HISTORY OF COMPANY LEGISLATION

Transcription

1 CONTENTS u About the authors I-5 u Preface I-7 u Chapter-heads I-9 u A Table showing enforcement of provisions of Companies Act, 2013 from different dates I-53 u Table showing list of sections of Companies Act, 2013 not yet enforced I-81 u Table showing list of sections of Companies Act, 1956 which are still in force I-89 u Section key to prescribed Rules & Forms I-95 u Table of Fees I-123 u Key to prescribed forms I-131 u Table showing sections of Companies Act, 2013 & Corresponding Provisions of Companies Act, 1956 I-143 u Table showing sections of Companies Act, 1956 & Corresponding Provisions of Companies Act, 2013 I-155 u Table showing sections of Companies Act, 1956 not covered in Companies Act, 2013 I-169 u List of notified Rules framed under Companies Act, 2013 I-173 u Section-wise Index I-175 u Draft Notification : Non-applicability of certain provisions to Private Companies or applicability of certain provision to Private Companies with modifications I HISTORY OF COMPANY LEGISLATION 1.1 History of company legislation in India 1 I-13

2 CONTENTS I-14 2 MEANING AND NATURE OF A COMPANY 2.1 What is a company? Definition of a company Characteristic features of a company Incorporated association Legal entity distinct from its members Artificial person Limited liability Separate property Transferability of shares Perpetual succession Common seal Lifting the corporate veil Advantages of incorporation Disadvantages of incorporation Company vis-a-vis Body corporate Is a society registered under the Societies Registration Act, a body corporate? Corporation sole Is company a citizen 25 3 KINDS OF COMPANIES 3.0 Introduction Private company Restrictions on transferability of shares Limitation on number of members Restriction on inviting public to subscribe for securities Other requirements relating to a private company A One Person Company B Small Company Public company [Section 2(71)] Distinction between private and public company Special privileges and exemptions available to private companies 34

3 I-15 CONTENTS 3.5 Conversion of a private company into a public company Conversion of a public company into a private company Statutory company Registered companies Limited liability companies Companies limited by shares Companies limited by guarantee Companies limited by guarantee having share capital Unlimited liability company Associations not for profit [Section 8] Alteration of Memorandum and Articles of Association Partnership firm may become member Conversion of a company formed under section 8 into any other kind Government companies Foreign company Special provisions relating to foreign companies Other obligations of a foreign company (Sec. 382) - A foreign company is further bound by the following obligations Holding and subsidiary companies Public financial institutions [Sec. 2(72)] Producer Companies Overview of the provisions Incorporation of Producer Companies Objects of a Producer Company Formation of Producer Company and its registration [Section 581C] Memorandum of association of a producer company shall state Directors Subscription to the memorandum by non-incorporated body of producer institution Status of a Producer Company Articles of Association [Section 581G] Registration of Producer Company Amendment of Memorandum and Articles of Association of a producer company 61

4 CONTENTS I Benefits to Members [Section 581E] Voting rights of members of a producer company Membership and conflicting business interest Inter-State Co-operative Societies can become Producer Company [Sections 581J-581N] Transformation of inter-state co-operative society into producer company Officers and other employees of the society [Section 581N] Directors of the society Transfer of existing benefits, etc. on transformation Appointment of Directors and their tenure [Section 581P] Vacation of office by directors of a producer company [Section 581Q] Powers and functions of the Board [Section 581R] Committee of Directors [Section 581U] Meetings of the Board and Quorum [Section 581V] Liability of directors [Section 581T] Chief Executive Officer (CEO) and his functions [Section 581W] Secretary of Producer Company [Section 581X] General Meetings [Sections 581ZA, 581S, 581Y and 581Z] Period of Notice Contents of the Notice and Circulation of the notice Quorum and Voting Rights Filing of documents following AGM with ROC [subsection (10) of section 581ZA] Producer institution as member Extraordinary General Meeting on Requisition [Section 581ZA(5)] Share capital, special rights, bonus shares, transfer and transmission [Sections 581ZB to 581ZD and 581ZJ] The shares of a producer company has limited transferability Issue of bonus share Finance, Accounts and Audit [Sections 581ZE to 581ZI] Internal Audit 78

5 I-17 CONTENTS Duties of Auditor (Section 581ZG specifies duties of the auditor of a producer company and the same should not be mixed up with duties of internal auditors) Donation or subscription by producer company General and Other Reserves Loans to Members and Investments [Sections 581ZK and 581ZZ] - Loans and Advances Register of investments [Section 581ZL(7) & (8)] Amalgamation, Merger or Division of Producer Company [Section 581ZN] Penalties [Section 581ZM] Dispute Resolution [Section 581ZO] Allied Provision Striking off the name of producer company Reconversion of a Producer Company to inter-state Co-operative Society [Sections 581ZS and 581ZT] Power of the Central Government to modify the provisions of the Companies Act, 1956 in their application to Producer Company [Section 581ZT] Illegal Association [Sec. 464] Exceptions Effects of an illegal association Unregistered Companies [Section 375] 90 4 FORMATION AND INCORPORATION OF A COMPANY 4.1 Promotion Who is a promoter When promotion begins and ends Legal position of a promoter Duties of promoters Remedies available to the company against the promoter for breach of his duties Liability of promoters Remuneration of promoters Pre-incorporation contracts 100

6 CONTENTS I Registration/Incorporation of a company Procedure for registration/incorporation of a company : Important Steps Certificate of incorporation A Effect of certificate of incorporation B Conclusiveness of certificate of incorporation Commencement of business Companies not having share capital Companies having share capital Effect of non-compliance of the provisions of section MEMORANDUM OF ASSOCIATION 5.1 Meaning and importance Memorandum of Association - Whether an unalterable charter Form and contents The name clause [Sec. 4(1)(a)] The registered office clause [Sec. 4(1)(b)] The objects clause [Section 4(1)(c)] Doctrine of ultra vires Liability clause [Sec. 4(1)(d)] The capital clause [Sec. 4(1)(e)] Name of a nominee in case of One Person Company [Sec. 4(1)(f)] The association or subscription clause [Sec. 4(1)(e)] Alteration of memorandum Change of name Change of registered office Change in objects clause Change in liability clause Alteration of capital clause ARTICLES OF ASSOCIATION 6.1 Introduction Memorandum and articles - Their relationship Distinction between memorandum of association and articles of association 136

7 I-19 CONTENTS 6.4 Contents Provisions for entrenchment Regulations required in case of unlimited company, company limited by guarantee and private company limited by shares Model form of articles Signing of articles Alteration of articles Limitation on power to alter articles What amounts to alteration of articles Effect of altered articles Procedure for alteration of articles of association Binding effect of memorandum and articles Members bound to the company Company bound to members Members bound to members Whether company or members bound to outsiders Whether Directors are bound by whatever is contained in the articles Doctrine of constructive notice Doctrine of indoor management PROSPECTUS 7.1 Steps which are necessary before the issue of prospectus Meaning and definition of a prospectus Contents of a prospectus Information to be given in a prospectus Reports to be set out in the prospectus Declaration Other matters Statement of an expert included in a prospectus Penalty for non-compliance Exemptions Variation in terms of contract or objects in prospectus (Section 27) Offer of sale of shares by certain members of company (Section 28) 161

8 CONTENTS I SEBI Regulations relating to prospectus Draft prospectus to be made public Abridged form of prospectus Is issue of prospectus (including abridged prospectus) compulsory/when prospectus is not required to be issued A Statutory requirements in relation to a prospectus A-1 Dating of prospectus A-2 Registration of prospectus A-3 When registrar shall refuse registration of a prospectus A-4 Penalty Prospectus by implication/deemed prospectus [Section 25] Additional requirements relating to deemed prospectus Shelf Prospectus and Information Memorandum [Section 31] Red-herring prospectus [Section 32] Mis-statements in a prospectus and their consequences What is an untrue statement/mis-statement? Remedies for mis-statement in a prospectus Civil Liability Criminal Liability Liability under section 36, i.e., punishment for fraudulently inducing persons to invest money Class action suit/action by affected persons (Section 37) Golden rule for framing of prospectus Allotment of shares in fictitious names prohibited [Section 38] Announcement regarding proposed issue of capital ACCEPTANCE OF PUBLIC DEPOSITS 8.1 Meaning of deposits Acceptance of deposits Acceptance of deposits from members Acceptance of deposits from public Deposits accepted before commencement of the Companies Act,

9 I-21 CONTENTS 9 SHARE AND SHARE CAPITAL 9.1 Meaning and nature of a share Meaning Nature of a share Share v. Share certificate Share v. Stock Kinds of shares Preference Shares or Preference Share Capital Types of Preference Shares Equity shares [Section 43] Preference shares compared with equity shares Non-voting shares Par value of shares Global Depository Receipts [Section 41] Raising of capital/issue of shares Private placement of shares By an offer for sale By inviting public through prospectus Issue of shares to existing shareholders Public issue of shares Book Building SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 with respect to public issue of equity shares or any other security convertible into equity shares general conditions Employees Benefits Schemes A Employees Stock Option Scheme [ESOS] B Employee Stock Purchase Scheme [ESPS] C Stock Appreciation Rights Scheme (SARS) Book Building SEBI Regulations for Preferential Issue Allotment of shares Meaning of allotment General principles regarding allotment Statutory provisions regarding allotment Jurisdictions of the Court Allotment of shares to a charitable institution by way of donation - Whether allowed Return as to allotment 240

10 CONTENTS I Underwriting Meaning of underwriting Sub-underwriting Brokerage Buy-back/Purchase of its own shares by a company Sources to buy-back Conditions for buy-back Benefits/Objectives underlying buy-back of shares SEBI Regulations : SEBI (Buy-back of Securities) Penalty Prohibition for buy-back in certain circumstances [Section 70] Giving of Loan/Financial Assistance Prohibited Issue of securities at a premium Issue of shares at a discount Issue of sweat equity shares [Section 54] SEBI Regulations with respect to sweat equity Share certificate [Section 56] Time of issue of share certificate [Section 56] Object and effect of share certificate [Section 46] Issue of share certificate [Section 46] Rights shares/further issue of capital [Section 62] Further allotment out of unsubscribed portion of capital SEBI regulations regarding rights issues [w.e.f as amended up to ] Duty of transferor to transferee in respect of rights shares Allotment to renouncee Procedure for issue of rights shares Conversion of loans or debentures into shares Share capital to stand increased Bonus shares SEBI Regulations, 2009 for issue of bonus shares Distinction between bonus shares and rights shares Reduction of share capital Procedure for reduction of capital 269

11 I-23 CONTENTS Reduction of share capital without the sanction of the Tribunal Reduction of Capital v. Diminution of Capital Calls on shares Requisites of a valid call Payment of calls otherwise than in cash Payment of calls in advance Interest on calls due but not paid Quantum and interval between two calls Forfeiture of shares Forfeiture of fully paid shares Effect of forfeiture Re-issue of forfeited shares Annulment of forfeiture Surrender of shares Transfer of shares Time within which transfer must be registered Power of the Board of directors to refuse registration of transfer of shares Procedure of transfer Blank transfer Ills associated with blank transfers Transfer of partly-paid shares Transfer of shares held in joint names Transfer when complete Right of transferees pending registration of transfer [Sec. 126] Notice of refusal Returning back the documents Retention of certificates Appeal against refusal to register transfer Transfer of shares on the basis of pre-incorporation transfer deeds Transfer of shares after winding-up - Whether valid Transfer of shares under depository system Transfer of shares in favour of pledgee Transfer of shares by way of gift Forged transfer Consequences of forged transfer 290

12 CONTENTS I Priority between transferees Transmission of shares and debentures Distinction between transfer and transmission Nomination of shares and debentures Secretarial practice/steps with regard to registration of transfer of shares Transfer by legal representative Lien on shares Lien and forfeiture compared Variation of shareholders rights Can equity shares already issued be converted into redeemable preference shares? Can redeemable preference shares be converted into convertible preference shares? MEMBERSHIP 10.1 Definition of a member Can purported promise to convert loan into shares be a ground for rectification of Register of members? Member v. Shareholder Modes of acquiring membership By subscribing to the memorandum of association By agreement and registration By agreeing to purchase qualification shares Can legal heirs of a deceased shareholder be regarded as members for the purpose of filing a petition for prevention of oppression and mismanagement under sections [Now section 241]? Who may become a member Minor Company A partnership firm A foreigner Receiver/Official Liquidator Can a public office be registered as a member Societies registered under the Societies Registration Act, Can shares be held in the name of a trade union? 307

13 I-25 CONTENTS Joint membership Hindu undivided family Termination of membership Impersonation as a shareholder Rights of a member/shareholder Contractual and other Rights Statutory Rights Other Rights Duties and Liability of members Member v. Contributory Expulsion of a member REGISTERS AND RETURNS 11.1 Introduction Statutory books to be kept by a company Optional books Register of Charges [Section 85] Register of members/debentureholders Register of Members/Debentureholders and Index of Members/Debentureholders, etc. [Section 88] Foreign Register Penalty Shares held in trust Inspection of Register of Members, etc. [Section 94] Register of investments not held in company s name [Section 187] Register of fixed deposits [Section 73] Books of account Place of maintenance of books of account Inspection of books of account, etc. of companies Period for which books of account to be preserved Register of contracts or arrangements in which directors are interested [Section 189] Entries in the register Place of keeping and inspection of the register Period for which register to be preserved Filing of particulars 321

14 CONTENTS I To be produced at general meeting Exemptions Penalty Register of Directors and Key Managerial Personnel and their shareholding [Section 170] Filing of Return with the Registrar Can the register be kept in loose-leaf form? Register of loans and investments by company [Section 186] Minutes book Inspection of minute-books of general meeting [Section 119] Signing of minutes of board meetings Minutes kept in a loose-leaf form Annual return [Section 92] Signing of the Annual Return Place of keeping Return of allotment [Section 39] Place of keeping and inspection of registers, returns, etc. [Section 94] Period for which the registers, returns and records are required to be kept Inspection of registers and returns [Section 94] Penalty Power of the Central Government to order inspection Registers, etc., to be evidence INVESTMENTS, LOANS, BORROWINGS AND DEBENTURES 12.1 Investments Meaning of investments Investments to be held in company s own name Investments in other companies and bodies corporate/inter-corporate loans and investments Implied power to borrow? Exercise of borrowing powers Temporary loans Ultra vires borrowings Charges under the Companies Act,

15 I-27 CONTENTS Registration of charges [Section 77] Register of charges to be kept by Registrar [Section 81] The memorandum of satisfaction [Sections 82 and 83] Rectification by Central Government in register of charges [Section 87] Company s register of charges [Section 85] Modification of charges Debentures Meaning and definition Characteristic features of a debenture Debenture stock Distinction between shareholder and debentureholder Issue of debentures Kinds of debentures Debenture trust deed Rights/Remedies of debenture-holders SEBI Regulations, 2009 pertaining to convertible debt instruments DIVISIBLE PROFITS AND DIVIDEND 13.1 Meaning of Dividend Concept of Profit Profits v. Divisible Profits Meaning of Divisible profits Profits available for Distribution v. Profits available for dividend Sources out of which dividends may be paid Out of current profits Out of past reserves Monies provided by Government Depositing dividend declared in a scheduled bank in a separate account Provision for depreciation Declaration of dividend on preference and equity shares Dividend on preference shares Dividend on equity shares Interim dividend 366

16 CONTENTS I Payment of dividend Dividend payable to whom Dividend is to be paid in cash Time within which dividends to be paid Dividend warrants Dividend mandate Unpaid and unclaimed dividends Unpaid dividends Transfer of unpaid dividend to Investor Education and Protection Fund [Fund] Establishment of Investor Education and Protection Fund [Section 125] Can dividends be paid out of capital? Payment of dividend out of capital profits 374 Annex 13.1 Specimen resolutions COMPANY MANAGEMENT 14.1 Meaning of a Director Who may be appointed as a director? Qualifications for directors Disqualifications of a director Legal position of directors Directors as agents Directors as trustees Directors as managing partners Are directors employees of the company? Full time v. Part time director Appointment of Directors Appointment of first directors [Section 152] Appointment of directors at general meeting Deemed re-appointment of a retiring director [Section 152] Rotational and non-rotational directors vis-a-vis private company Appointment of a director other than a retiring director [Section 160] Appointment by Board of directors [Section 161] 390

17 I-29 CONTENTS 14.8 Resident director Independent director Who is an Independent director Selection of Independent director Manner of Appointment Re-appointment Remuneration Resignation or Removal Separate meetings Evaluation mechanism Term of office Liability of Independent directors Compliance with the Company s Code of Conduct Appointment of directors by proportional representation [Section 163] Single transferable vote Cumulative voting Appointment of directors by third parties (Nominee Directors) Assignment of office by director [Section 166] Minimum and maximum number of directors Appointment of woman director on the Board Appointment of director elected by small shareholders [Section 151] Number of directorships Vacation of office of a director [Section 167] Removal of a director Removal by shareholders Removal by Tribunal [Section 242] Resignation by a Director Validity of the acts of a director where his appointment is in valid [Section 176] Powers of the Board of Directors Restrictions on powers of directors Political contributions by directors [Section 182] Meaning of Political Contribution A Related party transactions [Section 188] Interested Director Disclosure of Interest Duties of Directors 422

18 CONTENTS I Statutory duties General duties Liabilities of Directors Liability to the company Liability to third parties Liability for breach of statutory duties Liability for acts of co-directors Criminal liability Loans to Directors Remuneration of Directors (Managerial Remuneration) Meaning of managerial remuneration Directors entitlement to remuneration Manner of payment of managerial remuneration Sitting fees Overall limits to managerial remuneration Determination of managerial remuneration Individual ceiling on managerial remuneration Remuneration payable to an Independent director Refund of excess remuneration Additional remuneration from subsidiary Private companies Managerial remuneration vis-a-vis Schedule V Perquisites not included in managerial remuneration Remuneration payable to a managerial person in two companies Meaning of effective capital Managing Director and other Key Managerial Personnel Meaning of managing director Managing director - Whether an employee Meaning of Key Managerial Personnel Appointment of managing director Approval of the Central Government Number of companies of which one person may be appointed Managing Director/Key Managerial Personnel Filling of vacancy in the office of whole-time key managerial personnel Tenure of appointment 440

19 I-31 CONTENTS Remuneration Disqualifications Manager Meaning Disqualifications of a manager Number of companies a person can be appointed manager Remuneration of manager [Section 197] Prohibition of simultaneous appointment of different categories of managerial personnel [Section 196] Distinction between managing director and manager Whole time director Procedure for appointment of managing director/whole time director/manager COMPANY SECRETARY AND PRACTISING COMPANY SECRETARY 15.1 Definition of company secretary/secretary Appointment of whole-time company secretary Compulsory appointment of a whole-time company secretary Manner of appointment of whole-time company secretary Whole-time company secretary not hold office in more than one company Vacation of office of the whole-time company secretary Penalty Procedure for appointment Position of company secretary Duties of secretary General duties Statutory duties Liabilities of company secretary Statutory liabilities Contractual liabilities Functions of company secretary [Section 205] Secretarial audit [Section 204] 453

20 CONTENTS I Rights of company secretary Role of company secretary As statutory officer Secretary as a coordinator As an administrative officer Dismissal of a company secretary Company secretary in practice Who can use the designation of secretary Who can practise Who cannot practise Can a firm practise Areas of practice Certificate of practice Cancellation of certificate of practice Restoration of certificate of practice Company secretary not to engage in any other business or occupation Can a company secretary have more than one office Professional misconduct Quality Review Board 465 Annex 15.1 The First Schedule to the Company Secretaries Act, 1980 as amended in Annex 15.2 The Second Schedule to the Company Secretaries Act, 1980 as amended in Annex 15.3 Resolution under regulation 168 of the Company Secretaries Regulations, COMPANY MEETINGS-I - GENERAL 16.1 Meaning of meeting Kinds of meetings Requisites of a valid meeting Meeting to be properly convened Proper authority Proper and adequate notice Meeting to be legally constituted Chairman of a meeting Quorum 480

21 I-33 CONTENTS 16.6 Meeting to be properly conducted Ascertaining the sense of the general meeting Rules in respect of voting Passing of resolutions by postal ballot Proxy [Section 105] Motion, amendment, point of order Resolutions Ordinary resolution [Section 114(1)] Special resolution Resolutions requiring special notice A Validity of votes Circulation of members resolutions [Section 111] Registration of certain resolutions and agreements [Section 117] Minutes [Section 118] 495 Annex 16.1 Specimen of notice, agenda, proxy, minutes, resolutions, etc. notice and agenda of annual general meeting COMPANY MEETINGS-II - GENERAL BODY MEETINGS 17.1 Need for meetings Annual General Meeting (AGM) Which companies to hold Gap between two AGMs [Section 96] Extension of time What about a situation where annual accounts are not ready Meeting beyond statutory time Cancelling or postponing of convened meeting Can a general meeting properly convened be cancelled or its holding deferred? Day, hour and place of AGM Can a company hold two AGMs on the same day? Business to be transacted [Section 102] Notice of the meeting Extraordinary General Meeting (EGM) Class meetings 509

22 CONTENTS I COMPANY MEETINGS-III - BOARD MEETINGS 18.1 Need for board meetings When to hold First meeting Subsequent meetings Participation of directors through video conferencing or other audio visual means [Section 173(2)] Board meeting Notice of board meeting Proper authority to call meeting of Board of Directors Notice - Whom to be given Notice to interested directors Notice of adjourned meeting Contents and agenda of board meeting Time and place of board meeting Quorum Adjournment for want of quorum Passing of Resolutions by Circulation [Section 175] Minutes of the board meeting Duties of company secretary with respect to board meetings Before the meeting During the meeting After the meeting Chairman of board meetings 520 Annex 18.1 Specimen of notice, agenda and minutes ACCOUNTS AND AUDIT ACCOUNTS 19.1 Books of account required to be kept Inspection of books of account Directors right of inspection Right of a shareholder to inspect books of account Investigation by the Serious Fraud Investigation Office (SFIO) 529

23 I-35 CONTENTS 19.3 Persons responsible for keeping proper books of account [vide sub-section (6) of section 128] Financial Statements Preparation and presentation of financial statements Authentication of Accounts Can Approval of Annual Accounts be delegated? Publication of quarterly results - Requirements under listing agreement Board s Report Directors Responsibility Statement Disclosures with respect to employees stock option scheme Reserves and Dividends Conservation of energy, technology absorption, foreign exchange earnings and outgo Contracts and arrangements with related parties Policy on directors appointment and remuneration Disclosure about the number of meetings of the Board/Committees Notes forming part of the accounts Additional information under the Companies (Accounts) Rules, Corporate Social Responsibility Report Composition of Audit Committee Management Discussion and Analysis Report as per Clause 49 of the Listing Agreement Corporate Governance Report Report to be signed by the Chairman of the Board Circulation of Financial Statements Adoption and filing of financial statements Filing of financial statements with the registrar Filing of financial statements in XBRL format Reporting on revised annual statements of accounts Re-opening of accounts on Court s or Tribunal s orders Voluntary revision of Financial Statements or Board s Report Accounting Standards 548

24 CONTENTS I Convergence of Accounting Standards in India with International Financial Reporting System (IFRS) National Financial Reporting Authority Internal Audit 552 AUDIT Need for audit/objective of audit Who can be appointed as an Auditor (Qualifications) Who cannot be appointed as an Auditor (Disqualifications) Disqualification due to fraudulent acts Ceiling on Audit Auditor not to render certain services Appointment of first auditors Appointment of subsequent auditors Appointment of subsequent auditor for a Government company Tenure of appointment Compulsory rotation of auditors Period for rotation Cooling off period Joint audit Reappointment of retiring auditor Rights of retiring auditor [Section 140(4)] Casual vacancy Removal and resignation of an auditor Removal before expiry of the term Resignation of auditor Removal by the Tribunal Remuneration of auditors Status of the auditor As an officer of the company Rights of the company auditor Right of access to books and account, etc Right to obtain Information or Explanation Rights with respect to branch accounts Right to sign the report Right to receive notices, etc Right to attend general meeting Right to remuneration 570

25 I-37 CONTENTS Auditors lien Duties of Company Auditor Duty to make a report under section Compliance with auditing standards Duty to report fraud Duty to attend general meeting Duty to make statement in prospectus Duty to produce documents and evidence Duty to acquaint themselves with their duties Limitation of auditor s duties Special provisions relating to audit of Government Companies Appointment of Auditors Audit of Government Companies Punishment for Contravention Penalty on the company and officers in default Penalty on the auditor Audit Committee Establishment of vigil mechanism Joint audit Cost audit [Section 148] Maintenance of cost records Appointment and remuneration of cost auditor Report of cost auditor Cost audit to be in addition to financial audit Appointment of a firm of cost accountants as cost auditors Cost Auditor cannot be internal auditor Penalties Secretarial audit 593 Annex 19.1 General instructions for preparation of balance sheet and statement of profit and loss of a company 595 Annex 19.2 Extracts from Secretarial Standard-10 (SS-10) on Board s Report 610 Annex 19.3 Summary of requirements for maintenance of cost records and cost audit as prescribed under rule 3 and rule 4 of the Companies (Cost Record and Audit) Rules,

26 CONTENTS I INSPECTION, INQUIRY AND INVESTIGATION INSPECTION 20.1 Power to call for information, inspect books and conduct inquiries What books and papers can be inspected? Place and time of inspection Duties of directors, officers, employees of the company to assist in inspection Powers of the inspector Supply of report Inspection by Reserve Bank 623 INVESTIGATION 20.8 Investigation Who can apply and the scope of investigation On the report of Registrar or inspector The company, by passing special resolution [Section 210(1)(b)] The Court or Tribunal, by order [Section 210(2)] In public interest Guidelines for ordering investigation into company s affairs Complaint for violation by SEBI - Whether a bar to investigation Fraud on creditors and on the court Investigation into affairs of a company by Serious Fraud Investigation Office Investigation into company s affairs in other cases Security for payment of costs and expenses of investigations Firm, body corporate or association not to be appointed as inspector Investigation of ownership of a company [Section 216] Powers of inspectors Report of the inspector Follow up action by the Central Government on the investigation report of the inspector Expenses of investigation Protection of employees during investigation Publication of Inspector s Report 637

27 I-39 CONTENTS Freezing of assets of company Imposition of restrictions upon securities [Section 222] Saving for legal advisors and bankers [Section 227] Investigations etc. of foreign companies [Section 228] Non-disclosure of information in certain cases [Section 457] Penalty for furnishing false statements, mutilation or destruction of documents Difference between inspection and investigation Role of secretary with regard to investigation MAJORITY RULE AND MINORITY PROTECTION 21.1 Rule of majority Personal rights of members Representative and Derivative Action Exceptions to the rule in Foss v. Harbottle Ultra vires and illegal acts Breach of fiduciary duties Fraud or oppression against minority Inadequate notice of a resolution passed at a meeting of members Qualified majority Where the personal rights of an individual member have been infringed Statutory exceptions PREVENTION OF OPPRESSION AND MISMANAGEMENT 22.1 Application to Tribunal for relief in cases of oppression, etc Application to the Tribunal Who can apply [Section 241] Who cannot apply Power of Tribunal Conditions for relief under section Relief under section Meaning of oppression Oppression may be past or continuing nature 670

28 CONTENTS I Applicability of principle of dissolution of partnership Acts held as oppressive Acts held as not oppressive Matrimonial differences Meaning of public interest Petition to contain all material facts True scope of section Oppression of majority Limitation Prevention of mismanagement Application to Tribunal for relief in cases of mismanagement Relief by the Tribunal Instance of mismanagement Conditions precedent for obtaining relief Acts held as mismanagement Acts held as not mismanagement Private agreement for investment and section Oppression and mismanagement and family centred Companies Affairs of a company include affairs of its subsidiary(ies) in appropriate cases Waiver, estoppel or acquiescence by a shareholder holding 10% or more of shares in the company Interim Order Amalgamation of transferor company after filing of petition under section Effect of Arbitration clause in the Articles/Separate Agreement Appeals against the orders of the Tribunal and variation of the order of Tribunal Difference between winding up proceedings and proceedings under sections 241 and Composite/simultaneous petition under sections 241 and Whether maintainable Powers of the Tribunal [Section 242] Whether the provisions of the Evidence Act and Code of Civil Procedure are applicable to proceedings under section

29 I-41 CONTENTS Some more cases on oppression and mismanagement Class Action Who may file an application Against whom an application may be filed Relief under a class action Procedure to be followed by the Tribunal Order of the Tribunal Differences between application under section 241/ 244 and class action under section COMPROMISES, ARRANGEMENTS, RECONSTRUCTION AND AMALGAMATION 23.1 Meaning of compromise Meaning of arrangement Statutory provisions regarding compromise or arrangement Exercise of the Tribunal s discretion Powers of the Tribunal Information as to compromise or arrangement [Section 230] Matter to be addressed in the Tribunal s order [Section 230(7)] Is consent of stock exchange necessary for a scheme under clause 24 of Listing Agreement? Whether a scheme of arrangement sanctioned by the Tribunal would prevail over parallel agreement between the company and a shareholder? Financial corporations, statutory corporations and Government being shareholders/lenders etc Buy-back of shares affected under section Takeover offer under section Reduction of share capital under section Debt Recovery Tribunal and the Companies Act in the context of compromise and arrangement Reconstruction and amalgamation Meaning of reconstruction Meaning of amalgamation and merger Difference between amalgamation and reconstruction Reverse Merger Features of Reverse Merger 756

30 CONTENTS I Characteristics of a shell company Legal structure and compliance Procedure of a reverse merger A Legal provisions regarding reconstruction and amalgamation Reconstruction/Amalgamation by sale of undertaking [Section 232] Effect of amalgamation Duties of the Tribunal with respect to reconstruction/ amalgamation Amalgamation with existing company only Synergy of operation Compliance with the scheme Effect on legal proceedings Critical dates in amalgamation, mergers, etc Valuation of shares and fairness of exchange ratio Merger and Amalgamation of certain companies [Section 233] Merger or Amalgamation with foreign company [Section 234] Power to acquire shares of shareholders dissenting from scheme or contract approved by majority [Section 235] Purchase of minority shareholding [Section 236] Registration of offer of schemes involving transfer of shares Amalgamation of companies in public interest [Section 237] Saving of proceedings Protection of members and creditors Role of Tribunal Preservation of Books and Papers of Amalgamated Company [Section 239] Offences committed prior to merger, amalgamation [Section 240] Impact of stamp duty on amalgamation Some more cases on compromises, arrangements, amalgamations etc. 788 Annex 23.1 Salient features of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations,

31 I-43 CONTENTS 24 REVIVAL AND REHABILITATION OF SICK COMPANIES 24.1 Determination of Sickness Measures for revival and rehabilitation Procedure in pursuant of the application Appointment of interim administrator Committee of creditors Order for winding up proceeding Appointment of company administrator Power and duties of company administrator [Section 260] Scheme of revival and rehabilitation Sanction of the scheme Winding up if scheme not approved by creditors Implementation of the scheme Conclusive evidence Transfer of property and liabilities Binding nature of the scheme Modification, enforcement etc. of contracts Company administrator to implement the scheme Sale proceeds to be used as directed Review of the sanctioned scheme Liability for misfeasance etc Punishment for certain offences Bar on jurisdiction Rehabilitation and insolvency fund WINDING UP 25.1 Meaning Modes of winding up [Section 270(1)] Winding up by the Tribunal Inability to pay its debts [Section 271(1)(a)] Winding up by Special Resolution [Section 271(1)(b)] Company acting against the interests of sovereignty and integrity of India, the security of the State, the friendly relations with foreign states, public order, decency or morality [Section 271(1)(c)] Failure of revival or rehabilitation of a sick company under Chapter XIX [Section 271(1)(d)] 833

32 CONTENTS I Company s affairs been conducted in a fraudulent or unlawful manner etc. [Section 271(1)(e)] Company making default in filing with the Registrar its Financial Statements or Annual returns for immediately preceding five consecutive financial years [Section 271(1)(f)] Just and Equitable [Section 271(1)(g)] Who can make petition [Section 272] The Company [Section 272(1)(a)] Creditor s petition [Section 272(1)(b)] Contributory s petition [Section 272(1)(c)] Joint petition [Section 272(1)(d)] The Registrar [Section 272(1)(e)] Person authorized by the Central Government [Section 272(1)(f)] Central Government s/state Government s petition [Section 272(1)(g)] Section 69 of the Indian Partnership Act and winding up Can a petition be made for winding up by workers union of a company Right of any other person to be heard Admission of the winding up petition Winding-up and the Arbitration and Conciliation Act, Procedure for making and service of the winding up petition Commencement of winding up [Section 357] Procedure for winding up order Petition Powers of the Tribunal [Section 273] Recall of winding up order Can winding up order be passed without hearing the company concerned Admission of winding up petition does not necessarily lead to Winding up order Stay of suits etc. on winding up order [Section 279] Statement of affairs to be filed on winding up Appointment of Company Liquidator 868

33 I-45 CONTENTS Winding up Committee Consequences of winding up order Does Board of directors become functus officio when a company is ordered to be wound up? Directors and Officers of the company to submit to the Tribunal audited books and account Submission of report by Company Liquidator [Section 281] Promoters, directors etc. to cooperate with the Company Liquidator [Section 284] Advisory Committee [Section 287] Constitution and proceedings of Advisory Committee General powers of Tribunal in case of winding up by Tribunal Power to stay winding up [Section 289] Settlement of list of contributories [Section 285] Delivery of property to Company Liquidator [Section 283] Set off [Section 295] Power to make calls [Section 296] Power to adjust Rights of Contributories [Section 297] Power to order costs [Section 298] Power to Order Public Examination of Promoters, Directors, etc. [Section 300] Power to arrest absconding person [Section 301] Power to modify the terms and conditions after confirmation of sale of properties Dissolution of company [Section 302] Effect of order of dissolution Enforcement of and appeal from orders Enforcement of orders [Section 424(3)] Appeals from orders [Section 421] 884 VOLUNTARY WINDING UP Meaning and manner of voluntary winding up Declaration of solvency [Section 305] Meeting of creditors [Section 306] Commencement of voluntary winding up Consequences of voluntary winding up 887