ABOUT THE AUTHORS
Dr. G. K. Kapoor, Ph.D. (DU) was an Adjunct Professor, ‘Business and Corporate Laws’ at International Management Institute (IMI), New Delhi. Earlier, he was Associate Professor and Officiating Principal, Shaheed Bhagat Singh College, University of Delhi. For a period of two years (1987–1989), he was Deputy Director (Studies) and also Secretary to the Company Law Committee with the Institute of Chartered Accountants of India, New Delhi. A co-winner of NIRC, ICAI Best Teacher Award 2000, Dr. Kapoor is an author of various books on ‘Business and Corporate Laws’ and ‘Management’ including Company Law and Practice; Business Law including Company Law; Business Law, Ethics and Communication; Corporate and Allied Laws; Economic and Labour Laws; Business Policy and Environment. He has more than 50 years of teaching experience of ‘Business and Corporate Laws’ and ‘Management’ at undergraduate, postgraduate and professional levels. He has been on the Guest Faculty of the Institute of Chartered Accountants of India, Indian Law Institute, All India Management Association, Indian Institute of Bankers, Indian Institute of Public Administration, International Management Institute (IMI), and Institute for Integrated Learning and Management (IILM). He was conferred an ‘Excellence Award for his contribution to Education’ by Amity University, Noida in February 2012. Dr. Sanjay Dhamija, currently is Professor at the International Management Institute, New Delhi. He is a doctorate in finance and a Fellow Member of the Institute of Company Secretaries of India (FCS) and of the Institute of Cost Accountants of India (FCMA). He did his M. Com. from Delhi School of Economics and LL. B from Delhi University. He is also a Chartered Financial Analyst from ICFAI. Prof. Dhamija has attended workshops at Harvard Business School, Wharton Business School and Robert H. Smith School of Business. Professor Dhamija has over 37 years of rich experience both in industry and academia. He worked in industry in senior positions for over 16 years and since 2003 he is in academics having worked with ICFAI Business School and Management Development Institute (MDI) before joining IMI in 2009. He was I-5
ABOUT THE AUTHORS
I-6
awarded for ‘Excellence in Teaching’ at MDI and as ‘Best Trainer’ at IMI. He was recognized as the ‘Best Teacher in Financial Management’ at 17th Dewang Mehta Business School Awards. He also received the award for the ‘Best Case in finance, economics, business and political environment’ at the 40th Anniversary Case Conference of the Case Center, UK held at IIM-Bangalore. He has handled a number of consulting and training assignments for organizations in government sector, public sector and private sector. He also regularly conducts popular programs on ‘Finance for Non-Finance Executives’ and ‘Understanding and Analysis of Financial Statements’. He has authored books in the areas of company law, business law, financial management, financial derivatives, financial accounting & analysis, financial reporting and corporate governance. He has published research papers and case studies in national and international journals.
PREFACE TO THE TWENTY-SIXTH EDITION
It gives us immense pleasure in presenting the Twenty-Sixth Edition of the Book.We express our gratitude to the readers for the encouraging response to our writing. In this edition, we have not only incorporated changes, at appropriate places, brought in through changes in rules through Notifications of the Ministry of Corporate Affairs but also updated the discussion wherever needed. Since the last edition of the book, the MCA has taken various initiatives towards ease of doing business in India. Various steps have been taken to simplify the processes by making suitable amendments in the Rules. The definition of a small company has been changed, bringing many more companies within the definition of a small company, and thereby extending the relevant relaxations to these companies. To centralize the process of striking off the name of companies from the register, the Central Government has established the Centre for Processing Accelerated Corporate Exit (C-PACE). The MCA has also rolled out a new version of MCA-21 (V3) during the year. All these have been suitably covered in the current edition. Changes in the Companies Act and the notified new/amended rules up to 30th November, 2023 have been duly incorporated at appropriate places in the text. Relevant case laws reported up to 30th November, 2023 have been discussed at the relevant places in the book. In addition, we have taken care to add as well as change discussion in certain areas based on feedback received from the readers and colleagues in various colleges.
I-7
PREFACE TO THE TWENTY-SIXTH EDITION
I-8
We are sure that the readers will appreciate this edition like the earlier ones and continue to give us an opportunity to serve them. We request you to continue to send your feedback/suggestions. These certainly help improve the text. With Best Wishes, DR. G. K. KAPOOR DR. SANJAY DHAMIJA
PREFACE TO THE FIRST EDITION
Legal framework is an important constituent of the Business and Corporate Environment. No corporate entity can effectively work and survive without meeting its legal obligations. The law relating to companies is perhaps the most significant and all pervasive amongst the various corporate legislations. It requires compliances on the part of the companies, their directors and other officers of numerous requirements of the Act. Non-compliance of various provisions of the law relating to companies may result in penal consequences and ill reputation. The Companies Act, 1956, the law in our country in this regard, is a complicated piece of legislation. Numerous amendments made in this legislation over the years from its inception have brought in more and more complexities. The amendments were intended to deal with increased complexities in the business and corporate environment. Further, a number of judicial decisions on the subject have added new dimensions to the interpretations of the provisions of this legislation. The Department of Company Affairs, Government of India, has also, over the years, issued a large number of clarifications. Besides, the Securities & Exchange Board of India (SEBI) has issued a number of guidelines and clarifications to regulate the capital market in India. The present book represents an impressive and judicious blending of the provisions of the Companies Act, 1956, judicial decisions, the clarifications issued by the Department of Company Affairs and the guidelines and clarifications issued by the SEBI. The text is interspersed with interpretations, explanations and illustrations, wherever felt necessary, to help the readers to assimilate the provisions in a better way. I-9
I-10
PREFACE TO THE FIRST EDITION
The authors have tried to present the provisions of the law in a simple and lucid style, backed by most up-to-date case decisions. Besides, a number of specimen notices, minutes and resolutions have been given at relevant places to help students to answer questions specifically based thereon. SEBI guidelines for disclosure and investors’ protection originally issued in 1992 have undergone many significant changes. As many as XVI clarifications have been issued. The present book has taken due notice of those guidelines and all the XVI clarifications have been referred to at appropriate places. Another feature of the book that readers may appreciate is the Summary at the end of each Chapter containing substantive provisions of law covered in that Chapter. Still another feature that may interest the readers is Hints to questions and practical problems which have been selected from past examination papers of various universities and professional institutes. The work of this kind would not have been possible without reference to the authentic commentaries and other publications on the subject - Indian and foreign. We shall, therefore, like to record our gratitude to the authors and the publishers of those publications. An attempt has been made to acknowledge the contributions wherever material has been quoted. Although every effort has been made to offer the most authentic position on the subject, claiming cent per cent accuracy will be too tall a claim. Moreover, there may be differences in interpretation. We shall, therefore, be too happy to receive suggestions and comments from our readers which we promise to acknowledge with gratitude. Special thanks are due to Shri Vinay Kumar Jain, FCA and a friend, who, as ever, continued to offer his moral support. We must also express our thanks to M/s. Taxmann for their cooperation in many ways. Without their help this work would have just not been possible. Last but not the least, our wives and children do need a mention for their sacrifice and co-operation in providing us with the necessary environment and the sumptuous lunches and teas during our long sittings over weekends. Without their support, we could not have met the target date. Independence Day 1996.
A.K. MAJUMDAR DR. G.K. KAPOOR
CHAPTER-HEADS
PAGE
About the Authors
I-5
Preface to the Twenty-sixth Edition
I-7
Preface to the First Edition
I-9
Contents
I-13
Section-wise Index
I-29
CHAPTER 1
:
HISTORY OF COMPANY LEGISLATION
1
CHAPTER 2
:
MEANING AND NATURE OF A COMPANY
11
CHAPTER 3
:
KINDS OF COMPANIES
38
CHAPTER 4
:
FORMATION AND INCORPORATION OF A COMPANY
84
CHAPTER 5
:
MEMORANDUM OF ASSOCIATION
106
CHAPTER 6
:
ARTICLES OF ASSOCIATION
134
CHAPTER 7
:
PROSPECTUS
155
CHAPTER 8
:
ACCEPTANCE OF PUBLIC DEPOSITS
174
CHAPTER 9
:
SHARE AND SHARE CAPITAL
185
CHAPTER 10
:
MEMBERSHIP
282
CHAPTER 11
:
REGISTERS AND RETURNS
295
CHAPTER 12
:
INVESTMENTS, LOANS, BORROWINGS AND DEBENTURES
312
CHAPTER 13
:
DIVISIBLE PROFITS AND DIVIDEND
339
CHAPTER 14
:
COMPANY MANAGEMENT
355
CHAPTER 15
:
COMPANY SECRETARY AND PRACTISING COMPANY SECRETARY
430
COMPANY MEETINGS-I - GENERAL
438
CHAPTER 16
:
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CHAPTER-HEADS
I-12 PAGE
CHAPTER 17
:
COMPANY MEETINGS-II - GENERAL BODY MEETINGS
468
CHAPTER 18
:
COMPANY MEETINGS-III - BOARD MEETINGS
481
CHAPTER 19
:
ACCOUNTS AND AUDIT
493
CHAPTER 20
:
INSPECTION, INQUIRY AND INVESTIGATION
532
CHAPTER 21
:
MAJORITY RULE AND MINORITY PROTECTION
546
CHAPTER 22
:
PREVENTION OF OPPRESSION AND MISMANAGEMENT
554
CHAPTER 23
:
COMPROMISES, ARRANGEMENTS, RECONSTRUCTION AND AMALGAMATION
579
CHAPTER 24
:
WINDING UP
609
CHAPTER 25
:
AUTHORITIES UNDER THE COMPANIES ACT, 2013
670
CHAPTER 26
:
SERVICE OF DOCUMENTS
683
CHAPTER 27
:
CORPORATE GOVERNANCE
685
CHAPTER 28
:
DEPOSITORIES ACT, 1996 : AN ANALYSIS
695
CHAPTER 29
:
COMPANY LAW IN A COMPUTERISED ENVIRONMENT - E-GOVERNANCE AND E-FILING
705
CONTENTS
PAGE
About the Authors
I-5
Preface to the Twenty-sixth Edition
I-7
Preface to the First Edition
I-9
Chapter-heads
I-11
Section-wise Index
I-29
1 HISTORY OF COMPANY LEGISLATION 1.1
History of company legislation in India
1
2 MEANING AND NATURE OF A COMPANY 2.1
What is a company ?
11
2.2
Definition of a company
12
2.3
Characteristic features of a company
12
2.4
Lifting the corporate veil
17
2.5
Advantages of Incorporation
26
2.6
Disadvantages of Incorporation
28
2.7
Company vis-a-vis Body corporate
29
2.8
Is company a citizen ?
30
2.9
Illegal association [Section 464]
32
2.10
Distinction between a company and a partnership
33
2.11
Difference between a company and limited liability partnership
35
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CONTENTS
I-14 PAGE
2.12
Can a company become partner in a partnership firm ?
36 36
TEST YOUR KNOWLEDGE
3 KINDS OF COMPANIES 3.0
Introduction
38
3.1
Private company
38
3.1A
One Person Company
40
3.1B
Small Company
44
3.2
Public company
45
3.3
Distinction between private and public company
45
3.4
Special privileges and exemptions available to private companies
46
3.5
Conversion of a private company into a public company
49
3.6
Conversion of a public company into a private company
50
3.7
Statutory company
54
3.8
Registered companies
54
3.9
Limited liability companies
54
3.10
Unlimited liability company
56
3.11
Association not for profit
58
3.12
Memorandum and Articles of Association
59
3.13
Government companies
60
3.14
Foreign company
62
3.14A
Offer of Indian Depository Receipts [Section 390]
66
3.15
Holding and subsidiary companies
67
3.16
Associate Company [Section 2(6)]
68
3.17
Public financial institutions [Section 2(72)]
68
3.18
Unregistered Companies [Section 375]
69
3.19
Dormant Company [Section 455]
70
3.20
Inactive Company [Section 455]
70
3.21
Producer Companies [Sections 378A to 378ZU of the Companies Act, 2013]
70
TEST YOUR KNOWLEDGE
81
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CONTENTS PAGE
4 FORMATION AND INCORPORATION OF A COMPANY 4.1
Promotion
84
4.2
Registration/Incorporation of a company
91
4.3
Simplified Proforma for Incorporating Company Electronically (SPICe) + (Pronounced as SPICe Plus)
95
Certificate of incorporation
99
4.3AA Online Registration of a company
99
4.3A 4.3B
Effect of certificate of incorporation
102
4.3C
Conclusiveness of certificate of incorporation
102
4.4
Commencement of business
103 104
TEST YOUR KNOWLEDGE
5 MEMORANDUM OF ASSOCIATION 5.1
Meaning and importance
106
5.2
Memorandum of Association - Whether an unalterable charter
106
5.3
Form and contents
107
5.4
Alteration of memorandum
121 131
TEST YOUR KNOWLEDGE
6 ARTICLES OF ASSOCIATION 6.1
Introduction
134
6.2
Memorandum and Articles - Their Relationship
134
6.3
Distinction between memorandum of association and articles of association
136
6.4
Contents
136
6.5
Model form of articles
138
6.6
Signing of Articles
138
6.7
Alteration of articles
139
6.8
Binding effect of memorandum and articles
143
6.9
Doctrine of constructive notice
147
CONTENTS
I-16 PAGE
6.10
Doctrine of indoor management
148 151
TEST YOUR KNOWLEDGE
7 PROSPECTUS 7.1
Meaning and definition of a prospectus
155
7.2
Contents of a prospectus
157
7.3
Draft Prospectus to be made public
160
7.3A
Abridged Prospectus
160
7.4
Is issue of prospectus compulsory/When prospectus is not required to be issued?
161
7.5
Statutory requirements in relation to a prospectus
161
7.6
Prospectus by implication/Deemed prospectus [Section 25]
163
7.7
Shelf Prospectus and Information Memorandum [Section 31]
164
7.8
Red herring prospectus [Section 32]
165
7.9
Misstatements in a prospectus and their consequences
165
7.10
Golden Rule for framing of Prospectus
169
7.11
Allotment of shares in fictitious names prohibited [Section 38]
170
7.12
Announcement regarding proposed issue of capital [Section 30]
171 171
TEST YOUR KNOWLEDGE
8 ACCEPTANCE OF PUBLIC DEPOSITS 8.1
Meaning of deposits
8.2
Acceptance of deposits
174 177 184
TEST YOUR KNOWLEDGE
9 SHARE AND SHARE CAPITAL 9.1
Meaning and nature of a share
185
9.2
Share v. Share certificate
187
9.3
Share v. Stock
187
9.4
Kinds of Shares
188
9.5
Par Value of Shares
193
9.6
Raising of capital/Issue of shares
193
9.7
Public issue of shares
197
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CONTENTS PAGE
9.8
Employees’ Benefits Schemes
217
9.8A
Employees Stock Option Scheme (ESOS)
218
9.8B
Employee Stock Purchase Scheme (ESPS)
220
9.8C
Stock Appreciation Rights Scheme (SARS)
220
9.9
Allotment of shares
220
9.10
Purchase of its own shares by a company/Buy-back of shares by a company
230
9.11
Financial Assistance for Purchase of its Own Shares
233
9.12
Issue of securities at a premium
235
9.13
Issue of shares at a discount [Section 53]
236
9.14
Issue of sweat equity shares [Section 54]
237
9.15
Share certificate
238
9.16
Rights shares/Further issue of capital [Section 62]
241
9.17
Conversion of loans or debentures into shares
243
9.18
Bonus shares [Section 63]
244
9.19
Distinction between bonus shares and rights shares
246
9.20
Reduction of share capital
246
9.21
Calls on shares
250
9.22
Forfeiture of shares
252
9.23
Surrender of shares
256
9.24
Transfer of shares
257
9.25
Forged transfer
267
9.26
Priority between transferees
268
9.27
Transmission of shares and debentures
268
9.28
Rectification of register of Members [Section 59]
269
9.29
Distinction between transfer and transmission
272
9.30
Nomination of shares and debentures [Section 72]
273
9.31
Lien on shares
273
9.32
Lien and forfeiture compared
274
9.33
Variation of shareholders’ rights
274 275
TEST YOUR KNOWLEDGE
10 MEMBERSHIP 10.1
Definition of a member
282
CONTENTS
I-18 PAGE
10.2
Member v. Shareholder
283
10.3
Modes of acquiring membership
284
10.4
Who may become a member?
285
10.5
Termination of membership
289
10.6
Impersonation as a shareholder
289
10.7
Rights of a member/shareholder
290
10.8
Duties and Liability of members
291
10.9
Member v. Contributory
292
10.10
Expulsion of a member
293 294
TEST YOUR KNOWLEDGE
11 REGISTERS AND RETURNS 11.1
Introduction
295
11.2
Statutory books to be kept by a company
295
11.3
Optional books
295
11.4
Register of Charges [Section 85]
296
11.5
Register of Members/Debenture-holders
297
11.6
Register of investments not held in company’s name [Section 187]
299
11.7
Register of fixed deposits [Section 73]
299
11.8
Books of account
299
11.9
Register of contracts or arrangements in which directors are interested [Section 189]
300
11.10
Register of Directors
302
11.11
Register of Loans and Investments by company [Section 186]
303
11.12
Minutes book
304
11.13
Annual return [Section 92]
306
11.14
Return of allotment [Section 39]
308
11.14A Return of Changes in Shareholding position of Promoters and Top Ten Shareholders
309
Place of keeping and inspection of registers, returns, etc. [Section 94]
309
11.15
TEST YOUR KNOWLEDGE
311
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CONTENTS PAGE
12 INVESTMENTS, LOANS, BORROWINGS AND DEBENTURES 12.1
Investments
312
12.2
Investments in other companies and bodies corporate/Intercorporate loans and investments [Section 186]
314
12.3
Borrowings
317
12.4
Debentures
325
TEST YOUR KNOWLEDGE
338
13 DIVISIBLE PROFITS AND DIVIDEND 339
13.1/2 Meaning of Dividend 13.3
Concept of Profit
339
13.4
Sources out of which dividends may be paid
340
13.5
Declaration of dividend on preference and equity shares
342
13.6
Interim dividend
344
13.7
Payment of dividend
345
13.8
Dividend warrants
347
13.9
Unpaid and unclaimed dividends
348
13.10
Establishment of Investor Education and Protection Fund [Section 125]
349
13.11
Can dividends be paid out of capital ?
352
13.12
Payment of dividend out of capital profits
352 353
TEST YOUR KNOWLEDGE
14 COMPANY MANAGEMENT 14.1
Meaning of a Director
355
14.2
Who may be appointed as a Director?
355
14.3
Qualifications for Directors
356
14.4
Disqualifications of a Director
356
14.5
Legal position of Directors
358
14.6
Appointment of Directors
360
14.7
Resident Director
367
CONTENTS
I-20 PAGE
14.8
Independent Director
367
14.9
Appointment of directors by proportional representation [Section 163]
376
14.10
Assignment of office by Director [Section 166(6)]
377
14.11
Minimum and maximum number of directors
377
14.12
Appointment of woman director on the Board
378
14.13
Appointment of director elected by small shareholders [Section 151]
378
14.14
Number of directorships
380
14.15
Vacation of office of a director [Section 167]
380
14.16
Removal of a director
382
14.17
Resignation by a Director [Section 168]
385
14.18
Validity of the acts of a director where his appointment is invalid [Section 176]
387
Powers of the Board of Directors
387
14.19
392
14.19A Committees of the board 14.20
Political contributions by Directors [Section 182]
395
14.21
Related party transactions [Section 188]
396
14.22
Interested Director
400
14.23
Duties of Directors
401
14.24
Liabilities of Directors
405
14.25
Loans to Directors
408
14.26
Remuneration of Directors (Managerial Remuneration)
410
14.27
Managing Director and other Key Managerial Personnel
417
14.28
Manager
422
14.29
Prohibition of simultaneous appointment of different categories of managerial personnel [Section 196]
423
14.30
Distinction between managing director and manager
423
14.31
Whole-time director
423 424
TEST YOUR KNOWLEDGE
15 COMPANY SECRETARY AND PRACTISING COMPANY SECRETARY 15.1
Definition of company secretary/secretary
430
15.2
Appointment of whole-time company secretary
430
15.3
Duties of secretary
431
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CONTENTS PAGE
15.4
Liabilities of company secretary
432
15.5
Company secretary in practice
436
15.6
Functions of company secretary [Section 205]
436
15.7
Secretarial audit [Section 204]
436 437
TEST YOUR KNOWLEDGE
16 COMPANY MEETINGS-I - GENERAL 16.1
Meaning of ‘Meeting’
438
16.2
Kinds of Meetings
438
16.3
Requisites of a valid meeting
438
16.4
Meeting to be properly convened
439
16.5
Meeting to be legally constituted
446
16.6
Meeting to be properly conducted
450
16.7
Resolutions
459
16.7A
Validity of votes
461
16.8
Circulation of members’ resolutions [Section 111]
461
16.9
Registration of certain resolutions and agreements [Section 117]
462
Minutes
463
TEST YOUR KNOWLEDGE
464
16.10
17 COMPANY MEETINGS-II GENERAL BODY MEETINGS 17.1
Need for meetings
468
17.2
Annual General Meeting (AGM)
468
17.3
Default in holding AGM
472
17.4
Extraordinary General Meeting (EGM)
473
17.5
Class meetings
477 477
TEST YOUR KNOWLEDGE
18 COMPANY MEETINGS-III - BOARD MEETINGS 18.1
Need for Board Meetings
481
18.2
When to hold ?
481
CONTENTS
I-22 PAGE
Participation of directors through video conferencing or other audio visual means [Section 173(2)]
482
18.4
Board meeting
485
18.5
Contents and Agenda of Board Meeting
487
18.6
Time and place of Board meeting
488
18.7
Quorum
488
18.8
Adjournment for want of quorum
489
18.9
Passing of Resolutions by Circulation [Section 175]
490
18.10
Minutes of the Board meeting
490
18.3
491
TEST YOUR KNOWLEDGE
19 ACCOUNTS AND AUDIT ACCOUNTS
19.1
Books of account required to be kept
493
19.2
Inspection of books of account
495
19.3
Persons responsible for keeping proper books of account [vide sub-section (6) of section 128]
496
19.4
Financial Statements
496
19.5
Authentication of Accounts
499
19.6
Board’s Report
500
19.7
Circulation of Financial Statements
504
19.8
Adoption and filing of Financial Statements
505
19.9
Accounting Standards
508
19.10
Internal Audit
509 AUDIT
19.11
Who can be appointed as an Auditor (Qualifications)?
510
19.12
Who cannot be appointed as an Auditor (Disqualifications)?
511
19.13
Auditor not to render certain services
513
19.14
Appointment of First Auditors
513
19.15
Appointment of subsequent Auditors
514
19.16
Tenure of appointment
514
19.17
Compulsory rotation of auditors
514
19.18
Reappointment of retiring auditor
516
I-23
CONTENTS PAGE
19.19
Rights of retiring auditor [Section 140(4)]
516
19.20
Casual vacancy
516
19.21
Removal and resignation of an auditor
517
19.22
Remuneration of auditors
518
19.23
Rights of the company auditor
519
19.24
Duties of Company Auditor
521
19.25
Special provisions relating to audit of Government Companies
523
19.26
Punishment for Contravention
525
19.27
Audit Committee
525
19.28
Cost audit [Section 148]
526
19.29
Secretarial Audit
528 529
TEST YOUR KNOWLEDGE
20 INSPECTION, INQUIRY AND INVESTIGATION INSPECTION
20.1
Power to call for information, inspect books and conduct inquiries
532
20.2
What books and papers can be inspected?
534
20.3
Place and time of inspection
534
20.4
Duties of directors, officers, employees of the company to assist in inspection
534
20.5
Powers of the inspector
535
20.6
Supply of report
536
20.7
Investigation
536
20.8
Who can apply and the scope of investigation?
536
20.9
Investigation into affairs of a company by Serious Fraud Investigation Office
537
20.10
Investigation into company’s affairs in other cases
539
20.11
Firm, body corporate or association not to be appointed as inspector
540
20.12
Investigation of ownership of a company [Section 216]
540
20.13
Powers of inspectors
541
20.14
Report of the Inspector
543
INVESTIGATION
CONTENTS
I-24 PAGE
Follow up action by the Central Government on the investigation report of the inspector
543
20.16
Investigations etc. of foreign companies [Section 228]
544
20.17
Penalty for furnishing false statements, mutilation or destruction of documents
544
Difference between Inspection and Investigation
544
20.15
20.18
545
TEST YOUR KNOWLEDGE
21 MAJORITY RULE AND MINORITY PROTECTION 21.1
Rule of majority
546
21.2
Personal rights of members
548
21.3
Representative and Derivative Action
549
21.4
Exceptions to ‘the rule in Foss v. Harbottle’
550 553
TEST YOUR KNOWLEDGE
22 PREVENTION OF OPPRESSION AND MISMANAGEMENT 22.1
Meaning of oppression
554
22.2
Application to Tribunal for relief in cases of oppression etc.
564
22.3
Power of Tribunal
568
22.4
Oppression of majority
569
22.5
Appeals against the orders of the Tribunal and variation of the order of Tribunal
570
Composite/simultaneous petition under sections 241 and 271 Whether maintainable
571
22.7
Powers of the Tribunal [Section 242]
571
22.8
Class Action
574
TEST YOUR KNOWLEDGE
577
22.6
23 COMPROMISES, ARRANGEMENTS, RECONSTRUCTION AND AMALGAMATION 23.1
Meaning of compromise
579
23.2
Meaning of arrangement
579
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CONTENTS PAGE
23.3
Statutory provisions regarding compromise or arrangement
580
23.4
Exercise of the Tribunal’s discretion
582
23.5
Powers of the Tribunal
586
23.6
Information as to compromise or arrangement [Section 230]
587
23.7
Reconstruction and amalgamation
589
23.8
Meaning of reconstruction
589
23.9
Meaning of amalgamation and merger
590
23.10
Difference between amalgamation and reconstruction
590
23.11
Take-over v. Merger
590
23.12
Legal provisions regarding reconstruction and amalgamation
591
23.13
Reconstruction/Amalgamation by sale of undertaking [Section 232]
591
Merger and Amalgamation of certain companies [Section 233]
597
23.14
23.14A Application of section 233 to Start up Companies
599
23.15
Merger or Amalgamation with foreign company [Section 234]
599
23.16
Power to acquire shares of shareholders dissenting from scheme or contract approved by majority [Section 235]
600
23.17
Amalgamation of companies in public interest [Section 237]
603
23.18
Preservation of Books and Papers of Amalgamated Company [Section 239]
605
23.19
Offences committed prior to merger, amalgamation [Section 240]
606
Valuation by registered valuers
606
23.20
606
TEST YOUR KNOWLEDGE
24 WINDING UP 24.1
Meaning
609
24.2
Modes of winding up [Section 270]
609
24.3
Winding up by the Tribunal
610
24.4
Who can make petition? [Section 272]
617
24.5
Commencement of winding up [Section 357]
620
24.6
Procedure for winding up order
620
24.7
Consequences of winding up order
623
24.8
Submission of report by Company Liquidator [Section 281]
625
24.9
Promoters, directors etc. to cooperate with the Company Liquidator [Section 284]
627
CONTENTS
I-26 PAGE
24.10
Advisory Committee [Section 287]
627
24.11
General Powers of Tribunal in case of winding up by Tribunal
629
24.12
Dissolution of company [Section 302]
629
24.13
Enforcement of and appeal from orders
630
24.14
Summary procedure for Liquidation [Section 361]
631
24.15
Liquidators
632
24.16
Liquidators in winding up by the Tribunal
632
24.17
Liquidator in Summary Procedure
635
24.18
Official Liquidators
635
24.19
Provisions applicable to every mode of winding up
635
24.20
Debts of all descriptions to be admitted to proof [Section 324]
635
24.21
Preferential Payments
636
24.22
Antecedent and other transactions
639
24.23
Avoidance of voluntary transfer [Section 329]
640
24.24
Transfer for benefit of all creditors [Section 330]
640
24.25
Liabilities and rights of certain fraudulently preferred person [Section 331]
641
24.26
Effect of floating charge [Section 332]
641
24.27
Disclaimer of onerous property [Section 333]
641
24.28
Avoidance of transfers, etc. after commencement of winding-up [Section 334]
643
24.29
Avoidance of certain attachments [Section 335]
643
24.30
Offences by officers of companies in liquidation [Section 336]
644
24.31
Penalty for fraud by officers [Section 337]
645
24.32
Liability for not keeping proper books [Section 338]
646
24.33
Liability for fraudulent conduct of business [Section 339]
646
24.34
Damages for misfeasance etc. [Section 340]
647
24.35
Prosecution of Delinquent Officer and Members of the Company [Section 342]
650
24.36
Miscellaneous provisions
650
24.37
Distribution of property
653
24.38
Default by the Company Liquidator to make returns [Section 353]
654
24.39
Meetings to ascertain wishes of creditor and contributories [Section 354]
654
24.40
Contributory
654
24.41
Unregistered Companies
658
24.42
Winding-up of a Foreign Company
660
I-27
CONTENTS PAGE
24.43
Removal of name of company from Register of Companies
660
24.44
Transfer of winding-up proceedings to Tribunal
666 667
TEST YOUR KNOWLEDGE
25 AUTHORITIES UNDER THE COMPANIES ACT, 2013 25.1
Registrar of Companies (R.O.C.)
670
25.2
Regional Director
672
25.3
National Financial Reporting Authority [Section 132]
673
25.4
Serious Fraud Investigation Office [Section 211]
675
25.5
National Company Law Tribunal
676
25.6
National Company Law Appellate Tribunal
678
25.7
Special Courts
681 682
TEST YOUR KNOWLEDGE
26 SERVICE OF DOCUMENTS 26.1
Service of documents on a company
683
26.2
Service of documents on R.O.C. [Section 20]
683
26.3
Service of documents on members by company [Section 20]
683
26.4
Electronic communication
684 684
TEST YOUR KNOWLEDGE
27 CORPORATE GOVERNANCE 27.1
Meaning of Corporate Governance
685
27.2
Need for Corporate Governance
685
27.3
Corporate Governance in India
687
27.4
Kotak Committee on Corporate Governance
691
27.5
Certain Provisions of the Companies Act, 2013 vis-a-vis Corporate Governance
TEST YOUR KNOWLEDGE
692 694
CONTENTS
I-28 PAGE
28 DEPOSITORIES ACT, 1996 : AN ANALYSIS 28.1
Objectives
695
28.2
Salient features of Depositories Act, 1996
695
28.3
Meaning of Depository
696
28.4
Benefits of depository system
696
28.5
Services to be rendered by a Depository
696
28.6
Dematerialisation of securities
699
28.7
How does an investor avail services of a depository?
699
28.8
Free transferability of services
700
28.9
Rematerialisation
701
28.10
Powers of SEBI under the Depositories Act, 1996
701
28.11
Bye-laws of a depository
701
28.12
Stamp duty on security certificates
702
28.13
Distinctive number of shares
703
28.14
Exercise of membership rights in respect of securities held by a Depository
703
28.15
The evidential value of the records of the depository
703
28.16
Cognizance of offence by Courts
703
28.17
Penalty for offences under the Depositories Act
703 704
TEST YOUR KNOWLEDGE
29 COMPANY LAW IN A COMPUTERISED ENVIRONMENT - E-GOVERNANCE AND E-FILING 29.1
What is e-Governance
705
29.2
Filing of applications, documents, inspection etc. in electronic form
705
29.3
Advantages of e-Filing
707
29.4
MCA-21 Programme
707
29.5
MCA-21 Version 3
709
29.6
Five Step e-Filing Process
710
TEST YOUR KNOWLEDGE
713
29
Company Law in a Computerised Environment E-Governance and E-Filing
29.1 What is e-Governance Electronic Governance is the application of information technology to the Government functioning in order to bring about Simple, Moral, Accountable, Responsive and Transparent (SMART) Governance. E-Governance is a highly complex process requiring provision of hardware, software, networking and re-engineering of the procedures for better delivery of services. Traditionally, the interaction between citizens or business and Government agency takes place in a Government office. In e-Governance, the interaction takes place virtually using Internet based technology, thus reducing time and cost involved. Even better, E-Governance enhances the citizens and business access to Government information and services and provides new ways to increase citizen participation in the democratic process. Sections 398 to 402 of the Companies Act, 2013 contain provisions relating to electronic filing of forms, returns and documents with the Registrar and provisions of value added services.
29.2 Filing of applications, documents, inspection etc. in electronic form Section 398 of the Act empowers the Central Government to make rules for filing, maintenance and inspection of various applications, form etc. through the electronic mode. The sub-section (1) states that notwithstanding anything contained in this Act, and without prejudice to the provisions contained in section 6 of the Information Technology Act, 2000, the Central Government may, by notification in the Official Gazette, make rules regarding : 705
Para 29.2
COMPANY LAW IN A COMPUTERISED ENVIRONMENT
706
(a) Filing or delivery of specified applications, balance-sheet, prospectus, return, declaration, memorandum of association, articles of association, particulars of charge, or any other particulars or document to be done through the electronic form and authenticated in manner as may be specified; (b) Service or delivery of specified document, notice, any communication or intimation, required to be done through the electronic form and authenticated in manner as specified; (c) Maintenance of such applications, balance-sheet, prospectus, return, register, memorandum of association, articles of association, particulars of charge, or any other particulars or document and return filed by the Registrar in the electronic form and registered or authenticated in the manner as may be specified; (d) Inspection of the memorandum of association, articles of association, register, index, balance-sheet, return or any other document maintained in the electronic form, may be made by any person through the electronic form as may be specified; (e) Prescribed fees, charges or other sums to be paid through the electronic form and in the manner as may be specified; (f) Registration of change of registered office, alteration of memorandum of association or articles of association, issue certificate of incorporation or certificate of commencement of business, register such document, issue such certificate, record notice, receive such communication by the Registrar or performance of other duties or discharge of functions or exercise of powers by the Registrar, by the electronic form, in the manner as may be specified.* (2) The Central Government may, by notification in the Official Gazette, frame a scheme to carry out the provisions specified under sub-section (1) through the electronic form. The Companies (Filing of Documents and Forms in Extensible Business Reporting Language) Rules, 2015 require certain class of companies to file their financial statement and other documents under section 137 of the Act using the XBRL taxonomy. XBRL refers to Extensible Business Reporting Language which is a standardized language for communication in electronic form to express, report or file financial information by the companies under the Act.
29.2-1 Electronic form to be exclusive, alternative or additional Section 400 clarifies that the electronic form shall be exclusive or in alternative or in addition to the physical form. The Central Government is empowered to make rule in this respect.
29.2-2 Providing of value added services through electronic form [Section 401] The Central Government may provide such value added services through the electronic form and levy such fees as may be prescribed. *Prospectus not required to registered by the Registrar, amended vide Companies (Amendment) Act, 2019.
707
MCA-21 PROGRAMME
Para 29.4
29-2-3 Application of provision of Information Technology Act, 2000 Section 402 states that all the provisions of the Information Technology Act, 2000 relating to the electronic records (including the manner and format in which the electronic records shall be filed), insofar as they are not inconsistent with this Act, shall be applicable to the records in electronic form under section 398.
29.3 Advantages of e-Filing u Business shall be enabled to register a company and file statutory docu-
ments quickly and easily. u Public to get easy access to relevant records and get their grievances
redressed effectively. u Professionals to be able to offer efficient services to their client companies. u Financial institutions to find registration and verification of charges easy. u Government to ensure proactive and effective compliance of relevant laws
and corporate governance. u MCA employees shall be enabled to deliver best of breed services.
29.4 MCA-21 Programme Ministry of Company Affairs (MCA) launched a major E-Governance initiative (MCA-21). It envisaged e-filing of all documents relating to company matters on the MCA portal. MCA moved from the traditional paper-based operation to a near paperless environment. Consequently, the conventional forms prescribed for various transactions have been adapted for use through electronic medium. The processes and forms of MCA have been simplified and standardized for electronic filing (e-Filing) through e-Forms. Salient Features of the MCA-21 include : u Corporations, professionals and the public at large will no longer need to visit
the Registrar of Companies offices and would be able to interact with the Ministry using the MCA-21 portal from their offices or home or by going to the facilitation centres, which have been set-up. u The users will have multiple options to make payments in the online mode
either through credit cards or the Internet banking facility. Besides this, the traditional payment through demand draft would be accepted against a system-generated challan at the specified bank branches across the country. u The system would also enable the stakeholder to track the service request
through a Service Request Number (SRN) The statutory filing of forms and returns in the offices of RoCs is now on the basis of new E-forms only; all manual filing of documents has been discontinued. Permanent documents of existing companies like, Memorandum of Association, Articles of Association, current charge documents, etc. are presently maintained in paper form across various Registrar of Companies (RoC) offices. Almost all of these
Para 29.4
COMPANY LAW IN A COMPUTERISED ENVIRONMENT
708
documents have been converted into electronic format. The scope of E-filing covers only the offices of RoCs, Regional Directors and the Headquarters at New Delhi and it does not include Official Liquidators, Tribunal and Courts. The present scope of the MCA 21 includes services provided by the Secretariat at New Delhi, the four Regional Directorates (RDs) and the 20 offices of the Registrar of Companies (RoC) located all over the country. The E-filing facility includes: u Registration and incorporation of new companies u Filing of Annual Returns and Balance Sheets u Filing of forms for change of names/address/Director’s details u Registration and verification of charges u Inspection of documents u Applications for various statutory services from MCA u Investor grievance redressal u Allotment, change in particulars and surrender of director identification
number u Refund of fees paid
For the purpose of standardization and better understanding, the proposed e-Forms have been grouped under the following broad categories : (a) New Company Registration - All matter relating to incorporation of company including Simplified Proforma for Incorporating Company Electronically, filling of Memorandum of Association, Article of Association, registration of companies for undertaking CSR activities etc. can be done electronically. (b) Compliance Related Filing - Whether annually or event based include Annual Return, Balance Sheet and Profit & Loss Account, Return of allotment, Return of buy back of securities, Return of deposits, Return of appointment of managing director, whole-time director, Notice of appointment of auditor, Statutory report, Cost audit report, etc. (c) Change services - It covers matters in respect of any change in the capital structure, changes in the registered office or the persons appointed as directors, secretaries and authorized representatives. (d) Charge Management - For registration of charge created or modified and satisfaction of charge, to be filed with the ROC. It also includes filing of eForms for appointment and cessation of receiver and filing of accounts by receiver. Various Forms have been deleted which includes form, relating to charges. (e) Investor Services - E-filing system accepts complaints filed against a company by an investor as part of investor services. There is a specific e-Form for this purpose. (f) Application for ROCs approval - ROC is having powers to give direction in relation to the matters pertaining to the change of name of an existing company and the conversion of a public company to private company. In addition, ROC approval is required in case of extension of time period for
709
MCA-21 VERSION 3
Para 29.5
holding AGM, holding AGM at place other than registered address, declaring a company as defunct, extension of the period of annual accounts, amalgamation of companies, Forms relating to winding up, etc. The MCA has also prescribed several new e-Forms, for which there were no prescribed Forms available. (g) Approval services (Central Government and Regional Directors) – This covers form for intimation of appointment of cost auditor by the company to the Central Government and various approval services from the Regional Directors including application for removal of auditors before expiry of term, application for extension of time, shifting of registered office from one state to another etc. (h) Informational Services—It covers those forms which are to be filed with ROC for informational purposes, in compliance with the provisions of the Companies Act, viz., declaration of solvency in case company decides to buy back its shares, form for filing of resolutions and agreements, form regarding place where books of account are kept, form in case company decides to transfer its shares to another company, form regarding order received from Court or Company Law Board, etc. (i) DIN Services - allotment of director identification number, surrender of DIN and change in particulars of directors to be given to the Central Government. In the e-filing system search facilities are available for viewing public documents, getting certified copies, finding the Corporate Identity Number (CIN), checking company name, finding name availability. The categories of public documents includes incorporation documents, charge documents, annual returns and balance sheets, change in directors and other documents, charge documents, annual returns and balance sheets, change in directors and other documents.
29.5 MCA-21 Version 3 The Ministry of Corporate Affairs launched MCA-21 Version 3.0 or V3 in 2022. The new version V3 is being rolled out in a phased manner. Firstly, the features of e-book modules, e-consultation and new mail services for MCA officers was introduced. This was followed by the rolling out of e-forms pertaining to the Limited Liability Partnerships (LLPs). In August 2022 and January 2023, majority of web-based company forms were rolled out on V3*. This will facilitate full automation of e-filling relating to the Companies Act as well as Limited Liability Partnership Act, 2008. The key difference between V2 and V3 are: 1. E-forms: V2 portal required the e-forms to be downloaded, filled, and then uploaded on the portal. In V3, the e-forms are required to be filled and submitted online. The user also has the option to save a partially filled e-form and file it later at his convenience. 2. Login-Id and OTP: In V2, the users were required to create a specific use ID, whereas in V3 the user ID has been set by default as the email ID for professionals and CIN for corporates. *General Circular No. 01/2023 dated January 9, 2023.
Para 29.6
COMPANY LAW IN A COMPUTERISED ENVIRONMENT
710
3. OTP Authentication: To enhance the security, an OTP authentication has been introduced. Every time the business user logs in to the MCA website from a different device or login after 30 days or encounters two failed attempts, an OTP will be sent to the registered mobile and email address given at the time of creating login credentials to ensure the authenticity of the user. 4. My application: A new feature, “My application” has been introduced in V3, which is personalised for the user. This feature is in addition to “My Workspace” feature in V2 which only displayed list of notices and circulars issued by MCA. “My application” facilitates the following activities: u View all the webforms filled by the user in the last 15 days. u Edit, upload, download, make payments, resubmit, check status. u Edit saved and submitted form application history after clicking on edit
action button. u Download the Filed form after clicking on Download the PDF action
button for the forms where status of SRN is pending DSC upload. u Make Payments after clicking on “Pay Fees” action button for the forms
where status of SRN is pending payment/payment incomplete. u Resubmit the Filed form after clicking on Resubmit action button for the
forms where status of SRN is “Resubmission required”. Saved and Draft forms will be auto deleted if payment is not made withing 15 days after form Submission. 5. User Type – In V3, a user can be registered either as “Registered User” or “Business User”. Registered User has limited access to V3 portal whereas the Business Users can use all services under V3. The categories which are suitable for the company to register as a Business User are: u Company/LLP u Director/Designated Partner u Manager/Secretary/Authorized Representative u Officer in Default u Professional
Professional User which is a part of Business User in V3 was earlier termed as Practicing Professional in V2 portal.
29.6 Five Step e-Filing Process For e-filing, computer with window 2000 or later will be required. The other hardware/software requirements include Java Runtime Environment (Java version 8), internet connection to access MCA website with internet explorer 10 or above or Chrome 49 or above or Firefox 45 or above. Adobe acrobat 11 or above for e-form upload, scanner for scanning paper attachment and printer for printing bank challan or service fee payment receipt would also be needed. Pop-ups from MCA 21 portal must be enabled in the browser.
711
FIVE STEP E-FILING PROCESS
Para 29.6
Step 1 : Register Yourself u Only registered users will be allowed to do e-filing. u Registration is a simple one-time process, where guidance will be available
on MCA-21 portal to create your personalized login ID - this is to ensure security and also serves as a channel for providing you personalized information as the functionality evolves. u If you possess a Digital Signature Certificate (DSC) and if you intend to sign
the e-Forms as an authorised signatory, you will need to also register your DSC. You will need to Register your DSC every time you procure a new DSC or renew/revalidate your DSC. u A registered user on V2 need not register on V3. In V3, by default, the Login
Id would be CIN/LLPIN/FCRN for Company/LLP users and “Email ID” used to register for all other users. Step 2 : Download e-Form u e-Forms are freely downloadable and are in the ‘PDF’ format. You will need
Adobe Reader v11 which is downloadable through link available on MCA-21 portal. In V3, there is no need to download the e-forms in the PDF format as they are required to be filled and submitted online. u There are new set of e-Forms available on MCA-21 portal and you may need
to familiarize yourself with the new set of e-Forms. u Instruction kits for each e-Form is also available alongside the
e-Forms. Step 3 : Complete e-Form u e-Forms are essentially PDF documents, specifically tailored by MCA to
meet e-filing needs as required by the Companies Act. You may choose to fill in an e-Form offline at your convenience without staying connected to internet. These e-Forms can be filled-in and signed digitally. In V3, the e-forms are required to be filled and submitted online. The user also has the option to save a partially filled e-form and file it later at his convenience. u As a part of the simplification of form filing, certain fields can be filled-up
automatically by the System (to the extent such data is available in the database of MCA) by selecting the “pre-fill” option that is available in the form. u You will also be able to do “automated pre-scrutiny”, a step that will ensure
that your e-Form is complete in all respects and is good for e-filing. u You may also attach supporting documents, where applicable, but please
make sure that these are also in PDF format - support for conversion of popular formats such as Microsoft Office into PDF is made available in the MCA-21 portal. u Make sure that you keep the size of your attachments minimal, wherever
possible. u Sign the e-Form using the Digital Signature Certificate.
Para 29.6
COMPANY LAW IN A COMPUTERISED ENVIRONMENT
712
u If more than one signatory is involved, you can send the e-Form either on
suitable media or as an e-mail attachment (or transfer a file over the network) to other individuals who can also sign digitally. u Multiple signatures can be applied on a given e-Form, but just make sure that
contents of the e-Form are not altered after it has been signed, in which case the document will become invalid and will be rejected during the e-filing process. u After all individuals have digitally signed the form, it is ready for submission.
Step 4 : Submit e-Form u You will need to connect to the Internet if you want to carry out e-Filing. u Submission will need to be made at the MCA-21 portal using specialized
functionality that is provided. u Sending the e-Form by email DOES NOT constitute e-Filing and should be
avoided. u Submission of e-Form will generally take a couple of minutes and will
depend on the size of e-Form/attachments and the speed/quality of your Internet connection - better the connection, faster the process. u If the e-Form is defective as may be identified by the MCA-21 system during
submission, it will be rejected and returned to the user with clear details of the nature of the defect - such defect could be a result of incorrect data that may have been entered in the e-Form or due to missing or invalid digital signatures. u If your e-Form is correct in all respects, you can proceed to the next step. u It is advisable to save a copy of the document before submission (using
submit button) as a part of your records. Step 5 : Make Payment u Fee calculation will be done automatically by the system as applicable under
law and the fee for the service will be displayed to the user. u MCA-21 system supports following methods of payment :
(i) Credit card/prepaid card (ii) Internet banking (iii) UPI (iv) Offline Challan (v) Pay Later For online mode of payment, the user will be redirected to the NTRP/Bharatkosh website where Depositor s details and purpose for the transaction would be shown. The Non-Tax Receipt Portal (NTRP) is the initiative of the Controller General of Accounts, Ministry of Finance, Government of India to provide one stop services to deposit any fees/fine/other money into the Government Account. It provides 24×7 year-round electronic services to deposit the money into Government Account using internet-based payment technologies to the users at the doorstep through the web-based portal.
713
TEST YOUR KNOWLEDGE
The concerned bank branch will send data in e-form to MCA to acknowledge the payment that is made by you. Filing will be completed once the necessary payment is remitted either through electronic payment means or through the challan based method.
Test your knowledge 1. What is e-filing? State the advantages of e-filing. 2. Briefly describe the key features of MCA-21 programme.
Company Law AUTHOR PUBLISHER DATE OF PUBLICATION EDITION ISBN NO NO. OF PAGES BINDING TYPE
: : : : : : :
G.K. KAPOOR, SANJAY DHAMIJA TAXMANN JANUARY 2024 26TH EDITION 9789357787604 750 PAPERBACK
Rs. 850 | USD 41
Description This book aims to represent an impressive and judicious blending of the provisions of the Companies Act, the latest & landmark Judicial Decisions, and the latest Clarifications issued by SEBI. The text is interspersed with interpretations, explanations and illustrations to help the students assimilate the provisions better. It’s an invaluable resource for students pursuing degrees like B.Com., BBA, BBS, LL.B., and professional courses such as CFA, CA, CS, and CMA. The Present Publication is the 26th Edition, updated till 31st December 2023. This book is authored by Dr G.K. Kapoor & Dr Sanjay Dhamija, with the following noteworthy features: u Highlights of the 26th Edition [Case Laws] up to 31st December 2023 have been incorporated [Amendment in Rules] up to 31st December 2023 have been incorporated [Important Circulars | Notifications | Amendments] upto 31st December 2023 have been incorporated at appropriate places [Others] u Launch of MCA 21 Version 3 (V3) u Setting up for the Centre for Processing of Accelerated Corporate Exit (C-PACE) u Revised Definition of a Small Company u [Simple & Lucid Language] The provisions of the law are presented in a lucid and straightforward style, backed by the most up-to-date case decisions u [Specimen Notices, Minutes and Resolutions] have been given at relevant places to help students answer questions u [Latest & Landmark Case Laws] have been provided throughout the book u [Summaries of Each Chapter] are provided at the end of each chapter, containing substantive provisions of the law u [Hints to Questions & Practical Problems] selected from past examination questions of various universities and professional institutes have been provided in this book u [Section-wise Subject Index] to ease the navigation for the reader u [Student-Oriented Book] This book has been developed keeping in mind the following factors: Interaction of the author/teacher with their students in the classroom Shaped by the author/teacher’s experience of teaching the subject matter at different levels Reactions and responses of students have also been incorporated at different places in the book u [Six-sigma Approach] to achieve the benchmark of ‘zero-error’
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