Contents I-7 Section-wise Index I-25 C HAP T E R 1 : INTRODUCTION 1 C HAP T E R 2 : INCORPORATION OF A COMPANY 13 C HAP T E R 3 : MEMORANDUM OF ASSOCIATION 33 C HAP T E R 4 : ARTICLES OF ASSOCIATION 48 C HAP T E R 5 : CAPITAL OF THE COMPANY 56 C HAP T E R 6 : ISSUE OF SECURITIES 65 C HAP T E R 7 : FURTHER ISSUE OF SECURITIES 84 C HAP T E R 8 : REDUCTION OF CAPITAL AND BUY-BACK OF SECURITIES 100 C HAP T E R 9 : PUBLIC ISSUE OF SECURITIES 113 C HAP T E R 10 : MEMBERSHIP OF COMPANY 123 C HAP T E R 11 : TRANSFER OF SECURITIES 155 C HAP T E R 12 : NOMINATION AND TRANSMISSION OF SHARES 180 C HAP T E R 13 : DEMOCRACY OF SHAREHOLDERS 194 C HAP T E R 14 : PROCEDURE OF GENERAL MEETING 215 C HAP T E R 15 : DIRECTORS OF COMPANY 262 C HAP T E R 16 : DISQUALIFICATIONS AND REMOVAL OF DIRECTOR 309 C HAP T E R 17 : RESTRICTIONS ON DIRECTORS IN RELATION TO COMPANY 323 C HAP T E R 18 : DUTIES, RIGHTS AND LIABILITIES OF A DIRECTOR 340 C HAP T E R 19 : MEETING OF BOARD OF DIRECTORS 358 C HAP T E R 20 : REPORT OF BOARD TO MEMBERS 390 C HAP T E R 21 : CORPORATE GOVERNANCE 402 C HAP T E R 22 : RESTRICTIONS ON POWERS OF BOARD 435 I-5 PA GE Chapter-heads
C HAP T E R 23 : KEY MANAGERIAL PERSONNEL 451 C HAP T E R 24 : CHARGE ON ASSETS OF THE COMPANY 483 C HAP T E R 25 : DEBENTURES 503 C HAP T E R 26 : PUBLIC DEPOSITS 518 C HAP T E R 27 : ACCOUNTS OF THE COMPANY 532 C HAP T E R 28 : DIVIDEND 559 C HAP T E R 29 : FINANCIAL AUDIT OF ACCOUNTS 581 C HAP T E R 30 : COST AUDIT AND SECRETARIAL AUDIT 602 C HAP T E R 31 : PRIVATE COMPANIES 614 C HAP T E R 32 : HOLDING AND SUBSIDIARY COMPANIES 623 C HAP T E R 33 : COMPANIES LICENSED UNDER SECTION 8 630 C HAP T E R 34 : GOVERNMENT COMPANIES 636 C HAP T E R 35 : FOREIGN COMPANY 645 C HAP T E R 36 : OTHER TYPES OF COMPANIES 652 C HAP T E R 37 : MISCELLANEOUS PROVISIONS IN COMPANY LAW 667 C HAP T E R 38 : OVERVIEW OF NCLT RELATED ISSUES 688 C HAP T E R 39 : INSPECTION, INVESTIGATION, OFFENCES, PENALTIES 697 C HAP T E R 40 : ADMINISTRATION OF COMPANY LAW 724 C HAP T E R 41 : MCA-21 - E-GOVERNANCE 739 C HAP T E R 42 : PROCEDURAL COMPLIANCES BY A COMPANY 746 SUBJECT INDEX 757 C HAPTE R HEA DS I-6 PA GE
I-7
1.1 Bac kgr o und of t hi s book 1 1.2 Ad m i ni st r ati o n of Co mpa ni es Act 2 1.3 Co mpa ny f or m of b usi ness or ga ni s ati o n 2 1.4 Co mmo n s e al i n r el ati o n t o a c o mpa ny 4 1.5 Co mpa ny i s not a ‘ ci ti z e n ’ 6 1.6 Li m i t e d li a bili t y 6 1.7 Vari o us t y pe of c o mpa ni es t hat c a n be f or me d 7 1.8 Co mpa ny i s a s e par at e ‘ pers o n ’ Se par at e l e gal e nti t y 10 1.9 Li fti ng t he c or por at e veil 12 2 INCORPORATION OF A COMPANY 2.1 I ni ti al st age i n f or mati o n of a c o mpa ny 13 2.2 Na me of c o mpa ny 15 2.3 Si g ni ng of me mor a nd u m a nd arti cl es 23 2.4 Doc u me nt s t o be fil e d w i t h ROC 25 2.5 Certi fic at e of i nc or por ati o n 28 2.6 Decl ar ati o n aft er i nc or por ati o n of a c o mpa ny bef or e c o mme nce me nt of b usi ness 30 PA GE
Contents
INTRODUCTION
Chapter-heads I-5 Section-wise Index I-25 1
ARTICLES OF ASSOCIATION 4.1 Rul es f or i nt er nal ma nage me nt of c o mpa ny 48 4.2 Bi ndi ng nat ur e of Arti cl es 50 4.3 Rest ri cti ve cl a us es i n Arti cl es of a c o mpa ny 52 4.4 Pr ovi si o ns as a ppli c a bl e t o Arti cl es of Pri vat e Li m i t e d Co mpa ny 53 4.5 Suggest e d Dr aft of Arti cl es 53 4.6 Al t er ati o n of Arti cl es of Ass oci ati o n 54 4.7 Co mp ul s or y al t er ati o n of Arti cl es 55 5
CAPITAL OF THE COMPANY 5.1 ‘ O wn Funds’ a nd ‘ Loa n Funds’ 56 5.2 Pr ef er e nce Shar es 60 PA GE
C ONTE NTS I-8 3 MEMORANDUM OF ASSOCIATION
3.1 Co nsti t uti o n of Co mpa ny 33 3.2 Re gi st er e d of fice cl a us e 34 3.3 Obj ect s Cl a us es i n Me mor a nd u m 36 3.4 Ca pi t al Cl a us e i n Me mor a nd u m of Ass oci ati o n 36 3.5 Subs cri ber t o me mor a nd u m of ass oci ati o n of a c o mpa ny 37 3.6 Pers o ns e nti tl e d t o o bt ai n c opi es of Me mor a nd u m a nd Arti cl es of t he c o mpa ny a nd cert ai n r es ol uti o ns 37 3.7 Al t er ati o n of Me mor a nd u m of Ass oci ati o n 37 3.8 Pr oce d ur e f or A me ndi ng Me mor a nd u m 38 3.9 Pr oce d ur e f or c ha nge of na me 38 3.10 Cha nge of Re gi st er e d Of fice of c o mpa ny 40 3.11 Cha nge of Obj ect Cl a us e 44 3.12 Cha ngi ng Ca pi t al cl a us e i n t he Me mor a nd u m of Ass oci ati o n of a c o mpa ny 44 3.13 Al t er ati o ns t o Me mor a nd u m of Ass oci ati o n Pr ovi si o ns at a gl a nce 46 3.14 Doct ri ne of ultra vires Me mor a nd u m 47 4
6.1 Vari o us mo des of r ai si ng c a pi t al 65 6.2 I ss ue of s har es at pr e m i u m 68 6.3 I ss ue of e q ui t y s har es w i t h di ff er e nti al ri g ht s 71 6.4 Pri vat e pl ace me nt of s ec uri ti es 72 6.5 Co nversi o n of de be nt ur es or l oa ns i nt o s har es as per l oa n agr ee me nt 75 6.6 Co mp ul s or y c o nversi o n of de be nt ur es a nd l oa ns gi ve n by Ce nt r al Gover n me nt i nt o e q ui t y s har es of t he c o mpa ny 75 6.7 Warr a nt s 76 6.8 Pr oce d ur e f or i ss ue of s ec uri ti es 77 6.9 All ot me nt of s har es 78 6.10 I mpr oper a nd i rr e g ul ar all ot me nt 79 6.11 Call s o n s har es a nd f orf ei t ur e 80 7 FURTHER ISSUE OF SECURITIES 7.1 Ri g ht s i ss ue 84 7.2 ‘ Pr ef er e nti al All ot me nt’ i n c as e of f r es h i ss ue of s ec uri ti es 88 7.3 Bo n us s har es 89 7.4 S we at e q ui t y s har es 94 7.5 E mpl oyee St oc k Opti o n/ St oc k p ur c has e 96 7.6 Gl o bal De posi t or y Recei pt s ( GDR) 98 8 REDUCTION OF CAPITAL AND BUY-BACK OF SECURITIES 8.1 Ca pi t al r e d ucti o n 100 8.2 Pr oce d ur e f or r e d ucti o n of c a pi t al of a c o mpa ny 102 8.3 Ot her po wers of NCLT t o or der r e d ucti o n of c a pi t al 104 8.4 Di m i n uti o n of c a pi t al does not c o nsti t ut e r e d ucti o n of c a pi t al 104 8.5 Co mpa ny c a nnot b uy i t s o wn s har es 105 8.6 Buy bac k of s ec uri ti es 106 PA
GE I-9 C ONTE NTS
6 ISSUE OF SECURITIES
9
9.1 Bac kgr o und 113 9.2 St oc k e xc ha nge r e q ui r e me nt s f or li sti ng of a s ec uri t y 114 9.3 Rest ri cti o ns o n utili s ati o n of f unds c oll ect e d whil e i ss ui ng s har es t o p ubli c 115 9.4 Co mm i ssi o n t hat c a n be pai d whil e i ss ui ng s ec uri ti es 115 9.5 Puni s h me nt f or pers o nati o n f or ac q ui si ti o n, et c. of s ec uri ti es 116 9.6 Pr os pect us 116 9.7 Gol de n r ul e of f ull a nd pr oper di s cl os ur e i n pr os pect us 119 9.8 Pr oce d ur al as pect s of pr os pect us 120 9.9 Pe nal t y f or vi ol ati ng pr ovi si o ns i n r es pect of pr os pect us 121 9.10 Li a bili ti es f or f al s e st at e me nt s i n pr os pect us 121 10 MEMBERSHIP OF COMPANY 10.1 Me mber a nd s har e hol der 123 10.2 Li e n o n s har es 132 10.3 Vari ati o n i n ri g ht s of s har e hol ders 133 10.4 Me mber of c o mpa ny 134 10.5 Who c a n bec o me me mber of a c o mpa ny? 136 10.6 A m i nor as me mber of a c o mpa ny 139 10.7 Ter m i nati o n of me mbers hi p 141 10.8 J oi nt hol di ng of s har es 142 10.9 Shar es hel d i n t r ust 145 10.10 Re gi st er of me mbers 150 11 TRANSFER OF SECURITIES 11.1 Ge ner al pr ovi si o ns of s har e t r a nsf er 155 11.2 St a mp d ut y o n s har e t r a nsf er dee d 160 11.3 Pr oce d ur e by c o mpa ny f or t r a nsf er of s ec uri t y 162 11.4 Tr a nsf er of s ec uri t y i n c as e of li st e d c o mpa ny 164 11.5 Rest ri cti o ns o n t r a nsf er i n c as e of do m i na nt undert a ki ng 165 PA
PUBLIC ISSUE OF SECURITIES
GE C ONTE NTS I-10
11.6
Tr a nsf er whe n c o mpa ny i s under w i ndi ng up 165 11.7 Eff ect of f or ger y o n t r a nsf er of s ec uri t y 165 11.8 Ref us al of t r a nsf er of s ec uri t y 166 11.9 I nst r u me nt of t r a nsf er of s ec uri t y 167 11.10
Ri g ht of t r a nsf er ee i f t r a nsf er not eff ect e d by c o mpa ny 169 11.11 Pr ot ecti o n avail a bl e t o t r a nsf er ee of s har es i n c as e of li st e d c o mpa ni es 170 11.12
Whe n s har e t r a nsf er c a nnot be r ef us e d by a c o mpa ny? 171 11.13 Rest ri cti o ns o n t r a nsf er of s har es i n a Pri vat e Li m i t e d Co mpa ny 172 11.14 Pr oce d ur e t o be f oll o we d i f c o mpa ny deci des t o decli nes t r a nsf er / t r a ns m i ssi o n 173 11.15 Appe al i f c o mpa ny r ef us es t o t r a nsf er s har es 174 11.16 Recti fic ati o n of r e gi st er of me mbers 175 11.17 Ci vil s ui t not avail a bl e whe n NCLT has j uri s di cti o n 179 12
NOMINATION AND TRANSMISSION OF SHARES 12.1 No m i nati o n of s har es / De be nt ur es 180 12.2 I nv ol unt ar y t r a nsf er of s ec uri ti es 184 12.3 Mo des of t r a ns m i ssi o n of s ec uri t y 189 12.4 Tr a ns m i ssi o n i n c as e of i nt est at e s uccessi o n 191 12.5 Posi ti o n of a n i ns ol ve nt w i t h r e gar d t o me mbers hi p i n a c o mpa ny 192 12.6 Tr a ns m i ssi o n i n c as e of a me nt all y ill pers o n 193 12.7 Tr a ns m i ssi o n of s ec uri t y i n c as e of a mal ga mati o n of a c o mpa ny 193 12.8 Tr a ns m i ssi o n whe n a m i nor bec o m i ng maj or 193 12.9 Tr a ns m i ssi o n of s ec uri t y i n c as e of Co urt or der or Ar bi t r ati o n A war d 193 13
DEMOCRACY OF SHAREHOLDERS 13.1 Shar e hol ders ar e ul ti mat e o wners, b ut w i t h li m i t e d po wers 194 13.2 Meeti ngs of s har e hol ders 195 13.3 Ge ner al pr ovi si o ns of meeti ng of me mbers 200 13.4 Re q ui r e me nt s of noti ce of a ge ner al meeti ng 207 13.5 Ann ual ge ner al meeti ng 210 13.6 Fi na nci al st at e me nt 214
PA GE I-11 C ONTE NTS
PA GE C ONTE NTS I-12
14
PROCEDURE OF GENERAL MEETING 14.1 Chai r pers o n of t he meeti ng 215 14.2 One pers o n meeti ng 221 14.3 Pr oxy at t he meeti ng 223 14.4 Pr oce d ur e of t he meeti ng 229 14.5 Adj o ur n me nt of ge ner al meeti ngs 233 14.6 Rul es of de bat e i n a ge ner al meeti ng 237 14.7 Functi o ns of a Co mpa ny Secr et ar y i n r e gar d t o meeti ng 237 14.8 Res ol uti o ns a nd v oti ng at ge ner al meeti ng 237 14.9 Me mbers’ Res ol uti o ns a nd St at e me nt s o n Res ol uti o ns 240 14.10 Pri vat e agr ee me nt s not bi ndi ng 241 14.11 Voti ng at t he meeti ng 241 14.12 Voti ng by poll 245 14.13 Voti ng by post al ball ot 248 14.14 Voti ng by el ect r o ni c me a ns 251 14.15 M i n ut es of ge ner al meeti ng 254 14.16 I ns pecti o n of M i n ut e Books of Ge ner al Meeti ng 258 14.17 Secr et ari al St a ndar d SS 5 o n M i n ut es 259 14.18 Fili ng of r es ol uti o ns w i t h ROC 259 15 DIRECTORS OF COMPANY 15.1 Rol e of Di r ect ors 262 15.2 Boar d of Di r ect ors 264 15.3 I nde pe nde nt di r ect ors i n c as e of p ubli c c o mpa ni es 264 15.4 Di r ect or el ect e d by s mall s har e hol ders 273 15.5 Pr ot ecti o n t o i nde pe nde nt a nd no n- e xec uti ve di r ect ors 274 15.6 Who c a n be a Di r ect or? 274 15.7 El ecti o n a nd a ppoi nt me nt of Di r ect ors 275 15.8 Co nt esti ng as Di r ect or 279 15.9 Pr oporti o nal r e pr es e nt ati o n 280
DISQUALIFICATIONS AND REMOVAL OF DIRECTOR 16.1 Di s q uali fic ati o n of a di r ect or 309 16.2 No di s q uali fic ati o n of no m i nee di r ect ors 313 16.3 Vac ati o n of of fice of a Di r ect or 314 16.4 Resi g nati o n by di r ect or 317 16.5 Re moval of a di r ect or 319 16.6 Re moval of di r ect or i n r e q ui si ti o n meeti ng 321 16.7 Re moval of di r ect or c a n a mo unt t o oppr essi o n 321 16.8 Re moval of per ma ne nt di r ect ors 321 16.9 Re moval by NCLT 322 16.10 Ci vil c o urt has j uri s di cti o n i n r es pect of r e moval of di r ect or 322 16.11 Re moval of no m i nee di r ect or by w i t hdr a w i ng no m i nati o n 322 PA
15.10 No m i nee Di r ect ors 281 15.11 Addi ti o nal Di r ect ors 285 15.12 Al t er nat e Di r ect or 286 15.13 Appoi nt me nt of di r ect or by NCLT 289 15.14 Filli ng of c as ual vac a nc y of a di r ect or 289 15.15 De facto di r ect or 290 15.16 Speci al pr ovi si o ns r el ati ng t o ba nki ng c o mpa ni es 291 15.17 Rest ri cti o n o n n u mber of Di r ect ors hi ps 291 15.18 Secr et ari al pr oce d ur es r el ati ng t o di r ect ors 292 15.19 Secr et ari al pr acti ce f or a ppoi nt me nt /Cha nge i n Di r ect or 292 15.20 Re gi st er of Di r ect ors a nd K MP 297 15.21 Re muner ati o n t o no n whol eti me Di r ect ors 298 15.22 Pay me nt of si tti ng f ees a nd t r avel e x pe ns es t o Di r ect ors 300 15.23 Ceili ng of t ot al ma nageri al r e muner ati o n 301 15.24 Cal c ul ati o n of ‘ Net Pr o fit’ 304 15.25 Ma nageri al r e muner ati o n at a gl a nce 306 15.26 Re muner ati o n t o di r ect or i n pr of essi o nal c a paci t y 307 15.27 Ot her pr ovi si o ns r el ati ng t o ma nageri al r e muner ati o n 307 16
GE I-13 C ONTE NTS
17 RESTRICTIONS ON DIRECTORS IN RELATION TO COMPANY 17.1 Co nt r act s i n whi c h di r ect ors ar e i nt er est e d 323 17.2 Rest ri cti o ns o n l oa ns t o di r ect ors 325 17.3 Rel at e d Part y Tr a ns acti o ns 327 17.4 Di s cl os ur es a nd r e gi st ers 335 17.5 Acc o unti ng St a ndar d r el ati ng t o r el at e d part y t r a ns acti o ns 337 17.6 Pay me nt t o di r ect or f or l oss of of fice, et c. 337 17.7 Rest ri cti o n o n no n c as h t r a ns acti o ns i nv ol vi ng di r ect ors 339 17.8 Co nt r act by OP C w i t h i t s Sol e Me mber 339 18 DUTIES, RIGHTS AND LIABILITIES OF A DIRECTOR 18.1 Le gal posi ti o n of a Di r ect or 340 18.2 Di r ect or i s not a n e mpl oyee 341 18.3 Di r ect or has s o me t r ai t s of a n age nt of t he c o mpa ny 341 18.4 Di r ect or has s o me t r ai t s as ‘ t r ust ee ’ 341 18.5 Di r ect ors c a nnot e nt er i nt o pooli ng arr a nge me nt 342 18.6 Cor por at e opport uni t y c a nnot be di vert e d f or pers o nal gai ns 342 18.7 Speci fic d uti es of a di r ect or 343 18.8 Ri g ht s of di r ect or a nd li m i t ati o ns 343 18.9 Le gal li a bili t y of a di r ect or 344 18.10 Co mpli a nce Certi fic at es f r o m e xec uti ve di r ect ors 346 18.11 Li a bili t y under Co mpa ni es Act o n ‘ of ficer i n def a ul t’ 346 18.12 Pers o nal li a bili t y of Di r ect or f or c o mpa ny ’ s d ues 348 18.13 Di r ect or may be hel d li a bl e e ve n i f not pers o nall y i nv ol ve d i n f r a ud, i f he i s ne gli ge nt 350 18.14 Di r ect or li a bl e f or c o nt e mpt of Co urt by c o mpa ny 351 18.15 Li a bili t y i f pers o nal g uar a nt ee gi ve n 351 18.16 I ns ur a nce of li a bili t y of Di r ect or 351 18.17 Li a bili t y of di r ect or under ot her Act s 353 18.18 Li a bili ti es under s o me Act s 355 18.19 Li a bili t y under Ne g oti a bl e I nst r u me nt s Act 357 PA GE C ONTE NTS I-14
GE I-15 C ONTE NTS
19 MEETING OF BOARD OF DIRECTORS 19.1 Rol e of Boar d i n Co mpa ny Ma nage me nt 358 19.2 Boar d i n s upr e me i n ma nage me nt of Co mpa ny 359 19.3 Deci si o ns of Boar d at t he meeti ng 360 19.4 Age nda f or Boar d meeti ngs 362 19.5 Ci r c ul ar Res ol uti o n i.e. r es ol uti o n by ci r c ul ati o n 363 19.6 Boar d Res ol uti o ns r e q ui ri ng una ni mo us v oti ng 370 19.7 Co mm i tt ees of t he Boar d 370 19.8 A me nd me nt or c a ncell ati o n of a Boar d Res ol uti o n 372 19.9 Co nd uct of a Boar d meeti ng 373 19.10 Chai r pers o n of t he Boar d meeti ng 375 19.11 Age nda of t he Boar d meeti ng w i t h r el at e d pa pers s e ve n days bef or e meeti ng 377 19.12 Quor u mf or t he Boar d Meeti ng 378 19.13 Adj o ur n me nt of Boar d Meeti ng 381 19.14 Fili ng of Boar d r es ol uti o ns a nd agr ee me nt s 381 19.15 Boar d meeti ngs r e q ui r e me nt s i n r es pect of li st e d c o mpa ni es 382 19.16 El ect r o ni c Boar d meeti ng t hr o ug h vi de o c o nf er e nce 383 19.17 M i n ut es of Boar d Meeti ng 385 20 REPORT OF BOARD TO MEMBERS 20.1 Di r ect ors ’ Re port 390 20.2 Co nt e nt s of Re port of Boar d 392 20.3 Re q ui r e me nt s i n c as e of li st e d c o mpa ni es 400 20.4 NBF C/ Chi t Fund/ Ho usi ng Fi na nce Co mpa ni es t o di s cl os e unpai d de posi t s 401 20.5 Puni s h me nt f or not c o mpl yi ng w i t h pr ovi si o ns 401 21 CORPORATE GOVERNANCE 21.1 Tr a ns par e nc y a nd i nt e gri t y i n c o mpa ny ma nage me nt 402 PA
PA GE C ONTE NTS I-16
21.2 What i s Cor por at e Gover na nce? 403 21.3 Funda me nt al Pri nci pl es of Cor por at e Gover na nce 403 21.4 Li m i t ati o ns of Cor por at e Gover na nce 403 21.5 S E BI Re q ui r e me nt s o n Cor por at e Gover na nce 404 21.6 H i g hli g ht s of S E BI ( Li sti ng Obli gati o ns a nd Di s cl os ur e Re q ui r e me nt s) Re g ul ati o ns, 2015 405 21.7 Di s cr eti o nar y r e q ui r e me nt s of c or por at e g over na nce 410 21.8 Re porti ng c o mpli a nce of c or por at e g over na nce 412 21.9 Audi t Co mm i tt ee 412 21.10 S E BI pr ovi si o ns r el ati ng t o Audi t Co mm i tt ee 416 21.11 No m i nati o n a nd Re muner ati o n Co mm i tt ee 419 21.12 St a ke hol ders Rel ati o ns hi p Co mm i tt ee 422 21.13 Cor por at e Soci al Res po nsi bili t y 422 22 RESTRICTIONS ON POWERS OF BOARD 22.1 I nt r o d ucti o n 435 22.2 Sal e or l e as e of undert a ki ng 435 22.3 I nvest me nt of c o mpe ns ati o n r ecei ve d aft er mer ger or a mal ga mati o n 437 22.4 Borr o w i ng mo ne y 438 22.5 Re m i tti ng or gi vi ng ti me f or r ec over y of de bt d ue f r o m di r ect or 439 22.6 Co nt ri b uti o n t o bona fide c hari t a bl e t r ust s or f unds 439 22.7 No r est ri cti o ns o n c o nt ri b uti o n t o Nati o nal Def e nce Fund 440 22.8 Rest ri cti o ns o n poli ti c al c o nt ri b uti o ns 440 22.9 Rest ri cti o ns o n ma nageri al r e muner ati o n 442 22.10 No r est ri cti o n o n ot her po wers 442 22.11 I nvest me nt s by c o mpa ni es 442 22.12 Rest ri cti o ns o n i nvest me nt t hr o ug h i nvest me nt s ubsi di ari es 444 22.13 Li m i t i n r es pect of i nvest me nt /l oa n/g uar a nt ee 444 22.14 Gi vi ng g uar a nt ee or pr ovi di ng s ec uri t y f or l oa n 445 22.15 Una ni mo us a ppr oval of Boar d i n meeti ng 447 22.16 Puni s h me nt f or c o nt r ave nti o n of pr ovi si o ns 450
23 KEY MANAGERIAL PERSONNEL 23.1 Day t o day ma nage me nt of c o mpa ny 451 23.2 Rol e of Ma nagi ng Di r ect or / Ma nager 458 23.3 MD/ Ma nager i s s ubor di nat e t o Boar d of Di r ect ors 460 23.4 Who c a n be a ppoi nt e d as MD/ WT D/ Ma nager? 461 23.5 Di s q uali fic ati o n as MD/ WD 462 23.6 Whe n a ppr oval of Ce nt r al Gover n me nt i s necess ar y f or a ppoi nti ng MD/ WT D/ Ma nager? 463 23.7 Appoi nt me nt of MD/ WD 465 23.8 Re muner ati o n t o Ma nageri al Pers o n 466 23.9 Re muner ati o n t o di r ect or whe n pr o fit i s i na de q uat e or c o mpa ny i s i n l oss 467 23.10 Per q ui si t es all o wa bl e t o MD/ WD 471 23.11 Co mpe ns ati o n f or l oss of of fice or r eti r e me nt 474 23.12 Co mpa ny Secr et ar y 475 23.13 Ma ndat or y a ppoi nt me nt of Secr et ar y 476 23.14 Rol e of Co mpa ny Secr et ar y 478 24 CHARGE ON ASSETS OF THE COMPANY 24.1 Sec ur e d borr o w i ngs 483 24.2 Char ge o n ass et s o wne d by c o mpa ny 485 24.3 Cr e ati o n of ‘ Char ge ’ 489 24.4 Char ges fili ng of whi c h w i t h ROC i s not necess ar y 494 24.5 Fili ng of c har ge, i t s mo di fic ati o n a nd s ati sf acti o n 495 24.6 Re gi st r ati o n of c har ge by ROC 497 24.7 Eff ect of no n r e gi st r ati o n of c har ge 498 24.8 Pe nal t y f or not fili ng c har ges or gi vi ng f al s e i nf or mati o n 499 24.9 Rec or ds of c har ges t o be mai nt ai ne d by t he c o mpa ny 500 24.10 Recti fic ati o n of r e gi st er of c har ges 500 PA GE
I-17 C ONTE NTS
25 DEBENTURES 25.1 Nat ur e of ‘ de be nt ur e ’ 503 25.2 Ty pes of de be nt ur es 505 25.3 De be nt ur e t r ust ees 508 25.4 Pr oce d ur e f or i ss ue of de be nt ur es 510 25.5 Ot her i ss ues r el ati ng t o de be nt ur es 514 25.6 Pr ot ecti o n of i nt er est of de be nt ur e hol ders 517 26 PUBLIC DEPOSITS 26.1 De posi t s f r o m p ubli c a nd me mbers 518 26.2 Acce pt a nce of s ec ur e d de posi t s f r o m p ubli c o nl y i n s peci fie d c as es 520 26.3 Ot her c o mpa ni es c a n acce pt de posi t s o nl y f r o m me mbers 521 26.4 Re pay me nt of de posi t s 526 26.5 Borr o w i ngs whi c h ar e e xcl ude d f r o m de fini ti o n of ‘ de posi t’ 529 27 ACCOUNTS OF THE COMPANY 27.1 Nee d f or acc o unt s a nd a udi t 532 27.2 Fi na nci al St at e me nt of a c o mpa ny 535 27.3 Ci r c ul ati o n of Fi na nci al St at e me nt w i t h att ac h me nt s 539 27.4 Fili ng c opy of Fi na nci al St at e me nt s w i t h ROC 543 27.5 Re ope ni ng of acc o unt s a nd fina nci al st at e me nt 547 27.6 I nt er nal Audi t 549 27.7 I ns pecti o n of books of acc o unt 550 27.8 Di ff er e nt acc o unt s f or Co mpa ny La w & I nc o me Tax 551 27.9 Nati o nal Fi na nci al Re porti ng Aut hori t y ( NF RA) 551 27.10 Acc o unti ng St a ndar ds 555 27.11 Acc o unti ng St a ndar ds a ppli c a bl e t o ot her c o mpa ni es 557 27.12 Re q ui r e me nt s of Fi na nci al St at e me nt 558 PA
GE C ONTE NTS I-18
28 DIVIDEND 28.1 Shar e of pr o fit t o me mbers 559 28.2 Decl ar ati o n of di vi de nd o ut of r es er ves 561 28.3 No di vi de nd unl ess c arri e d over l oss es a nd de pr eci ati o n ar e s et off agai nst pr o fit 563 28.4 Decl ar ati o n of di vi de nd 564 28.5 I nt eri m di vi de nd 565 28.6 Enti tl e me nt of di vi de nd 567 28.7 S E BI Re q ui r e me nt s f or decl ar ati o n of di vi de nd 568 28.8 Pay me nt of di vi de nd 569 28.9 Di vi de nd t o be pai d w i t hi n 30 days 571 28.10 Whe n pay me nt of di vi de nd may be w i t hhel d? 572 28.11 Pay me nt of di vi de nd whe n t r a nsf er not r e gi st er e d, as i t was agai nst l a w 573 28.12 Ot her pr ovi si o ns r el ati ng t o di vi de nd 574 28.13 Unpai d di vi de nd 575 28.14 I nvest or Ed uc ati o n a nd Pr ot ecti o n Fund 577 29
GE I-19 C ONTE NTS
FINANCIAL AUDIT OF ACCOUNTS 29.1 Rol e of a n ‘ Audi t or ’ 581 29.2 Appoi nt me nt a nd r e muner ati o n of Audi t ors 582 29.3 Appoi nt me nt or r e a ppoi nt me nt of a udi t ors / fir m of a udi t ors 584 29.4 Cas ual vac a nc y of a udi t or 587 29.5 Appoi nt me nt of a udi t ors / fir m of a udi t ors i n Gover n me nt c o mpa ny 588 29.6 Re muner ati o n of a udi t ors / fir m of a udi t ors 589 29.7 Appoi nti ng a not her a udi t or 590 29.8 Po wers of Audi t or 593 29.9 Audi t of Br a nc h Of fice 593 29.10 Re port of Audi t ors t o Me mbers 594 29.11 Addi ti o nal matt ers t o be i ncl ude d i n r e port of a udi t or 596 29.12 Ot her pr ovi si o ns r e gar di ng a udi t r e port 597 PA
29.13 Audi t or not t o r e nder cert ai n s er vi ces 599 29.14 Puni s h me nt f or c o nt r ave nti o n of pr ovi si o ns r el ati ng t o a udi t a nd a udi t ors 600 30 COST AUDIT AND SECRETARIAL AUDIT 30.1 Rol e of Cost Audi t 602 30.2 Cost Acc o unti ng St a ndar ds 605 30.3 Di sti ncti o n bet wee n Fi na nci al Audi t & Cost Audi t 605 30.4 Cost Rec or ds a nd Audi t Rul es 606 30.5 Secr et ari al Audi t i n r es pect of bi gger c o mpa ni es 608 30.6 Secr et ari al St a ndar ds 611 30.7 Co mpa ny Secr et ar y i n Pr acti ce 612 30.8 Certi fic at e of Pr acti ce of o nl y o ne I nsti t ut e 612 31 PRIVATE COMPANIES 31.1 Pri vat e c o mpa ny i s gl ori fie d part ners hi p 614 31.2 Pri vat e c o mpa ny, whi c h i s s ubsi di ar y of a p ubli c c o mpa ny, i s p ubli c c o mpa ny 619 31.3 Co nversi o n of pri vat e t o p ubli c c o mpa ny a nd vice versa 620 31.4 Di r ect or of a pri vat e c o mpa ny has pers o nal li a bili t y f or i nc o me t ax a nd GS T 622 32 HOLDING AND SUBSIDIARY COMPANIES 32.1 One c o mpa ny o wni ng ot her 623 32.2 I mpli c ati o ns of hol di ng/s ubsi di ar y r el ati o ns hi p bet wee n t wo c o mpa ni es 625 32.3 Pr ovi si o ns i n c as e of li st e d c o mpa ni es 627 32.4 Ot her pr ovi si o ns a ppli c a bl e t o hol di ng a nd s ubsi di ar y c o mpa ni es 628 32.5 Wholl y o wne d s ubsi di ar y 629 PA
GE C ONTE NTS I-20
COMPANIES LICENSED UNDER SECTION 8 33.1 No n pr o fit c o mpa ni es 630 33.2 El ect or al Tr ust s 634 34 GOVERNMENT COMPANIES 34.1 Co mpa ny wher e Gover n me nt i s maj or s har e hol der 636 34.2 Audi t ors of Gover n me nt c o mpa ny 639 34.3 Ann ual r e port o n Gover n me nt c o mpa ni es t o Parli a me nt / St at e Le gi sl at ur e 641 34.4 Gover n me nt ma nage d c o mpa ni es 641 34.5 Gover n me nt Co mpa ny i s not ‘ Gover n me nt’, b ut i s ‘ St at e ’ 641 35 FOREIGN COMPANY 35.1 Bo dy Cor por at e I nc or por at e d o ut si de I ndi a 645 35.2 Cert ai n pr ovi si o ns a ppli c a bl e t o f or ei g n c o mpa ny 649 35.3 Li m i t ati o ns o n f or ei g n c o mpa ny 650 35.4 For ei g n c o mpa ny w i t h c o nt r ol f r o mI ndi a 650 35.5 I ss ue of s har es / de be nt ur es by a f or ei g n c o mpa ny 650 36 OTHER TYPES OF COMPANIES 36.1 S mall Co mpa ny 652 36.2 One Pers o n Co mpa ny ( OP C) 653 36.3 Dor ma nt Co mpa ny 658 36.4 Guar a nt ee Co mpa ny 660 36.5 I ns ur a nce Co mpa ni es 661 36.6 Ho usi ng Fi na nce Co mpa ni es 661 36.7 Ba nki ng Co mpa ni es 661 36.8 El ect ri ci t y Co mpa ni es 662 PA
GE I-21 C ONTE NTS
33
36.9 Pr o d ucer Co mpa ni es 662 36.10 No n Ba nki ng Fi na nci al Co mpa ni es ( NBF Cs) 663 36.11 Chi t f unds 663 36.12 Ni dhi or Mut ual Be ne fit Soci et y 664 36.13 St art up Co mpa ny 666 37
GE C ONTE NTS I-22
MISCELLANEOUS PROVISIONS IN COMPANY LAW 37.1 Ser vi ce of doc u me nt s 667 37.2 Re moval of na me of c o mpa ni es f r o m r e gi st er of me mbers 669 37.3 Co nversi o n of Part ners hi p or LLP or s oci et y or ot her b usi ness e nti t y i nt o a Co mpa ny 675 37.4 Recei vers a nd ma nagers 678 37.5 Me di ati o n a nd c o ncili ati o n 678 37.6 Re gi st er e d val uers 680 37.7 I ns ol ve nc y a nd Ba nkr upt c y Co de, 2016 f or c o mpa ni es 685 38 OVERVIEW OF NCLT RELATED ISSUES 38.1 Bac kgr o und 688 38.2 Cl ass acti o n under Co mpa ny La w 688 38.3 Oppr essi o n a nd m i s ma nage me nt 689 38.4 Co mpr o m i s e a nd arr a nge me nt 691 38.5 Mer ger a nd a mal ga mati o n 692 38.6 Cr oss bor der mer gers 693 38.7 Ta ke over of a not her c o mpa ny by p ur c hasi ng 100 % of s har es 693 38.8 W i ndi ng up of c o mpa ny 693 39 INSPECTION,OFFENCES,INVESTIGATION,PENALTIES 39.1 Po wer of Re gi st r ar t o c all f or i nf or mati o n 697 39.2 Se ar c h a nd s ei z ur e 699 PA
Pr ovi si o ns i n r es pect of t ri al i n Co urt 712 39.12 Me a ni ng of c o nti n ui ng off e nce f or p ur pos e of li m i t ati o n 714 39.13 Cri m i nal acti o n of di r ect ors a nd e mpl oyees i s cri m i nal acti o n of a c o mpa ny 717 39.14 Li m i t s o n li a bili t y of di r ect ors i n cert ai n c as es 717 39.15 Po wer of Co urt t o gr a nt r eli ef t o of ficer i f he ha d act e d ho nestl y a nd r e as o na bl y 718 39.16 Puni s h me nt f or wr o ngf ul w i t hhol di ng of pr opert y 718 39.17 Co mposi ti o n of off e nces 719 40 ADMINISTRATION OF COMPANY LAW 40.1 La w a d m i ni st er e d by Ce nt r al Gover n me nt 724 40.2 Re gi o nal Di r ect ors 727 40.3 Re gi st r ar of Co mpa ni es 729 40.4 Ret ur ns t o ROC 731 40.5 Co mpa ny La w Boar d 737 40.6 S E BI 737 40.7 Ci vil Co urt & Co mpa ny Co urt 737 40.8 Nati o nal Co mpa ny La w Tri b unal a nd Appell at e Tri b unal 738 41 MCA-21 - E-GOVERNANCE 41.1 E g over na nce i n c o mpa ny l a w a d m i ni st r ati o n 739 PA
Pr ot ecti o n of e mpl oyees d uri ng i nvesti gati o n 703 39.6 Seri o us Fr a uds I nvesti gati o n Of fice 704 39.7 Puni s h me nt s f or off e nces 705 39.8 Of ficer a nd ‘ of ficer i n def a ul t’ 709 39.9 Me a ni ng of f r a ud 711 39.10 Co mpa ny c a n be pr os ec ut e d i f l a w pr ovi des f or c o mp ul s or y i mpri s o n me nt 712 39.11
39.3 I nvesti gati o n 699 39.4 I nvesti gati o n of o wners hi p of a c o mpa ny 702 39.5
GE I-23 C ONTE NTS
42 PROCEDURAL COMPLIANCES BY A COMPANY 42.1 Co mpli a nce r e q ui r e me nt s 746 42.2 Re gi st ers a nd Rec or ds 746 42.3 Mai nt e na nce a nd i ns pecti o n of doc u me nt i n el ect r o ni c f or m by c o mpa ny 748 42.4 Re g ul ar r et ur ns t o be fil e d by c o mpa ni es 749 SUBJECT INDEX 757 PA GE C ONTE NTS I-24
Secti o n 2(1 ) 9.6-4 Secti o n 2(2 ) 27.10 Secti o n 2(3 ) 3.7, 4.6Secti o n 2(5 ) 4.1 Secti o n 2(6 ) 17.3-2 Secti o n 2(7 ) 29.1-1 Secti o n 2(8 ) 5.1-4 Secti o n 2(10 ) 19.2 Secti o n 2(11 ) 1.3-1 Secti o n 2(12 ) 27.1-1 Secti o n 2(13 ) 27.1-1 Secti o n 2(14 ) 27.1-5, 29.9Secti o n 2(15 ) 5.1-5 Secti o n 2(16 ) 24.2 Secti o n 2(17 ) 29.2-2 Secti o n 2(18 ) 23.1 Secti o n 2(19 ) 23.1-1 Secti o n 2(20 ) 1-3-2 Secti o n 2(22 ) 1.6, 1.7-1Secti o n 2(24 ) 23.12 Secti o n 2(27 ) 32.1 Secti o n 2(28 ) 30.1-3 Secti o n 2(29 ) 40.7 Secti o n 2(30 ) 25.1 Secti o n 2(31 ) 26.1-1 Secti o n 2(32 ) 10.1-1 Secti o n 2(33 ) 5.1-2 Secti o n 2(34 ) 15.1-1 Secti o n 2(35 ) 28.1 Secti o n 2(36 ) 27.1-1 Secti o n 2(38 ) 9.7-1 Secti o n 2(40 ) 27.2 Secti o n 2(41 ) 27.2-4 Secti o n 2(42 ) 35.1 Secti o n 2(43 ) 22.14-2, 28.2-4Secti o n 2(44 ) 35.5-1 Secti o n 2(45 ) 34.1 Secti o n 2(46 ) 32.1 Secti o n 2(47 ) 15.3 Secti o n 2(50 ) 5.1-5 Secti o n 2(51 ) 23.1 Secti o n 2(52 ) 1.7-3 Secti o n 2(53 ) 23.1 Secti o n 2(54 ) 23.1 Secti o n 2(55 ) 3.5, 10.1-1, 10.4Secti o n 2(56 ) 3.1, 4.2Secti o n 2(57 ) 22.14-2 Secti o n 2(59 ) 39.8 I-25 Index
Section-wise
Secti o n 2(60 ) 39.8-1 Secti o n 2(62 ) 36.2 Secti o n 2(63 ) 14.8 Secti o n 2(64 ) 5.1-7 Secti o n 2(65 ) 14.13 Secti o n 2(68 ) 4.4, 10.8, 31.1-1Secti o n 2(69 ) 2.1-1 Secti o n 2(70 ) 9.6-1 Secti o n 2(71 ) 1.7-2, 31.1-1Secti o n 2(72 ) 22.15-5 Secti o n 2(75 ) 40.3, 2.5Secti o n 2(76 ) 17.3-2, 17.3-3Secti o n 2(77 ) 17.3-2 Secti o n 2(78 ) 15.21-1 Secti o n 2(80 ) 22.15-5 Secti o n 2(81 ) 1.7-3, 5.1-2Secti o n 2(84 ) 10.1 Secti o n 2(85 ) 36.1 Secti o n 2(86 ) 5.1-5 Secti o n 2(87 ) 32.1 Secti o n 2(88 ) 7.4 Secti o n 2(89 ) 14.8 Secti o n 2(91 ) 36.1 Secti o n 2(92 ) 1.7-5 Secti o n 2(93 ) 14.8 Secti o n 2(94 ) 23.1 Secti o n 2(94A ) 38.8-1 Secti o n 3 1.7 Secti o n 3( 1) 1.3-2, 2.1, 36.2Secti o n 3( 2) 36.4 Secti o n 4 2.2-1 Secti o n 4( 1) 3.1-1 Secti o n 4( 1)(d ) 1.7-1 Secti o n 4( 1)( e ) 6.8-2 Secti o n 4( 5) 2.2-12 Secti o n 4( 6) 3.1-2 Secti o n 5 4.1 Secti o n 5( 4) 4.3-1 Secti o n 6 3.1, 4.3Secti o n 7 2.4 Secti o n 7( 1) 4.1-1 Secti o n 7( 1)(b ) 23.14-2 Secti o n 7( 2) 2.4 Secti o n 7( 7) 2.5-2 Secti o n 8 33.1 Secti o n 9 1.3-3, 2.5-1Secti o n 10 3.1, 4.2Secti o n 10 A 2.6 Secti o n 12 3.10, 3.2Secti o n 12( 2) 2.6 Secti o n 12( 3) 2.2-13, 3.9-1, 36.2-3Secti o n 12( 3)(b ) 1.4 Secti o n 13 3.10-3 Secti o n 13( 2) 3.9 Secti o n 13( 5) 3.10-5 Secti o n 14( 1) 4.6, 31.3-1Secti o n 14( 3) 4.2 Secti o n 15 3.7 Secti o n 16( 3) 3.9-5 Secti o n 17(1 ) 3.6 Secti o n 18 2.5-5, 31.3, 36.2-3Secti o n 19( 1) 32.2-3 Secti o n 20 1.8-3, 37.1Secti o n 20( 1) 3.2-1 Secti o n 21 1.4-1, 23.14-2Secti o n 22 1.4-1 Secti o n 22( 3) 1.8-2 Secti o n 23 6.1 Secti o n 23( 2) 9.1 Secti o n 24 28.1, 6.1Secti o n 25 9.6-5 Secti o n 26 9.6-2, 9.7-1, 9.9
S ECTI ON W I S E I NDE X I-26
I-27 S ECTI ON W I S E I NDE X
Secti o n 26( 2) 9.6-3, 7.1-3Secti o n 26( 9) 9.10, 9.9Secti o n 28 9.1-1 Secti o n 29 10.1-1 Secti o n 29( 1) 9.1-2 Secti o n 31 9.6-6 Secti o n 32 9.6-7 Secti o n 34 9.10, 9.10-5Secti o n 35 6.9-2, 9.10, 9.10-1, 18.11-1Secti o n 36 9.10-2 Secti o n 37 9.10-2 Secti o n 38 9.5 Secti o n 39 6.9-4, 6.10-1, 9.1-3Secti o n 39( 2) 6.8-1 Secti o n 40 6.10-3, 9.2-1, 9.2-2Secti o n 40( 3) 9.3 Secti o n 40( 6) 9.4 Secti o n 41 6.1 Secti o n 42 6.4 Secti o n 43 5.1-1, 5.2Secti o n 44 10.1, 25.1Secti o n 45 10.1-1 Secti o n 46 10.1-1 Secti o n 46( 1) 1.4-1, 10.1-1Secti o n 46( 2) 5.2-1 Secti o n 46( 5) 10.1-1 Secti o n 47( 1) 14.11 Secti o n 47( 2) 5.2-1 Secti o n 48 10.3 Secti o n 49 6.4 Secti o n 50 5.1-1 Secti o n 50( 1) 6.11-1 Secti o n 50( 2) 5.1-7, 14.11-1Secti o n 51 28.6-1 Secti o n 52( 1) 6.2-1 Secti o n 52( 2)( c ) 6.1 Secti o n 52( 2)(d ) 2.1-5 Secti o n 52( 3) 2.1-5 Secti o n 53 6.2-2, 7.4Secti o n 54 7.4, 6.1Secti o n 55 5.2-3 Secti o n 55( 2) 5.2, 5.2-2Secti o n 55( 4) 7.3 Secti o n 56 25.4-4 Secti o n 56( 1) 11.1-2, 11.1-3Secti o n 56( 2) 12.2 Secti o n 56( 3) 11.1-1 Secti o n 56( 4) 10.1-1, 11.3-3, 25.4-1Secti o n 56( 6) 11.3-3 Secti o n 57 10.4-3 Secti o n 58 11.1-1 Secti o n 58( 1) 7.1-8, 7.3-11, 28.11Secti o n 58( 2) 11.8 Secti o n 58( 5) 11.3-3 Secti o n 58( 6) 11.15-3 Secti o n 59 11.16 Secti o n 59( 4) 7.1-8, 7.3-11, 28.11Secti o n 60( 1) 3.4-1 Secti o n 61 5.1-5, 8.4Secti o n 61( 1) 3.12, 5.1-6Secti o n 62 6.1, 6.2-3, 6.6, 22.14-3Secti o n 62( 1) 7.1, 7.2Secti o n 62( 2) 7.1-3 Secti o n 63 6.1 Secti o n 63( 1) 6.2-1, 7.3, 7.3-8Secti o n 63( 2) 7.3-1 Secti o n 64 3.12-1 Secti o n 64( 1) 6.6 Secti o n 64( 2) 5.2-3 Secti o n 65 1.7-5, 5.1-8Secti o n 66 8.1 Secti o n 66( 6) 8.6
Secti o n 67 6.1-2 Secti o n 67( 2) 31.1-3, 32.2Secti o n 67( 4) 5.2-2 Secti o n 68( 1) 8.6-1 Secti o n 68( 2) 8.6-2 Secti o n 69 8.6-10 Secti o n 69( 2) 7.3 Secti o n 70 8.6-8 Secti o n 70( 1) 32.2 Secti o n 71 25.1, 25.2Secti o n 71( 1) 6.1, 6.4-3Secti o n 71( 4) 25.5-1 Secti o n 71( 5) 25.3 Secti o n 71( 10) 25.5-6 Secti o n 71( 13) 25.3-2 Secti o n 72 12.1 Secti o n 72( 3) 10.8-2 Secti o n 73( 1) 26.2 Secti o n 74 26.4 Secti o n 75 26.4-1 Secti o n 76 26.2-1 Secti o n 77( 1) 24.3-2 Secti o n 77( 4) 24.7 Secti o n 78 24.3-3 Secti o n 79 24.3-4 Secti o n 79(b ) 24.5-2 Secti o n 80 24.6-2 Secti o n 81 24.9 Secti o n 81( 1) 24.5-3 Secti o n 82 24.5-3 Secti o n 84 24.3-5 Secti o n 86 24.3-3, 24.8Secti o n 87 24.3-2, 24.10Secti o n 88 10.1-2, 10.10, 25.4-3Secti o n 89 10.9-1 Secti o n 90 10.9-1 Secti o n 91( 2) 10.10-3 Secti o n 92( 1) 23.14-2, 36.2-2, 42.4-1Secti o n 93 42.4-2 Secti o n 94 10.10, 10.10-2Secti o n 95 10.1-1, 10.10-1Secti o n 96( 1) 13.5-3 Secti o n 96( 2) 3.2-1, 13.3-2Secti o n 97 13.5-3, 13.5-9Secti o n 98( 1) 13.2-10 Secti o n 99 13.5-6 Secti o n 100 13.2-2, 14.9Secti o n 100( 2) 13.2-3 Secti o n 100( 4) 13.2-7 Secti o n 101( 1) 13.3-4, 13.3-5Secti o n 101( 3) 13.3-9 Secti o n 101( 4) 13.3-8 Secti o n 102( 2) 13.5-1 Secti o n 102( 2)(b ) 13.2-2 Secti o n 102( 4) 13.4-2 Secti o n 103 14.1-2 Secti o n 103( 1) 10.8 Secti o n 103( 2)(b ) 13.2-4 Secti o n 104( 1) 14.1 Secti o n 105( 1) 14.3 Secti o n 105( 4) 14.3-6 Secti o n 105( 8) 14.4-1 Secti o n 106 14.11-1 Secti o n 107 14.11 Secti o n 107( 2) 14.15-2 Secti o n 108 14.12-4 Secti o n 109 14.12 Secti o n 110 14.13 Secti o n 111 14.9 Secti o n 114 14.8 Secti o n 114( 2) 14.8-1 Secti o n 115 13.2-9, 14.8-2
S ECTI ON W I S E I NDE X I-28
Secti o n 117 14.18 Secti o n 117( 2) 14.18-1 Secti o n 118 14.15, 14.15-2Secti o n 118( 1) 19.17 Secti o n 118( 7) 19.17-5 Secti o n 118( 9) 14.4-4, 14.16-1Secti o n 118( 10) 14.17, 19.1Secti o n 118( 12) 19.17 Secti o n 119 14.16 Secti o n 121 14.18, 42.4-4Secti o n 122( 3) 36.2-2 Secti o n 123( 1) 28.1-1 Secti o n 123( 3) 28.3, 28.5Secti o n 123( 5) 7.3-10, 28.6Secti o n 124 28.8-1 Secti o n 124( 1) 28.13-1 Secti o n 124( 3) 28.13-4 Secti o n 126 11.10-2 Secti o n 126(b ) 7.1-8 Secti o n 127 28.9 Secti o n 128 27.1-1 Secti o n 128( 3) 27.7, 32.2Secti o n 129 27.1-3 Secti o n 129( 1) 27.2, 27.10Secti o n 129( 3) 32.2-1 Secti o n 130 27.5 Secti o n 131 27.5-2 Secti o n 132 27.9 Secti o n 133 27.10 Secti o n 134 20.1, 27.3, 36.2-2Secti o n 134( 1) 23.14-2, 27.2-5Secti o n 134( 8) 20.5 Secti o n 135 20.2-1 Secti o n 135( 1) 21.13 Secti o n 136( 1) 27.3-1, 32.2-2Secti o n 137 13.6, 27.4 Secti o n 137( 1) 32.2-2, 36.2-2, 42.4-1Secti o n 137( 3) 27.4-2 Secti o n 138 27.6 Secti o n 139( 2) 14.8-2 Secti o n 139( 3) 29.2-1 Secti o n 139( 6) 19.4-3, 29.2-4Secti o n 139( 9) 29.3 Secti o n 139( 11) 29.4 Secti o n 140( 1) 29.7-1 Secti o n 140( 4) 14.8-2, 29.7Secti o n 140( 5) 29.7-2 Secti o n 141 29.2-1, 29.2-3Secti o n 141( 1) 29.2-1 Secti o n 141( 3) 32.4 Secti o n 142 29.6 Secti o n 143 19.17-6 Secti o n 143( 1) 27.7, 29.6, 29.8Secti o n 143( 5) 29.5-1 Secti o n 143( 8) 29.9 Secti o n 143( 9) a nd ( 10) 29.1-1 Secti o n 143( 11) 29.10 Secti o n 144 29.13 Secti o n 145 13.3-9, 14.4-1, 29.12-1Secti o n 146 13.3-9, 14.4, 29.12-2Secti o n 147 29.14, 30.1-6Secti o n 148 30.1-1 Secti o n 149 15.1, 15.3Secti o n 149( 1) 15.6, 15.6-1, 36.2-2Secti o n 149( 7) 15.10 Secti o n 149( 12) 15.3, 15.5Secti o n 150 15.3 Secti o n 151 15.4 Secti o n 152 15.1, 15.7-3, 15.12-2, 36.2-2Secti o n 152( 2) 15.1-2, 15.3Secti o n 152( 3) 15.19-1 Secti o n 152( 4) 15.7-6
I-29 S ECTI ON W I S E I NDE X
S ECTI ON W I S E I NDE X I-30
Secti o n 152( 6) 15.7-4, 31.1-3Secti o n 152( 7) 15.7-6 Secti o n 153 15.19-1 Secti o n 154 15.19-1 Secti o n 155 15.19-1 Secti o n 156 15.19-1 Secti o n 157 15.19-1 Secti o n 158 15.19-1 Secti o n 159 15.19-1 Secti o n 160 15.8 Secti o n 160( 1) 15.11-3 Secti o n 161 15.9, 15.12Secti o n 161( 3) 15.10 Secti o n 161( 4) 15.14 Secti o n 162 15.7-2 Secti o n 164( 1) 16.1, 31.1-3Secti o n 164( 2) 15.10-5, 42.4-1Secti o n 164( 2)(b ) 25.5-7 Secti o n 164( 3) 16.1-2 Secti o n 165 15.17 Secti o n 166 18.1-1 Secti o n 166( 6) 15.6 Secti o n 167( 1) 16.1-2, 16.3-1, 31.1-3Secti o n 167( 1)( e ) 17.1-4 Secti o n 167( 3) 16.3-4 Secti o n 167( 4) 16.1-2 Secti o n 168( 1) 16.3-4, 16.4Secti o n 168( 2) 16.4-2 Secti o n 168( 3) 16.3-4 Secti o n 169 14.8-2, 15.9, 16.5Secti o n 169( 8)( a ) 16.5-2 Secti o n 169( 8)(b ) 16.5 Secti o n 170( 1) 15.20 Secti o n 170( 2) 15.19-4 Secti o n 171 15.20-1 Secti o n 171( 1)(b ) 14.4-1 Secti o n 172 15.1, 15.3, 15.6-1Secti o n 173 19.3-1 Secti o n 173( 1) 19.3-1, 19.4-3Secti o n 173( 2) 19.16 Secti o n 173( 3) 19.9-1 Secti o n 173( 5) 36.1 Secti o n 174 14.1-3, 14.2Secti o n 174( 1) 19.12, 19.16Secti o n 174( 2) 19.12-4 Secti o n 174( 3) 17.3-11, 19.12-2Secti o n 174( 4) 19.3-1, 19.12-1Secti o n 175( 1) 19.5 Secti o n 176 15.15, 16.3-3, 19.2-4Secti o n 177 21.9, 21.10Secti o n 177( 4) 17.4-7 Secti o n 177( 8) 20.2-7 Secti o n 177( 9) 21.9-3,Secti o n 177( 10) 20.2-8 Secti o n 178 20.2-1, 21.11Secti o n 178( 5) 21.12 Secti o n 178( 8) 19.3-1 Secti o n 179( 1) 19.2 Secti o n 179( 3) 14.18, 19.5-1, 20.1, 22.4, 22.15Secti o n 179( 4) 19.5-1 Secti o n 179( 3)( a ) 6.11 Secti o n 179( 3)( e ) 22.15 Secti o n 179( 3)(f ) 22.15 Secti o n 180 22.1, 22.4Secti o n 180( 1) 14.18 Secti o n 181 22.6 Secti o n 182 22.8 Secti o n 183 22.7 Secti o n 184 17.3-8, 18.7Secti o n 184( 1) 15.19-6, 15.19-7, 17.1-2, 17.1-3Secti o n 184( 2) 17.1-1 Secti o n 184( 4) 17.1-4
Secti o n 185 17.2 Secti o n 185( 1) 32.4 Secti o n 185( 2) 17.2, 18.11-1Secti o n 186 20.2-1, 22.1, 22.12Secti o n 186( 5) 19.5-1, 19.6, 22.15Secti o n 186( 7) 22.15-6 Secti o n 186( 10) 22.15-7 Secti o n 186( 11) 22.14-3 Secti o n 186( 13) 22.16 Secti o n 187 10.9-1, 22.11-1Secti o n 187( 1) 32.5 Secti o n 188( 1) 17.3-5, 17.3-12Secti o n 188( 2) 20.2-10 Secti o n 188( 5) 17.3-10 Secti o n 189( 1) 17.4-1 Secti o n 189( 5) 14.4-1 Secti o n 189( 7) 17.3-8 Secti o n 190( 1) 23.1-4 Secti o n 191 17.6 Secti o n 191( 1) 32.4 Secti o n 192 17.7 Secti o n 193( 1) 17.8, 36.2-2Secti o n 196 23.1-4 Secti o n 196( 4) 19.14, 23.1-4, 23.6Secti o n 197 23.1-4, 23.8, 31.1-3Secti o n 197( 1) 15.23 Secti o n 197( 5) 15.22 Secti o n 197( 6) 15.21-1, 15.23-1Secti o n 197( 9) 15.27 Secti o n 197( 12) 15.27, 20.2-6Secti o n 197( 13) 15.27, 18.16-3Secti o n 197( 13) 15.27, 23.10-1Secti o n 197( 14) 15.27, 32.4Secti o n 198 15.23, 15.24Secti o n 199 27.5-1 Secti o n 200 23.1-4
Secti o n 201 23.6-1 Secti o n 202( 2) 23.11 Secti o n 203 19.6, 19.10, 23.1-4, 23.13Secti o n 203( 1) 14.1 Secti o n 203( 3) 19.5-1, 19.6Secti o n 204( 1) 20.2-12 Secti o n 205 23.14 Secti o n 206 27.7, 39.1Secti o n 207 39.1-2, 39.1-3Secti o n 207( 4) 16.1, 16.3Secti o n 208 39.1-4 Secti o n 209 39.2 Secti o n 210 39.3 Secti o n 211 39.6 Secti o n 212 39.6 Secti o n 213 39.3 Secti o n 215 39.3-2 Secti o n 216 27.7, 39.4Secti o n 217 39.3-5 Secti o n 218 39.5 Secti o n 219 39.3-4 Secti o n 219( a ) 32.4 Secti o n 222 11.8-4 Secti o n 223 39.3-7 Secti o n 224 39.3-8 Secti o n 226 39.3-3, 39.4Secti o n 227 39.5-1 Secti o n 228 39.1, 39.4Secti o n 230 3.12-2 Secti o n 232 38.5 Secti o n 233 38.5-2 Secti o n 234 38.6 Secti o n 235 38.7 Secti o n 241( 2) 38.3-4 Secti o n 242 4.6-1, 4.7Secti o n 242( 2)(h ) 16.5
I-31 S ECTI ON W I S E I NDE X
Secti o n 242( 5) 3.12-2 Secti o n 244( 1) 38.3-4 Secti o n 248 40.4-1 Secti o n 270 38.8-1 Secti o n 273 38.8-3 Secti o n 288 38.8-2 Secti o n 290 11.1-6 Secti o n 314 11.1-6 Secti o n 334 11.6 Secti o n 338( 2) 27.1-3 Secti o n 361( 6) 38.8-3 Secti o n 379 35.4 Secti o n 380 35.1-2 Secti o n 381( 1) 35.1-3 Secti o n 382 35.1-6 Secti o n 383 35.1-7 Secti o n 384 35.2 Secti o n 386( c ) 35.1 Secti o n 387 35.5 Secti o n 389 35.5 Secti o n 390 35.5-1 Secti o n 393 35.1-9 Secti o n 394 34.3 Secti o n 395 34.3 Secti o n 396 40.3 Secti o n 397 39.11-4, 40.3Secti o n 399( 1) 27.4-1 Secti o n 403 40.4-1 Secti o n 405 40.1 Secti o n 432 23.14-2 Secti o n 434( c ) 38.8 Secti o n 435 39.11-1 Secti o n 439 39.11-2 Secti o n 440 39.11-1 Secti o n 441 39.17 Secti o n 444 39.11-3 Secti o n 446 39.11-5 Secti o n 447 20.5-1, 39.9Secti o n 448 20.5-1, 39.9Secti o n 452 39.16 Secti o n 453 2.2 Secti o n 454 39.7-1 Secti o n 455 36.3 Secti o n 456 40.1 Secti o n 457 39.5-3 Secti o n 458 40.1 Secti o n 459 40.1 Secti o n 460 40.1 Secti o n 461 40.1 Secti o n 462 40.1 Secti o n 462( 1) 36.1, 36.2-2Secti o n 463 39.15 Secti o n 464 1.3 Secti o n 467 40.1 Secti o n 468 40.1 Secti o n 469 40.1 Sc he dul e I 3.1-2, 4.1Sc he dul e II 28.3-1 Sc he dul e III 27.2, 27.11-2, 32.2-1Sc he dul e I V 15.3, 17.4-5Sc he dul e V 15.22, 23.4, 23.9Sc he dul e VI 22.14-3 Sc he dul e VII 21.13
S ECTI ON W I S E I NDE X I-32
No undue gains or advantages - A di r ect or of a c o mpa ny s hall not ac hi eve or att e mpt t o ac hi eve a ny undue gai n or a dva nt age ei t her t o hi ms el f or t o hi s r el ati ves, part ners, or ass oci at es. If s uc h di r ect or i s f o und g uil t y of ma ki ng a ny undue gai ns, he s hall be li a bl e t o pay a n a mo unt e q ual t o t hat gai n t o t he c o mpa ny s ecti o n 166( 7) of Co mpa ni es Act, 2013. Not to assign his office A di r ect or of a c o mpa ny s hall not assi g n hi s of fice a nd a ny assi g n me nt s o ma de s hall be v oi d s ecti o n 166( 6) of Co mpa ni es Act, 2013.
Punishment for not discharging the duties - If a di r ect or of t he c o mpa ny c o nt r ave nes t he pr ovi si o ns of t hi s s ecti o n, s uc h di r ect or s hall be p uni s ha bl e w i t h fine whi c h s hall not be l ess t ha n o ne l a k h r upees but whi c h may ext e nd t o five l a k h r upees s ecti o n 166( 7) of Co mpa ni es Act, 2013
Di r ect ors ar e e nt r ust e d w i t h c oll ecti ve r es po nsi bili t y of ma nagi ng a nd di r ecti ng aff ai rs of t he c o mpa ny. They ar e pr of essi onal me n appoi nt e d by s har e hol ders. A di r ect or i s not a n e mpl oyee of t he c o mpa ny. It i s not possi bl e t o c orr ectl y des cri be hi s r el ati o ns hi p w i t h t he c o mpa ny. D i r ect ors ar e des cri be d s o meti mes as age nt s, s o meti mes t r ust ees a nd s o meti mes as ma nagi ng part ners. They have s o me att ri but es of eac h of t he m , but t hey ar e nei t her t r ust ees, nor age nt s nor ma nagi ng part ners i n f ull s e ns e of t he t er m
340 18
DUTIES, RIGHTS AND LIABILITIES OF A DIRECTOR
Director to act according to Articles Subj ect t o t he pr ovi si o ns of t hi s Act, a di r ect or of a c o mpa ny s hall act i n acc or da nce w i t h t he arti cl es of t he c o mpa ny s ecti o n 166( 1) of Co m pa ni es Act, 2013.
18.1-1 Duties of director towards companyFoll o w i ng duti es of di r ect ors have bee n s peci fie d i n s ecti o n 166 of Co mpa ni es Act, 2013.
18.1 LEGAL POSITION OF A DIRECTOR
Director to act in good faith and in interest of all stakeholders A di r ect or of a c o mpa ny s hall act i n g oo d f ai t h i n or der t o pr o mot e t he o bj ect s of t he c o mpa ny f or t he be ne fit of i t s me mbers as a whol e, a nd i n t he best i nt er est of t he c o mpa ny, i t s e mpl oyees, t he s har e hol ders, t he c o mmuni t y a nd f or t he pr ot ecti on of e nvi r on me nt s ecti on 166( 2) of Co mpa ni es Act, 2013.
No conflict of interest with company - A di r ect or of a c o mpa ny s hall not i nvol ve i n a si t uati on i n whi c h he may have a di r ect or i ndi r ect i nt er est t hat c o nfli ct s, or possi bl y may c o nfli ct, w i t h t he i nt er est of t he c o mpa ny s ecti o n 166( 4) of Co mpa ni es Act, 2013.
Exercise due diligence, care and independence A di r ect or of a c o mpa ny s hall exer ci s e hi s duti es w i t h due a nd r eas o na bl e car e, s kill a nd dili ge nce a nd s hall exer ci s e i nde pe nde nt j udg me nt s ecti o n 166( 3) of Co mpa ni es Act, 2013.
18.3 DIRECTOR HAS SOME TRAITS OF AN AGENT OF THE COMPANY
18.4 DIRECTOR HAS SOME TRAITS AS ‘TRUSTEE’ A‘ t r ust ee ’ act s i n t r ust f or be ne fit of s o me one el s e. The pr opert y a nd ma nage me nt of t r ust vest s i n t he t r ust ee, but he has no pers o nal i nt er est i n t he pr opert y a nd ma nage me nt of t he t r ust The t r ust ee i s ex pect e d t o act i n t he best i nt er est s of t he t r ust a nd t r ust pr opert y. Si mil arl y, f unds a nd pr opert y of t he c o mpa ny ar e i n t r ust of t he di r ect ors. They ar e ex pect e d t o act i n g oo d f ai t h a nd i n t he best i nt er est s of t he c o mpa ny as a whol e. Whe never pers o nal i nt er est s a nd c o mpa ny i nt er est s cl as h, hi s pers o nal i nt er est s s ho ul d be s ec o ndar y t o t he i nt er est s of t he c o mpa ny [ Of c o urs e, t hi s i s not eas y i n pr acti ce] Li ke t r ust ee, he i s i n a fiduci ar y posi ti o n vis-à-vis t he c o mpa ny. I n Dale & Carrington Investment v. P K Prathapan ( 2004) 54 S CL 601 = 122 Co mp Cas 161 = AI R 2005 S C 1624 = 2004 AI R S C W5143 ( S C), i t was o bs er ve d, ‘ Di r ect ors of c o mpa ni es have bee n vari o usl y des cri be d as age nt s, t r ust ees or r e pr es e nt ati ves, but o ne t hi ng i s cert ai n t hat t he di r ect ors act, o n be hal f of c o mpa ny i n a fiduci ar y ca paci t y a nd t hei r act s a nd dee ds have t o be exer ci s e d f or t he be ne fit of c o mpa ny. They ar e age nt s of t he c o mpa ny t o t he ext e nt t hey have bee n a ut hori s e d t o perf or m cert ai n act s o n be hal f of t he c o mpa ny. I n a li m i t e d s e ns e, t hey ar e al s o t r ust ees f or s har e hol ders of t he c o mpa ny To t he ext e nt t he po wers of di r ect ors ar e deli neat e d i n t he Me mor a ndu m a nd Arti cl es of Ass oci ati o n of t he c o mpa ny, t hey must act w i t hi n t he s c ope of t hei r a ut hori t y a nd must di s cl os e t hat t hey ar e acti ng o n be hal f of c o mpa ny. The fiduci ar y ca paci t y w i t hi n whi c h di r ect ors have t o act e nj oi ns upo n t he ma dut y t o act o n be hal f of c o mpa ny w i t h ut most g oo d f ai t h, ut most car e a nd s kill a nd due dili ge nce a nd i n t he i nt er est of t he c o mpa ny t hey r e pr es e nt They have a dut y t o ma ke f ull a nd ho nest di s cl os ur e t o t he s har e hol ders r egar di ng all i mport a nt matt ers r el ati ng t o c o mpa ny, even in case of private limited companie s ’ .
A di r ect or i s not a n e mpl oyee of t he c o mpa ny. An e mpl oyee of a c o mpa ny may be a ppoi nt e d as a Di r ect or, but i n t hat cas e, he i s acti ng i n dual ca paci t y. As a n e mpl oyee, he i s r es po nsi bl e t o c o mpa ny as t he c o mpa ny i s i t s e mpl oyer Ho wever, as a di r ect or, he i s r es po nsi bl e t o act i n g oo d f ai t h as r e pr es e nt ati ve of t he s har e hol ders.
I n Rustom Cavasjee Cooper v. UOI AI R 1970 S C 564 = ( 1970) 1 S CC 248 = 40 Co mp Cas 325 = ( 1970) 1 Co mp LJ 244 ( S C 11 me mber be nc h), i t was o bs er ve d t hat a di r ect or i s a mer e age nt of c o mpa ny f or i t s ma nage me nt.
341 DI RECT OR HAS S O ME T RAI TS AS T RUSTEE Para 18.4
A pri nci pal ca n act t hr o ug h hi s age nt s. Act s of age nt s ca n bi nd t he pri nci pal. Si nce c o mpa ny act s o nl y t hr o ug h i t s di r ect ors, t he posi ti o n of di r ect or ca n be c o mpar e d t o t hat of a n age nt.
If a di r ect or i s perf or m i ng duti es a nd i s wor ki ng f or t he c o mpa ny, he will c o me w i t hi n p ur vi e w of a n ‘ e mpl oyee ’ Monitron Securities v Mukundlal Khushalcnand 2001 LL R 339 ( Guj HC)
I n Bajaj Auto Ltd. v. N K Firodia AI R 1971 S C 321 = 1971( 2) S C R 40 = ( 1970) 2 S CC 550 = 41 Co mp Cas 1 ( S C 3 me mber be nc h), i t was o bs er ve d t hat di r ect ors ar e i n fiduci ar y posi ti o n
18.2 DIRECTOR IS NOT AN EMPLOYEE
I n Ram Prasad v. CIT AI R 1973 S C 637 = ( 1972) 42 Co mp Cas 544 = 86 I T R 122 ( S C), i t was o bs er ve d as f oll o ws, ‘ A di r ect or of a c o mpa ny i s not a s er va nt but a n age nt i nas muc h as t he c o mpa ny ca nnot act i n i t s o wn pers o n but has o nl y t o act t hr o ug h di r ect ors who qua t he c o mpa ny have t he r el ati o ns hi p of a n age nt t o i t s pri nci pal’. Ho wever, a n age nt may act a nd e nt er i nt o c o nt r act s i n hi s o wn na me A di r ect or ca nnot act i n hi s o wn na me. He has t o act a nd e nt er i nt o c o nt r act i n t he na me of c o mpa ny. An age nt may or may not di s cl os e t he na me of pri nci pal.
18.4-1 Directors must act for benefit of the company and not in personal interestI n Needle Industries (India) Ltd. v. Needle Industries Newey ( 1981) 51 Co mp Cas 742 =( 1981) 3 S C R 698 = ( 1981) 3 S CC 333 = AI R 1981 S C 1298 = ( 1982) 1 Co mp LJ 1 ( S C), i t was hel d t hat di r ect ors ar e i n fiduci ar y posi ti o n a nd must exer ci s e t hei r po wers f or t he be ne fit of c o mpa ny a nd not f or pers o nal aggr a ndi s e me nt If t hei r act (i ss ue f urt her s har es i n t hi s cas e) i s s ol el y f or be ne fit of di r ect ors, Co urt will i nt erf er e. Ho wever, i f t he acti o n (i ss ue of f urt her s har es i n t hi s cas e), i s i n l ar ger i nt er est of t he c o mpa ny, t he deci si o n ( of i ss ui ng f urt her s har es i n t hi s cas e) ca nnot be st r uc k do wn o n t he gr o und t hat i t has i nci de nt all y be ne fit e d di r ect ors i n t hei r ca paci t y as s har e hol ders. . I nt er est e d di r ect or mer e s e nti me nt al i nt er est or i de ol ogi cal c o ncer n or f ri e nds hi p i s not e no ug h
t o war ds c o mpa ny a nd i t s s har e hol ders. They s ho ul d act i n i nt er est of c o mpa ny. They s ho ul d not act w i t h o bli q ue moti ve or c oll at er al p ur pos e.
18.4-2 Normally No fiduciary duty towards individual shareholder, except in special situationsA di r ect or ’ s fiduci ar y r el ati o ns hi p i s w i t h t he c o mpa ny a nd not w i t h a ny i ndi vi dual s har e hol d er / me mber of t he c o mpa ny. He i s ex pect e d t o di s cl os e hi s i nt er est s t o c o mpa ny, a nd not t o a ny i ndi vi dual me mber.
18.4-3 Even in case of nominee director, they should act in interest of company and not organisation which nominated him as directorEve n i n c as e of no m i nee di r ect or, he i s r e q ui r e d t o act i n i nt er est of c o mpa ny a nd not or ga ni s ati o n whi c h no m i nat e d hi m . The cas e l a wi s di s c uss e d under ‘ No m i nee Di r ect or ’ .
Thi s pri nci pl e has bee n i nc or por at e d i n I ndi a n Tr ust Act Secti o n 88 of I ndi a n Tr ust s Act, 1882 st at es t hat wher e a t r ust ee, exec ut or, part ner, age nt, di r ect or of a c o mpa ny, l egal a dvi s or or ot her pers o n bo und i n fiduci ar y c har act er t o pr ot ect i nt er est s of a not her pers o n, by availi ng
Duri ng r unni ng a busi ness, ma ny opport uni ti es of busi ness c o me t o t he c o mpa ny. If s uc h ‘ c or por at e opport uni ti es ’ c o me, t he di r ect or s ho ul d us e t he m f or be ne fit of t he c o mpa ny. He s ho ul d ex hi bi t undi vi de d l oyal t y t o t he c o mpa ny whi c h he s er ves. He s ho ul d not utili s e t he c or por at e opport uni ti es f or hi s pers o nal gai ns may be by di verti ng t he opport uni t y t o a c o mpa ny i n whi c h he i s s ubst a nti all y fina nci all y i nt er est e d If he does s o, he will be m i s usi ng hi s posi ti o n as a di r ect or. If he us es c or por at e opport uni t y f or pers o nal gai ns, t he c o mpa ny ca n r ec over t he gai ns f r o mt he di r ect or.
‘ Pooli ng agr ee me nt’ mea ns a n agr ee me nt a mo ng pers o ns t o v ot e i n a parti c ul ar way or v ot e f or a s peci fie d pers o n Suc h agr ee me nt s a mo ng s har e hol ders ar e vali d a nd e nf or cea bl e, as me mber’ s ri g ht t o v ot e i s a pr opri et ar y ri g ht. Ri g ht t o v ot e may be g ui de d a nd eff ect uat e d by a c o nt r act. Ho wever, a pooli ng agr ee me nt ca nnot be us e d t o s upers e de t he st at ut or y ri g ht gi ve n t o Boar d of D i r ect ors t o ma nage t he c o mpa ny. Pooli ng arr a nge me nt ca nnot be bet wee n di r ect ors r egar di ng t hei r po wers as di r ect ors. The r eas on i s t hat a s har e hol der i s deali ng i n hi s o wn pr opert y He i s e nti tl e d t o c onsi der hi s o wn i nt er est Ho wever, di r ect ors ar e fiduci ari es of t he c o mpa ny a nd t he s har e hol ders. It i s t hei r dut y t o do what t hey c o nsi der best i n t he i nt er -est s of c o mpa ny. They ca nnot a bdi cat e t hei r i nde pe nde nt j udg me nt by e nt eri ng i nt o pooli ng arr a nge me nt s Rolta India Ltd. v. Venire Industries Ltd. ( 2000) 24 S CL 13 = 2000 Co mp LJ 161 = 100 Co mp Cas 19 ( Bo m HC DB).
Para 18.6 DUTI ES , RI G HTS A ND LI ABI LI TI ES OF A DI RECT OR 342
18.6 CORPORATE OPPORTUNITY CANNOT BE DIVERTED FOR PERSONAL GAINS
18.5 DIRECTORS CANNOT ENTER INTO POOLING ARRANGEMENT
I n Liz Investment P Ltd. v. Far Pavilions Tours ( 2005) 64 S CL 439 ( CL B), i t was hel d t hat di versi o n of c or por at e opport uni t y i s oppr essi o n.
hi ms el f of hi s c har act er, gai ns f or hi ms el f a ny pec uni ar y a dva nt age, he must hol d f or t he be ne fit of s uc h ot her pers o n t he a dva nt age s o gai ne d.
18.7
I n Chennuru Gavararaju Chetty v. Chennuru Sitaramamurthy Chetty AI R 1959 S C 190, i t was hel d t hat i f t he cas e i s t o be br o ug ht i n first part of s ecti o n 88, i t has t o be s ho wn t hat t he def e nda nt s ha d a fiduci ar y c har act er a nd wer e dut y bo und t o pr ot ect i nt er est of ot her part ners ( di r ect ors i n cas e of c o mpa ny). To c o me i n s ec o nd part of s ecti o n 88, i t has t o be s ho wn t hat f unds or g oo d will of t he fir m ( c o mpa ny i n t hi s cas e di r ect ors) wer e us e d t o o bt ai n t he pec uni ar y a dva nt age. It was al s o o bs er ve d t hat t her e i s no a bs ol ut e r ul e of l a wt hat o bt ai ni ng be ne fit by o ne part ner ( r e ne wal of l eas e i n t hi s cas e) must necess aril y e ns ur e f or t he be ne fit of ot her part ners ( di r ect ors i n cas e of c o mpa ny)
SPECIFIC DUTIES OF A DIRECTOR
So me s peci fic duti es have bee n cast under Co mpa ni es Act. Thes e ar e di s c uss e d el s e wher e, but s o me of t he m ar e s u mmari s e d her e. Dut y t o gi ve c o ns e nt a nd decl ar ati o n t hat he i s not di s q uali fie d as di r ect or s ecti o n 152 of Co mpa ni es Act, 2013 Noti ce t o Boar d ever y year r egar di ng hi s i nt er est i n ot her fir ms /c o mpa ni es s ecti o n 184 of Co mpa ni es Act, 2013 [ c orr es po ndi ng t o s ecti o n 299( 2) of t he 1956 Act]
Ri g ht t o r ec or d hi s di ss e nt t o a ny pr opos e d r es ol uti o n i n Boar d meeti ng s ecti o n 118( 4) of Co mpa ni es Act, 2013 Ri g ht t o parti ci pat e a nd v ot e at boar d meeti ngs, unl ess he i s i nt er est e d i n a parti c ul ar r es ol uti o n Ri g ht t o cl ai mt r avel, hot el a nd ot her ex pe ns es f or att e ndi ng t he Boar d a nd c o mm i tt ee meeti ngs a nd al s o i n c o nnecti o n w i t h busi ness of t he c o mpa ny Ri g ht t o s u mmo n Boar d meeti ngs Ri g ht t o c o mpe ns ati o n f or l oss of of fice i n si t uati o ns s peci fie d i n 191 of Co mpa ni es Act, 2013
343 RI G HTS OF DI RECT OR A ND LI MI TATI ONS Para 18.8
An i ndi vi dual di r ect or has f oll o w i ng ri g ht s — R i g ht t o i ns pect books of acc o unt a nd ot her books a nd papers of t he c o mpa ny a nd c opi es of fina nci al i nf or mati o n i f t he r ec or ds ar e pl ace d at ot her pl ace i n I ndi a i ns pecti o n t o be duri ng busi ness ho urs - s ecti o n 128( 3) of Co mpa ni es Act, 2013 Ri g ht t o r ecei ve noti ces of Boar d meeti ngs s ecti o n 173( 3) of Co mpa ni es Act, 2013 R i g ht t o r ecei ve r e muner ati on i ncl udi ng si tti ng f ees s ecti on 197 of Co mpa ni es Act, 2013 Ri g ht t o be hear d at t he ge ner al meeti ng i f noti ce f or hi s r e moval has bee n r ecei ve d. He ca n al s o ma ke a r e pr es e nt ati o n i n wri ti ng, whi c h c o mpa ny i s ex pect e d t o s e nd t o ever y me mber, exce pt i n cert ai n cas es s ecti o n 169 of Co mpa ni es Act, 2013
Rel at e d part y t r a ns acti o ns s ecti o n 188 of Co mpa ni es Act, 2013 Not t o i nd ul ge i n f or war d de ali ng [ s ecti o n 194] a nd i nsi der t r a di ng [ s ecti o n 195 of Co mpa ni es Act, 2013]
18.8 RIGHTS OF DIRECTOR AND LIMITATIONS
It may be i nt er esti ng t o not e t hat t ho ug h a di r ect or ca nnot fil e a s ui t o n be hal f of c o mpa ny w i t ho ut ex pr ess a ut hori t y, s u mmo ns i n na me of c o mpa ny ca n be s er ve d o n a di r ect or. As per r ul e 2 of or der 9 of Co de of Ci vil Pr oce dur e, i n cas e of s ui t agai nst a c or por ati o n, s u mmo ns ca n be s er ve d ( a) On s ecr et ar y, di r ect or or ot her pri nci pal of ficer of t he c or por ati o n or ( b) By l eavi ng i t or by s e ndi ng by post t o r egi st er e d of fice of t he c or por ati o n Vali di t y of t hi s pr ovi si o n has bee n up hel d i n Jute & Gunny Brokers v. UOI ( 1962) 32 Co mp Cas 845 ( S C).
18.8-3 Director can file suit for defamation if imputations against companyI n John Thomas v. Dr. K Jagadeesan ( 2002) 48 CL A 227 ( S C), def a mat or y i mp ut ati o ns wer e ma de i n a ne ws pa per agai nst a c o mpa ny a nd i t was all ege d t hat c o mpa ny i s e ngagi ng i n ne f ari o us acti vi ti es It was f el t t hat a di r ect or ca n be aggri eve d by s uc h all egati o ns a nd ca n fil e s ui t f or def a mati o n under s ecti o n 499 of I P C .
18.9 LEGAL LIABILITY OF A DIRECTOR Ma ny s ecti ons under Co mpa ni es Act pr ovi de pe nal t y by way of i mpri s on me nt, fine or ot her w i s e t o ‘ Of ficer who i s i n def a ul t’. The de fini ti o n of ‘ of ficer who i s i n def a ul t’ r eli eves no n exec uti ve di r ect ors of t hei r r es po nsi bili t y i n most of t he cas es I n cas e of no m i nee di r ect ors of fina nci al i nsti t uti o ns, t hey ar e pr ot ect e d a nd e nj oy i mmuni t y f r o mli a bili t y vi de s ecti o n 30 A of I DBI Act, s ecti o n 27 of SF C Act, et c. Di r ect or ca n al s o be hel d pers o nall y li a bl e under pr ovi si o ns of vari o us ot her Act s Director cannot do illegal acts A di r ect or ca nnot do a ny ill egal act li ke payi ng bri bes, a nd c o mpa ny ca n r ec over t he a mo unt f r o m s uc h a di r ect or.
18.8-1 Individual director/officer cannot institute suit on behalf of company but company can ratify such action
As per Secr et ari al St a ndar d SS 5 o n M i nut es i ss ue d by I CSI ( whi c h i s pr es e ntl y r ec o mme n dat or y i n nat ur e), di r ect ors ar e e nti tl e d t o i ns pect of m i nut es of all meeti ngs.
18.8-2
18.9-1 Passing Off defenceTho ug h a pers o n r es po nsi bl e t o c o mpa ny f or i t s aff ai rs i s dee me d t o be g uil t y, he ca n es ca pe t he p uni s h me nt by pr ovi ng t hat he ha d ha nde d over t he r es po nsi bili t y t o a not her pers o n. Thi s
Summons to company in civil matters can be served on a director
Para 18.9 DUTI ES , RI G HTS A ND LI ABI LI TI ES OF A DI RECT OR 344
Pleading can be signed by director/secretary/principal officer Tho ug h s ui t ca n be fil e d onl y by pers on a ut hori s e d by Boar d, as per or der 29 r ul e 1 of CP C , a ny pl ea di ng may be si g ne d a nd veri fie d o n be hal f of c or por ati o n by t he s ecr et ar y or by a ny di r ect or or ot her pri nci pal of ficer of t he c or por ati o n who i s a bl e t o de pos e of f act s of t he cas e. [ The t er m‘ c or por ati o n ’ i ncl udes a c o mpa ny r egi st er e d under Co mpa ni es Act Hakam Singh v Gammon India Ltd.( 1971) 1 S CC 286].
The c o mpa ny must act t hr o ug h Boar d a nd t ec hni call y, i ndi vi dual di r ect or has no a ut hori t y t o fil e a s ui t. Ho wever, he ca n be a ut hori s e d t o do s o by gi vi ng hi m po wers by Boar d Res ol uti o n a nd/ or po wer of att or ney.
Can a director inspect minutes of board meeting and other registers?Ther e s ee ms no do ubt t hat a di r ect or has ri g ht t o i ns pect all r ec or ds a nd r egi st ers of c o mpa ny, i ncl udi ng m i nut es of Boar d meeti ngs. I n Air Asiatic Ltd. Re Thomas George v . KCG George ( 1995) 3 Co mp LJ 491 ( CL B), i t was hel d t hat a di r ect or has ri g ht t o i ns pect all st at ut or y r egi st ers
18.9-3 Director of Government Company is not a public servantEve n i f di r ect or of a Gover n me nt c o mpa ny i s a ppoi nt e d i n na me of Pr esi de nt, he i s not a ‘ p ubli c s er va nt’ a nd s a ncti o n f or hi s pr os ec uti o n f r o m Gover n me nt i s not r e q ui r e d.Medehel Chemicals v Dr. D C Mallik ( 1998) 94 Co mp Cas 259 ( Ma d)
18.9-2
18.9-4 Summons to director not a matter of course Su mmo ni ng of a n acc us e d i n a cri m i nal cas e i s a s eri o us matt er. Cri m i nal l a w ca nnot be s et i nt o moti o n as a matt er of c o urs e. The or der of Magi st r at e must r e flect t hat he has a ppli e d hi s m i nd t o f act s of t he cas e a nd t he l a w a ppli ca bl e t her et o. It i s not t hat t he magi st r at e i s a sil e nt s pect at or at t he ti me of r ec or di ng of pr eli m i nar y evi de nce bef or e s u mmo ni ng t he acc us e d. Acc us e d ca n a ppr oac h H i g h Co urt u/s 482 of Cr P C or Arti cl e 227 of Co nsti t uti o n t o have t he pr ocee di ngs q uas he d whe n t he c o mpl ai nt does not ma ke o ut a ny cas e agai nst hi m . Pepsi Foods v. Special Judicial Magistrate AI R 1998 S C 128 = ( 1998) 5 S CC 749 q uot e d w i t h a ppr oval i n M.A.A. Annamalai v. State of Karnataka ( 2010) 8 S CC 524. 18.9-5 Magistrate can dispense with attendance of director even at first instancePers o nal att e nda nce of acc us e d ca n be di s pe ns e d w i t h at t he di s cr eti o n of Magi st r at e. He ca n all o w a n acc us e d t o ma ke eve n t he first a ppear a nce t hr o ug h c o uns el i n a s u mmo ns cas e Whe n magi st r at e i s s ati s fie d t hat acc us e d i s r esi di ng or carr yi ng o n busi ness at f ar di st a nce, Magi st r at e ca n exer ci s e hi s di s cr eti o n by t a ki ng necess ar y pr eca uti o ns.Bhaskar Industriesv. Bhiwani Denim 2001 AI R S C W 3413.
If s uc h pers o n has bee n a ppoi nt e d, r et ur n s hall be fil e d w i t h ROC i n f or m GNL . 3.
The GNL . 3 f or m fil e d by c o mpa ny ( ot her t ha n OP C a nd s mall c o mpa ny) s hall be pr e certi fie d by pr acti si ng CA , C MA or CS . ( f or m fil e d by OP C or s mall c o mpa ny i s not r e q ui r e d t o be certi fie d by pr acti ci ng CA , C MA or CS) - Rul e 8( 12)( a) of t he Co mpa ni es ( Regi st r ati o n Of fices a nd Fees) Rul es, 2014 It may be not e d t hat eve n i f s uc h pers o n i s a ppoi nt e d a nd a ut hori z e d, MD , K MP et c. do not ceas e t o be ‘ Of ficer i n def a ul t’.
345 LE GAL LI ABI LI T Y OF A DI RECT OR Para 18.9
i s ‘ passi ng off’ of def e nce or t hi r d part y pr oce dur e. J K Industries Ltd. v Chief Inspector of Factories 1996( 6) S CC 665 = 1996 LL R 961 = 1996 II CL R 832 ( S C). I n Pepsico India Holdings P Ltd. v. Food Inspector ( 2011) 1 S CC 176 ( S C 3 me mber be nc h), o ne Ma nager was na me d under s ecti o n 17( 2) of Foo d Adul t er ati o n Act, 1954 as pers o n r e s po nsi bl e f or e ns uri ng pr eve nti o n of a dul t er ati o n It was hel d t hat ot her di r ect ors ca nnot be pr os ec ut e d i n a bs e nce of s peci fic all egati o n of a di r ect or i n t he ma nage me nt of a c o mpa ny t o ma ke hi mli a bl e. Suc h pers o n ca n be a ppoi nt e d o nl y w i t h hi s c o ns e nt He will be ‘ Of ficer who i s i n def a ul t’ as per s ecti o n 2( 60)(i v) of Co mpa ni es Act, 2013.
Estate of director liable after death of director Ca us e of acti o n agai nst a deceas e d di r ect or f or m i sf eas a nce wo ul d s ur vi ve aft er hi s deat h a nd r ec o urs e ca n be ha d t o est at e of t he deceas e d di r ect or t hr o ug h t he l egal r e pr es e nt ati ves of t he deceas e d Official Liquidator v. Parthsarathi Sinha AI R 1983 S C 188. I n M R Lakshmi Narayanan v. Syndicate Bank ( 2001) CL A BL Supp 58 ( Ma d HC), i t was hel d t hat i f a deceas e d di r ect or ha d gi ve n pers o nal g uar a nt ee f or li a bili t y of c o mpa ny, hi s l egal r e pr es e nt ati ves ar e li a bl e o nl y t o t he ext e nt of ass et s of deceas e d i n t hei r ha nds.
An or di nar y di r ect or ca nnot be s ai d t o be ‘ of ficer i n def a ul t’, i f c o mpa ny has Ma nagi ng Di r ec t or, whol e ti me di r ect or or Ma nager Kalpesh Dagli v. State of Gujarat ( 2013) 117 S CL 498 = 29 t ax ma nn. c o m 383 ( Guj HC).
18.10
A di r ect or i s ‘ of ficer’ of t he c o mpa ny as he i s s peci fie d i n t he de fini ti o n of ‘ of ficer who i s i n def a ul t’
Nor mal pr acti ce i s t o c har ge o ne or mor e pers o ns / di r ect ors w i t h r es po nsi bili t y under vari o us Act s. Suc h pers o ns ar e as ke d t o s ub m i t a wri tt e n certi ficat e i n ever y Boar d meeti ng t o t he eff ect t hat he has c o mpli e d w i t h all t he l a ws a nd t her e i s no def a ul t.
COMPLIANCE CERTIFICATES FROM EXECUTIVE DIRECTORS
18.11-1 When a director will be officer in default
Ci vil li a bili t y f or m i s st at e me nt i n pr os pect us s ecti o n 35 of Co mpa ni es Act, 2013 No li a bili t y i f he ha d r eas o na bl e beli ef t hat t he st at e me nt was t r ue or i f he t ook r eas o na bl e car e t o w i t hdr a w hi s c o ns e nt as s oo n as he beca me a war e of unt r ue st at e me nt Co nt r ave ni ng pr ovi si o n of s ecti o n 195 of Co mpa ni es Act, 2013 r egar di ng t a ki ng l oa n f r o m c o mpa ny s ecti o n 185( 2) of Co mpa ni es Act, 2013 Fail ur e t o di s cl os e hi s i nt er est i n c o nt r act or arr a nge me nt - s ecti o n 184 of Co mpa ni es Act, 2013
A ‘ di r ect or ’ ca n be ‘ of ficer who i s i n def a ul t’ o nl y whe n no pers o n or di r ect or i s s peci fie d by Boar d of D i r ect ors a nd no r et ur n i n t hat be hal f i s fil e d, or whe n t her e i s no MD/ WD/ Ma nager.
It ca n be s ee n t hat a n or di nar y di r ect or ( no n exec uti ve di r ect or) will be ‘ of ficer i n def a ul t’ i n ver y r ar e cas es.
Para 18.11 DUTI ES , RI G HTS A ND LI ABI LI TI ES OF A DI RECT OR 346
18.11-2 Personal liability of directors for offenses under the ActFoll o w i ng s ecti o ns ma ke di r ect ors pers o nall y r es po nsi bl e. Ho wever, t hey ar e li a bl e o nl y i f t hey ha d t a ke n acti ve part i n t he vi ol ati o n. —
18.11 LIABILITY UNDER COMPANIES ACT ON ‘OFFICER IN DEFAULT’
It i s not possi bl e f or non exec uti ve di r ect ors t o go i nt o all det ail s a bo ut ma nage me nt of aff ai rs of t he c o mpa ny. He nce, i t i s a pr acti ce t hat exec uti ve di r ect ors s ub m i t a certi ficat e of c o mpli a nce at t he Boar d meeti ng Thes e certi ficat es ar e i n nat ur e of c o mf ort l ett ers a nd evi de nce t hat t he di r ect ors di d t a ke all possi bl e car e t o e ns ur e c o mpli a nce w i t h all l a ws.
I n Smt G Vijayalakshmi v SEBI ( 2000) 25 S CL 183 = 100 Co mp Cas 726 = ( 2000) 4 Co mp LJ 132 ( AP HC), i t was hel d t hat cri m i nal li a bili t y of a n or di nar y di r ect or wo ul d ari s e o nl y i n r es pect of c o mpa ny whi c h has no MD or WD or Ma nager a nd wher e parti c ul ar di r ect ors ar e not bee n s peci fie d t o be li a bl e t o t he c o mpa ny s a me vi e wi n Vijay Kumar Gupta v. ROC( 2004) 50 S CL 171 ( HP HC). I n Robinton Noria v. NCC Finance ( 2000) 28 S CL 178 ( AP HC), i t was o bs er ve d, ‘ Whe n t her e i s a ma nagi ng di r ect or t o a c o mpa ny a nd al s o exec uti ve di r ect or a nd s ecr et ar y, i t i s di f fic ul t t o c o ncei ve t hat a n or di nar y di r ect or will be i n c har ge of a nd r es po nsi bl e t o t he c o mpa ny. I n Saumil Dilip Mehta v. State of Maharashtra ( 2002) 5 CLJ 183 = 113 Co mp Cas 443 = 138 S T C 258 = 39 S CL 102 ( Bo m HC DB), i t was hel d t hat o nce a di r ect or r esi g ns by s e ndi ng l ett er t o Chai r ma n or Secr et ar y, he i s not li a bl e f or a ny act s of c o mpa ny aft er s ub m i tti ng hi s r esi g nati o n, eve n i f f or m 32 i s not fil e d w i t h ROC , as fili ng f or m 32 i s not hi s r es po nsi bili t y. It i s r es po nsi bili t y of Secr et ar y.
Further directions in respect of Prosecutions filed or internal adjudication proceedings initiated against Independent Directors, non-promoters and non-KMP non-executive directors MCA , vide ci r c ul ar No. 1/2020 dat e d 2 3 2020 has cl ari fi e d as f oll o ws: Or di naril y, a whol e ti me di r ect or [ WT D] a nd a key ma nageri al pers onnel [ K MP] ar e ass oci at e d w i t h t he day t o day f uncti o ni ng of t he c o mpa ny a nd acc or di ngl y s uc h WT Ds a nd K MPs wo ul d be li a bl e f or def a ul t s c o mm i tt e d by a c o mpa ny. I n a bs e nce of a K MP , s uc h di r ect or or di r ect ors who have ex pr essl y gi ve n t hei r c o ns e nt f or i nc urri ng li a bili t y i n t er ms of t he e- f or m GNL 3 fil e d w i t h t he Regi st r ar wo ul d be li a bl e Wher e t he c o ns e nt f or i nc urri ng li a bili t y f or a ny of t he pr ovi si o ns deali ng w i t h mai nt e na nce, fili ng or di st ri buti o n of acc o unt s or r ec or ds i s s ub m i tt e d i n e f or m GNL 3 by a pers o n under t he i mme di at e a ut hori t y of t he Boar d or a ny K MP , t he li a bili t y of s uc h pers o n will ari s e. Ho wever, i n cert ai n cas es, t he pe nal pr ovi si o ns i n t he Act hol d a s peci fi c di r ect or, or offi cer, or a ny ot her pers o n acc o unt a bl e f or t he def a ul t, i n s uc h cas es, acti o n s ho ul d be i ni ti at e d o nl y agai nst s uc h di r ect or, or offi cer, or pers o n, as t he cas e may be, s uc h as di s cl os ur e of i nt er est by di r ect ors under s ecti o n 184 of t he Co mpa ni es Act, 2013
18.11-3 Departmental guidelines for Prosecution of directorM i ni st r y of Cor por at e Aff ai rs has i ss ue d Mast er Ci r c ul ar No. 1/2001 dat e d 29 7 2011 ( earli er ci r c ul ar No. 8/2011 dat e d 25 3 2011) t o Regi o nal Di r ect ors, ROC a nd Of fici al Li q ui dat ors gi vi ng g ui deli nes o n pr os ec uti o n of di r ect ors. The cl ari ficati o ns ar e as f oll o ws All di r ect ors s ho ul d not be arr aye d i n pr os ec uti o n. Di ff er e nti ati o n s ho ul d be ma de i n ‘ of ficer i n def a ul t’ a nd ot her di r ect ors Ext r a car e s ho ul d be t a ke n whil e i ni ti ati ng pe nal acti o n agai nst no m i nee di r ect ors of Gover n me nt, PS U , BI F R , ba nks a nd Publi c Fi na nci al I nsti t uti ons a nd i nde pe nde nt di r ect ors appoi nt e d as per S EBI r e q ui r e me nt s Acti o n s ho ul d be t a ke n agai nst t he m o nl y i f off e ns e was w i t h t hei r c o ns e nt or c o nni va nce or wher e he di d not act dili ge ntl y. If di r ect or has r esi g ne d, t he det ail s s ho ul d be c hec ke d w i t h f or m 32. If a di r ect or e ndors es c opy of hi s r esi g nati o n t o ROC , t he ROC s ho ul d veri f y whet her he has act uall y r esi g ne d For def a ul t s under s ecti o ns 209( 5), 209( 6), 211 a nd 212 of Co mpa ni es Act, Ma nagi ng Di r ect or, Ma nager or Secr et ar y s hall be nor mall y ‘ of ficer i n def a ul t’.
Delay in refund of application money if minimum subscription not received If m i ni mu m s ubs cri pti o n i s not r ecei ve d w i t hi n s peci fie d peri o d, a ppli cati o n mo ney s hall be r e pai d w i t hi n 15 days f r o m cl os ur e of i ss ue If not s o r e pai d w i t hi n s uc h peri o d, di r ect ors of t he c o mpa ny who ar e of ficers i n def a ul t s hall be j oi ntl y a nd s ever all y li a bl e t o r e pay t he mo ney w i t h i nt er est @ 15 % per a nnu m . Appli cati o n mo ney t o be r ef unde d s hall be cr e di t e d o nl y t o t he ba nk acc o unt f r o m whi c h s ubs cri pti o n was r e m i tt e d Rul e 11 of Co mpa ni es ( Pr os pect us a nd All ot me nt of Sec uri ti es) Rul es, 2014.
Pr os ec uti on agai nst MLA/ MP s ho ul d be onl y w i t h pri or a ut hori s ati on of Ce nt r al Gover n me nt Ther e s ho ul d be pr oper a ppli cati o n of m i nd by Regi st r ar of Co mpa ni es.
A di r ect or c a n be hel d li a bl e d uri ng w i ndi ng up pr ocee di ngs i n c as e of f r a uds. The pr ovi si o ns ar e mai nl y c o nt ai ne d i n s ecti o ns 338 t o 342 of Co mpa ni es Act, 2013. It ca n be s ee n t hat a no n exec uti ve di r ect or will be li a bl e o nl y i f he i s pers o nall y i nv ol ve d i n t he off e nce not mer el y beca us e he i s a di r ect or of t he c o mpa ny. I n Sunil Bharti Mittal v. Central Bureau of Investigation ( 2015) 4 S CC 609 ( S C 3 me mber be nc h), i t has bee n hel d t hat di r ect or ca n be hel d vi cari o usl y li a bl e o nl y i f ( a) t her e i s s uf fi ci e nt i ncri m i nati ng evi de nce agai nst hi m c o upl e d w i t h cri m i nal i nt e nt or ( b) st at ut or y r egi me att r act s doct ri ne of vi cari o us li a bili t y
347 LI ABI LI T Y UNDE R C O MPA NI ES ACT ON OFFI CE R I N DEFA ULT Para 18.11
Para 18.12 DUTI ES , RI G HTS A ND LI ABI LI TI ES OF A DI RECT OR 348
( a ) Di r ect ors no m i nat e d by t he Gover n me nt o n t he p ubli c s ect or undert a ki ngs;
(b ) Di r ect ors no m i nat e d by Publi c Sect or Fi na nci al I nsti t uti o ns, Fi na nci al I nsti t uti o ns or Ba nks havi ng parti ci pati o n i n e q ui t y of a c o mpa ny, or ot her w i s e;
I ndi vi dual di r ect or i s not pers o nall y li a bl e f or pay me nt of wages under Pay me nt of Wages Act - P C Agarwala v. Payment of Wages Inspector 2005 LL R 1073 = 63 S CL 109 ( S C).
The nat ur e of def a ul t i s al s o cr uci al f or arr ai g ni ng offi cers of t he c o mpa ny f or def a ul t s c o mm i tt e d under t he Act. All i nst a nces of fili ng of i nf or mati o n/r ec or ds w i t h t he r egi st r y, mai nt e na nce of st at ut or y r egi st ers or m i nut es of t he meeti ngs, or c o mpli a nce w i t h t he or ders i ss ue d by t he st at ut or y a ut hori ti es, i ncl udi ng t he NCLT under t he Act ar e not t he r es ponsi bili t y of t he I Ds or t he NE Ds, unl ess a ny s peci fi c r e q ui r e me nt i s pr ovi de d i n t he Act or i n s uc h or ders, as t he cas e may be. The r es po nsi bili t y of t he NE Ds, or di naril y ari s e i n s uc h cas es, wher e t her e ar e no WT Ds a nd K MPs. At t he ti me of s er vi ng noti ces t o t he c o mpa ny, d uri ng i nq ui r y, i ns pecti o n, i nvesti gati o n, or a dj udi c ati o n pr ocee di ngs, necess ar y doc u me nt s may be s o ug ht s o as t o as cert ai n t he i nv ol ve me nt of t he c o ncer ne d offi cers of t he c o mpa ny. I n cas e, l a ps es ar e att ri but a bl e t o t he deci si o ns t a ke n by t he Boar d or i t s Co mm i tt ees, all car e must be t a ke n t o e ns ur e t hat ci vil or cri m i nal pr ocee di ngs ar e not unnecess aril y i ni ti at e d agai nst t he I Ds or t he NE Ds, unl ess s uffi ci e nt evi de nce exi st s t o t he c o nt r ar y.
( c ) Di r ect ors a ppoi nt e d i n p urs ua nce t o a ny st at ut or y or r eg ul at or y r e q ui r e me nt s uc h as di r ect ors a ppoi nt e d by t he NCLT .
18.12 PERSONAL LIABILITY OF DIRECTOR FOR COMPANY’S DUES Co mpa ny i s a s e par at e l egal e nti t y a nd Ma nagi ng Di r ect or of a pri vat e c o mpa ny ca nnot be ma de pers o nall y li a bl e f or r ec over y of dues agai nst c o mpa ny. Pers o nal pr opert y of MD ca n not be att ac he d t o r ec over dues of c o mpa ny Kuriakose v. PKV Group Industries ( 2002) 111 Co mp Cas 826 = 40 S CL 676 ( Ker HC DB). s a me vi e w i n H S Sidana v . Rajesh Enterprises( 1993) 77 Co mp Cas 251 ( P &H HC) * Kundan Singh v. Moga Transport ( 1987) 62 Co mp Cas 600 ( P &H HC) * Ramachandran v. State of Kerala ( 1984) 55 Co mp Cas 590 ( Ker HC).
The r ec or ds avail a bl e i n t he offi ce of t he Regi st r ar, i ncl udi ng e- f or ms DI R- 11 or DI R- 12, al o ng w i t h c opi es of t he a nnual r et ur ns or fi na nci al st at e me nt s s ho ul d al s o be exa m i ne d s o as t o as cert ai n whet her a parti c ul ar di r ect or or t he K MP was s er vi ng i n t he c o mpa ny as o n t he dat e of def a ul t. I n cas e of a ny do ubt s, w i t h r egar d t o t he li a bili t y of a ny pers o n, f or a ny pr ocee di ngs r e q ui r e d t o be i ni ti at e d by t he Regi st r ar, g ui da nce may be s o ug ht f r o m t he M i ni st r y of Cor por at e Aff ai rs t hr o ug h t he offi ce of Di r ect or Ge ner al of Cor por at e Aff ai rs Co ns e q ue ntl y a ny s uc h pr ocee di ngs must be i ni ti at e d aft er r ecei vi ng due s a ncti o n f r o mt he M i ni st r y.
Ty pi call y, a part f r o m I Ds, no n pr o mot er a nd no n K MP , NE Ds, wo ul d exi st i n t he f oll o w i ng cas es:
Secti on 149( 12) of Co mpa ni es Act, 2013 i s a non obstante cl a us e whi c h pr ovi des t hat t he li a bili t y of a n i nde pe nde nt di r ect or ( I D) or a no n exec uti ve di r ect or ( NE D) not bei ng pr o mot er or key ma nageri al pers o nnel wo ul d be o nl y i n r es pect of s uc h act s of o m i ssi o n or c o mm i ssi o n by a c o mpa ny whi c h ha d occ urr e d w i t h hi s k no w l e dge, att ri but a bl e t hr o ug h Boar d pr ocess es, a nd w i t h hi s c o ns e nt or c o nni va nce or wher e he ha d not act e d dili ge ntl y. I n vi e w of t he ex pr ess pr ovi si o ns of s ecti o n 149( 12), I Ds a nd NE Ds ( no n pr o mot er a nd no n K MP), s ho ul d not be arr aye d i n a ny cri m i nal or ci vil pr ocee di ngs under t he Act, unl ess t he a bove me nti o ne d cri t eri a i s met.
Rs. : 2195 | USD : 59 AUTHOR : TAXMANN PUBLISHER : TAXMANN DATE OF PUBLICATION : AUGUST 2022 EDITION : 11TH EDITION ISBN NO : 9789356223608 NO. OF PAGES : 808 BINDING TYPE : PAPERBACK Company Law Ready Reckoner ORDER NOW This book is a topic-wise commentary on all provisions of the Compa nies Act 2013. It answers all issues faced by companies and professionals on a daily basis. The Present Publication is the 11th Edition & updated till 1st August 20202. This book is authored by Taxmann’s Editorial Board with the fol lowing noteworthy features: [Topic-wise Commentary] on Companies Act, 2013 [Analysis of all Provisions of Companies Act] with relevant Rules, Judicial Pronouncements, Circulars and Notifications Description
