECOVERY OF DAMAGES[SEC. 244]RECOVERY OF DAMAGES[SEC. 244]RECOVERY OF DAMAGES[SEC. 244]
Section 244 provides that where from the report it appears that:
a) A fraud, misfeasance or misconduct in connection with the promotion or formation or management of the affairs
of the company has taken place or
b) Misappropriation of property of the company has been committed and the company is therefore entitled to bring
an action fro damages for misconduct or for the recovery of any property which has been misapplied or
wrongfully retained.
The CG may itself bring proceedings for that purpose in the name of the company.
EXPENSES OF INVESTIGATION [SEC. 245]EXPENSES OF INVESTIGATION [SEC. 245]EXPENSES OF INVESTIGATION [SEC. 245]EXPENSES OF INVESTIGATION [SEC. 245]
Expenses of investigating the affairs of the company are in the first instance be incurred by the CG then these shall be duly
reimbursed to the CG by the company whose affairs are investigated and by the persons on whose application the
investigation is ordered.
If an accused is convicted under the provisions of section 242, the court may order reimbursement of these expenses to the
central government by the accused.
The scope of this section is not merely confined to recovery of expenses of investigation, but also extends to recovery of
costs and expenses which the CG may incur under section 244.
RESTRICTION ON TRANSFER AND ISSUE OF SHARES AND DEBENTURES[SEC.250]RESTRICTION ON TRANSFER AND ISSUE OF SHARES AND DEBENTURES[SEC.250]RESTRICTION ON TRANSFER AND ISSUE OF SHARES AND DEBENTURES[SEC.250]RESTRICTION ON TRANSFER AND ISSUE OF SHARES AND DEBENTURES[SEC.250]
With a view to prevent corporate takeover, this section empowers the CLB to impose the following restrictions on the
shares and debentures and prevent change in composition of the Board of directors of the company which may be
prejudicial to the public interest:
� Freezing the voting rights in the shares/debenture which have changed and
� Declaring the transfer of shares/debentures as void
� Prohibition of issue of shares
The Jurisdiction of the CLB can be invoked:
On a reference made to it by the CG in connection with any investigation under section 247 or
On a complaint made by any person
SAVING FOR LEGAL ADVISERS AND BANKERS[SEC. 251]SAVING FOR LEGAL ADVISERS AND BANKERS[SEC. 251]SAVING FOR LEGAL ADVISERS AND BANKERS[SEC. 251]SAVING FOR LEGAL ADVISERS AND BANKERS[SEC. 251]
Nothing in sections 1[234 to 247 and 250] shall require the disclosure to CLB or to the Central Government or to the
Registrar or to an inspector appointed by Central Government].
(a) by a legal adviser, of any privileged communication made to him in that capacity, except as respects the name and
address of his client; or
(b) by the bankers of any company, body corporate 4[***] or other person, referred to in the sections aforesaid, as such
bankers of any information as to the affairs of any of their customers other than such company, body corporate 4[***] or
person
PROTECTION TO THE EMPLOYEES OF THE COMPANY DURING INVESTIGATION[ SEC. 635B]PROTECTION TO THE EMPLOYEES OF THE COMPANY DURING INVESTIGATION[ SEC. 635B]PROTECTION TO THE EMPLOYEES OF THE COMPANY DURING INVESTIGATION[ SEC. 635B]PROTECTION TO THE EMPLOYEES OF THE COMPANY DURING INVESTIGATION[ SEC. 635B]
This section gives protection to employees of a company, which is being investigated under the provisions of the
companies act, from victimization on account of disclosure of any particulars or information to the inspector during the
course of investigation. Co can take action only after giving notice of proposed action to CLB and if the CLB does not